Minimum reserve system
The central bank keeps a minimum reserve of gold under the law. A maximum limit of note is not fixed. After keeping the reserve any amount of money can be issued. Additional issue of notes does not require further metallic reserves.
• This method is use in Pakistan after December 1965.
• India is also applying it since 1957.
• South Africa has adopted in 1930.
• Holland has been issuing notes under this method for so many years
Advantages:
• This method is elastic.
• Expansion and contraction can be made at any time.
• It is an economical system because new issue of notes does not demand increase in the gold reserve.
• This method is reliable during financial crisis and emergencies like war, earth quake and floods.
• This method is suitable for poor and developing countries.
Disadvantages:
There is a danger of over issue which brings inflation. The effective use of monetary policy measures can show good result to control the inflation.
The central bank keeps a minimum reserve of gold under the law. A maximum limit of note is not fixed. After keeping the reserve any amount of money can be issued. Additional issue of notes does not require further metallic reserves.
• This method is use in Pakistan after December 1965.
• India is also applying it since 1957.
• South Africa has adopted in 1930.
• Holland has been issuing notes under this method for so many years
Advantages:
• This method is elastic.
• Expansion and contraction can be made at any time.
• It is an economical system because new issue of notes does not demand increase in the gold reserve.
• This method is reliable during financial crisis and emergencies like war, earth quake and floods.
• This method is suitable for poor and developing countries.
Disadvantages:
There is a danger of over issue which brings inflation. The effective use of monetary policy measures can show good result to control the inflation.
