http://youtu.be/x5aN135NgbA ANONYMOUS – The FLAW in the MONETARY SYSTEM A commodity money system is a monetary system in which a commodity such as gold is made the unit of value and physically used as money. The money retains its value because of its physical properties. In some cases, a government mint may stamp a metal coin with a face value or mark that indicates its weight or asserts its purity, but the value remains the same even if the coin is melted down.One step away from commodity money is “commodity-backed money”, also known as “representative money”. Many currencies have consisted of bank-issued notes which have no inherent physical value, but which may be exchanged for a precious metal, such as gold. (This is known as the gold standard.) The silver standard was widespread after the fall of the Byzantine Empire, and lasted until 1935, when it was abandoned by China and Hong Kong.
Another alternative which was tried in the Twentieth Century was bimetallism, also called the “double standard”, under which both gold and silver were legal tender.The alternative to a commodity money system is fiat money which is defined by a central bank and government law as legal tender even if it has no intrinsic value. Typically fiat money is paper currency or base metal coinage, but can also be simply data such as bank balances and records of credit or debit card purchases. In the modern economy most money is held as deposits in banks, and the fraction that exists as currency (notes and coins) is relatively small. Money is mostly created, contrary to what is written in most textbooks, by banks when they loan to customers. Put simply, bank lending create deposits. In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits. Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system. Prudential regulation also acts as a constraint on banks’ activities in order to maintain the resilience of the financial system. And the households and companies who receive the money created by new lending may take actions that affect the stock of money — they could quickly ‘destroy’ money by using it to repay their existing debt, for instance.
Central banks control the creation of money by commercial banks, by setting interest rates on reserves. This limits the amount of money the commercial banks are willing to lend, and thus create, as it affects the profitability of lending in a competitive market. This is the opposite of what many people believe about the creation of fiat money. The most common misconception was that central banks print all the money, this is not reflective of what actually happens.
Today’s global monetary system is essentially a fiat system because we can use paper bills or bank balances to buy goods.In economics, a price system is a component of any economic system that uses prices expressed in any form of money for the valuation and distribution of goods and services and the factors of production. Except for possible remote and primitive communities, all modern societies use price systems to allocate resources, although price systems are not used exclusively for all resource allocation decisions.
A price system may be either a fixed price system where prices are administered by a government body, or it may be a free price system where prices are left to float “freely” as determined by supply and demand uninhibited by regulations. A mixed price system involves a combination of both administered and unregulated prices.Fundamentally, price systems have been around as long as there has been trade or money.
The price system has evolved into the system of global capitalism that is present in the early 21st century. The Soviet Union and other Communist states with a centralized planned economy maintained controlled price systems. Whether the ruble or the dollar is used in the economic system, the criterion of a price system is the use of money as an arbiter and usual final arbiter of whether a thing is done or not. In other words, few things are done without consideration for the monetary costs and the potential making of a profit in a price system.
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