Monetary Policy in Southeast Europe on the Road to the Gold Standard

Kalina Dimitrova and Luca Fantacci

Chapter 9 in The Gold Standard Peripheries, 2012, pp 174-187 from Palgrave Macmillan

Abstract: Abstract A vital element in the institutional set-up of a new state is the establishment of the monetary system. The primary functions of a sound monetary system are to provide a stable currency for foreign trade and, at the same time, a sufficient currency for domestic transactions and payments. Towards the end of the nineteenth century, most countries, new and old, of the centre as well as of the periphery, increasingly conformed their monetary systems to the rule of the metal standard. According to this rule, full-bodied coins of precious metal were to be used as means of international settlement, whereas fiduciary currency, whether in the form of banknotes or of coins with a face value higher than the intrinsic value, were commonly used domestically. Therefore, the basic principle of the metal standard, which identified the unit of account with a definite quantity of precious metal of a specified weight and fineness, was partially derogated, by the practice of fractional reserves, in order to allow national monetary authorities to adjust internal money supply to the needs of domestic circulation. However, this derogation to the metal rule had a limit dictated by its purpose: the issue of fiduciary money should not exceed the needs of the population for local transactions. As long as it managed to abide by these rules, a country could enjoy a relative monetary stability.

Keywords: Monetary Policy; Money Supply; Bimetallic System; Fractional Reserve; Fiscal Authority (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-0-230-36231-4_9

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DOI: 10.1057/9780230362314_9

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