Can You Explain The Concept Of Fixed Fiduciary Issue?

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Muhammad Abdullah786 Profile
The fixed fiduciary was adopted in Great Britain under the bank charter act of 1844, and then amended from the time to time according to the currency requirements of the country. Under the system, the central bank of the country is permitted to issue bank notes of a given amount without giving gold and silver to cover it. The fixed quantity of notes allowed by the law to be issued is too backed by the government securities only. This is named the fiduciary limit. The amount of notes circulated in excess of the fiduciary limit must be 100% backed by gold.

The advantages claimed for this system are that it makes the supply of money somewhat elastic. It also gives maximum safety because notes cannot be issued in excess of the fiduciary limit unless they are 100% covered by gold. The possibility of inflation is, therefore, effectively checked.

The system objected on the ground that the fiduciary limit is open to changes by amending the act. If the fiduciary limit is raised high, people will lose confidence in the currency. Great Britain which is the original home of the system of note issue has successfully survived since 1844. Japan and Norway is also practicing this system of note issue even today.

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