What Are Credit Standard And Its Defects?


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Muhammad Abdullah786 Profile
Credit standard is also named as fiat standard or managed currency or paper money standard. The chief characteristics of credit standard are:The currency unit is not allowed to be converted into gold or other metallic standard money. In other words we can say that the money unit of the country is without gold or silver backing.

The unit of account has no value within itself as a commodity.Government declares, without any promise of redemption, certain form of money to be the standard and all other forms of money are kept at parity with it. Credit standard has emerged not because it is the favorite choice of the government Of various countries but its existence is the result of necessity.

Defects of credit money standard:
It is a very complicated standard and difficult to understand for a man in the street.
Paper standard has no intrinsic value of its own. It lacks general acceptability. It does not inspire confidence like gold standard system.It does not furnish a sound support for the credit structure of the country.

The government or the bank over issues currency and there is no check on the sound financing.Credit standard has been responsible for creating inflations of serious nature unheard in the reign of gold standard.
Mike Davis Profile
Mike Davis answered
Credit money standard is truly complicated and needs a lot of research to allow a clear view. I like the OP stating that it's existence is result of necessity.

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