Foreign Monetary System
A monetary system is any structure initiated by the government and mandated to issue currency, acknowledged as the medium of exchange by its citizens and governments of other nations. The central bank manages the monetary system of a country; this same bank has the responsibility of printing money and controlling the economy. Since the colonial period, coins from the European colonies had circulated in all the colonies. The Spanish coins gained dominance due to the scarcity of coins, during this time; the main form of trade was barter trade. The trade-involved items such as rice, tobacco, or animal skins, which took the form of money paper and notes, had varying rates of discount in different colonies rendering them of very low value (Ronald & Wright, 2006).
The high population in the U.S. called for increased trade and commerce. This forced the United States government to look for ways to establish a strong, stable, and a central monetary policy. In 1792, the congress instituted and mandated to establish a national monetary system that led to the formation of the coinage Act. This led to the creation of the dollar, which was the primary monetary unit in the U.S. The coinage Act mainly involved the making of the dollar using silver and gold. Gold and silver were the only available minerals at that time.
In 1918, the Federal Reserve Act was operational. This Act enabled and authorized the establishment of regional Federal Reserve banks. The bank would issue money to members by drawing on their deposits or borrowing commercial balance if their balance at the bank was insufficient. In this time and age, monetary systems use money made from metals. The carry out and initiate monetary policies that stabilize the growth rate in money supply which influences the economy controlling the inflation rates. Supply of ready money for domestic use and business loans subsequently reduce the threat of unemployment, debt, and bankruptcy. Generally, the united state monetary system should ensure flexibility of ready money in order to make it a major stimulator of the economy (Ronald & Wright, 2006).
A national monetary system has five important components, which include the base of the monetary system, categories of money, money relation, money demand,...
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now