Can You Explain The Inconvertible Paper Money?


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Muhammad Abdullah786 Profile
The inconvertible paper money as is obvious from the name is that money which cannot be converted into standard money metal at the option of the holder. The issue of inconvertible paper money is normally regulated by the law of the state. The issuing authority has to keep a certain percentage of standard money metal against the note issue.

The use of inconvertible paper money has always the danger of it's over issue. Whenever the expenditure of the state tends to outstrips its money income, the state resorts to printing of more notes. There are innumerable examples in the current history of the world where the state has indulged in monetary mismanagement. To quote a few of them, German over issued its currency in the first and Second World War. France in the days of French revolution. America during the days of civil war.

India during the first and second world war. The inconvertible appear money is also called Fiat money. Fiat money in the words of Keynes is that which is created and issued by the state but is not convertible by law into anything other than itself and has no fixed value in terms of an objective with major standard.

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