Types of Fiat Standard

The fiat standard can consist of three different types such as: utopian, involuntary, and management currency standards. In actual practice, only the last two currently in existence are observed.

Utopian paper standard. For reasons of academic interest, this type is included for discussion.

The underlying philosophy behind the proposed adoption of this standard is that money today is desired primarily for what it will bring to the individual in the form of goods and services that he will purchase, and not for what it represents, either in specific weight. and law of gold or silver. As envisioned by its proponents, the government seal and legal tender attribute are all that is needed to make money issued under this standard acceptable. Thus, following this line of thought, it is argued that there is no need to accumulate gold reserves as is required in the case of the gold standard.

On the other hand, his main objection is that the money that is intended to be put into circulation is not defined in terms of any commodity and, therefore, is irredeemable. As such, critics point out that this standard presents the serious dangers of unlimited inflation.

The involuntary paper standard. When a nation, whether on a gold or silver standard, finds itself in a serious bind of not being able to redeem its money, such a situation brings in its wake the consequent result of an involuntary paper standard.

This situation is often observed as a result of a war. Thus, despite the government’s desire to redeem its paper money, circumstances prevent it. However, the government and the people still cling fervently to the hope that one day it can return to the gold or silver standard, as the case may be.