A monetary standard is essential for every country, not just the Philippines. It is defined as a kind of legal system that decides what currency is used by that country, as well as who runs it and how that is defined. An example of a monetary standard is when the UK was on a gold standard towards the end of the 19th century. The power to coin the gold was given to the Bank of England.
There are two different types of monetary standards: The Inconvertible paper standard and the Commodity Standard.
The first type of monetary standard is the Inconvertible paper standard, which is the standard people are most familiar with because of its dominance in developed countries. This standard was established by the government. Another term for it is 'legal tender'. This system works by the government giving a value to the legal tender in question and the public accepting the standard they are told about. For example, a ten pound note is worth ten pounds but the public just have to take the standard because the actual piece of paper, the note itself, it not worth anything. It is an abstract. This monetary system has a rather large fault as it collapses and ceases to work when a government is not in control of their money and fails to show restraint and responsibility with that money, for example, massive hyperinflation within a country.
The Commodity Standard is put in place where the value of the individual units of monetary are equal to the value of a specific commodity amount such as gold. The cons of this system greatly outweigh the pros, which explains why the majority if not all countries have abandoned this particular monetary system. The main problem with this system is outlined in an explanation of Gresham's Law of 'bad money'.
There are two different types of monetary standards: The Inconvertible paper standard and the Commodity Standard.
The first type of monetary standard is the Inconvertible paper standard, which is the standard people are most familiar with because of its dominance in developed countries. This standard was established by the government. Another term for it is 'legal tender'. This system works by the government giving a value to the legal tender in question and the public accepting the standard they are told about. For example, a ten pound note is worth ten pounds but the public just have to take the standard because the actual piece of paper, the note itself, it not worth anything. It is an abstract. This monetary system has a rather large fault as it collapses and ceases to work when a government is not in control of their money and fails to show restraint and responsibility with that money, for example, massive hyperinflation within a country.
The Commodity Standard is put in place where the value of the individual units of monetary are equal to the value of a specific commodity amount such as gold. The cons of this system greatly outweigh the pros, which explains why the majority if not all countries have abandoned this particular monetary system. The main problem with this system is outlined in an explanation of Gresham's Law of 'bad money'.
