Economics of Financial Markets monetary standards

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  • Monetary Standards
    • Commodity standard
      • monetary unit is a physical asset in a specified quantity and quality
      • circulated medium is what people actually use as money in exchanges
      • most often commodity used is gold
    • The Gold standard
      • gold is scarce commodity with intrinsic value
      • the market for gold dictates the value of money
      • fixed price of gold + held exchange rate fluctuations within narrow limits
      • USD only currency directly tradeable with gold
    • Bimetallism
      • based on value of 2 precious metals
        • usually has a fixed exchange rate between them
    • Fiat Money
      • circulating medium is notes and coins worth whatever the issuing agent dictates
      • value of currency not dictated by a precious metal
      • the value of the medium of exchange is guaranteed by only the taxation and borrowing power of the government
        • coins and notes reflect a debt of the government accepted by the government

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