Question

The method of note issue, where the fiduciary system's limit is fixed above the normal requirements of the country is known as

• A. Maximum Fiduciary System
• B. Proportional Reserve System
• C. Fixed Fiduciary System
• D. Currency Board System

Answer 1

Answer:

A. Maximum Fiduciary System

Maximum Fiduciary System:

• According to this method of note issue, the fiduciary system's limit is fixed above the normal requirements of the country.
• Beyond the maximum no note is issued without legal sanction.
• This system is defective in the sense that, if the limit is too low, the currency system becomes inelastic and if the limit is too high, there is danger of over issue of notes.
• The Govt. fixes the maximum amount of notes that can be issued by Central bank.
• For note issue, gold backing is not needed, but in the form of Govt. securities or Foreign Exchanges
• Introduced in France