Question

The method of note issue, central bank of the country is allowed to issue currency notes of a specified amount without presenting gold and silver to cover it.

• A. Proportional Reserve System
• B. Fixed Fiduciary System
• C. Minimum Reserve System
• D. Gold Standard System

Answer 1

Answer:

B. Fixed Fiduciary System

Fixed Fiduciary System:

• Under this method of note issue, central bank of the country is allowed to issue currency notes of a specified amount without presenting gold and silver to cover it.
• Once this limit is reached, additional amount of notes can be issued by 100% backed by gold.
• The advantages claimed for this method is that it gives elasticity in the money supply.
• It also grant maximum care due to the excess issuance of notes of the "Fiduciary Limit" except they are sheltered by 100% of gold.
• Fixed amount of notes are issued without Gold backing. This limit is called "Fiduciary Limit, But Backed by govt. Securities.
• Beyond the limit, currency should be backed by gold. Fiduciary limit is fixed by Govt.
• Rigid system
• Introduced in England