What is currency convertible into today?
A. Nothing except other currency. • Q. What was the significance of gold in the monetary system? A. Gold no longer has any significance in the monetary system. Gold, because it was in limited supply, set a maximum on the amount of money that could be created through loans. This is because if the amount of gold available is only slowly rising, loans could only rise at the fractional reserve multiplier rate. To allow for a higher rate, silver, which is much more common, was also used as a “reserve” metal. • Q. How does banking relate to Free Trade? A. Under classical ‘Free Trade’, one country sold its goods in another, and accepted that countries currency in payment. When an excess of currency holdings occur (a trade imbalance), they were exchanged for gold. Gold was a mutually acceptable method of returning the original currency to the issuer. This was necessary because the paper currency is legal tender only in the issuing country. The limited amount of gold available to the loser in t
