The merit of this principle is that it secures elasticity in the issue of currency. The demerit of this principle is that it is not a safe. In the history of England banking, many times, over issuance of money created problems for the economy.
After discussing both the principles we can say that both are defective. For a sound system of not issue security and elasticity must go side by side. Keeping in view the above defects modern world have devised new methods of regulating not issue.
The first advantage of this system is that it makes the supply of money elastic.
It also gives maximum safety because notes can not be issued in excess of the fiduciary limit unless they are 100% covered by gold. The inflation can be effectively checked.
If fiduciary limit is high or it has been increased with the passage of time then people will lose confidence in the currency. Great Britain is considered the home of this system of note issue and it has successfully survived since 1844.Japan and Norway is also practicing this system of note-issue even today.
After discussing both the principles we can say that both are defective. For a sound system of not issue security and elasticity must go side by side. Keeping in view the above defects modern world have devised new methods of regulating not issue.
The first advantage of this system is that it makes the supply of money elastic.
It also gives maximum safety because notes can not be issued in excess of the fiduciary limit unless they are 100% covered by gold. The inflation can be effectively checked.
If fiduciary limit is high or it has been increased with the passage of time then people will lose confidence in the currency. Great Britain is considered the home of this system of note issue and it has successfully survived since 1844.Japan and Norway is also practicing this system of note-issue even today.
