Monetary system

Under a monetary system (including monetary order ) refers to the entire regulatory framework that surrounds a currency. The monetary constitution, foreign exchange reserves, the exchange rate regime and economic policy monetary policy are all subsumed under the term.

In order for a monetary system influences both the economic development of a currency area as well as on the international role of a reserve currency in a decisive manner.

The history and development of the different historical currencies is completely tailored to the specific monetary systems, which were considered at the appropriate time. This applies also to current currencies. The monetary system or parts thereof, may at any time be reformed and change the respective system.

Currency Constitution

One of the factor to be controlled in the context of monetary agenda items include the monetary constitution.

It encloses the monetary law. Therein the issuance of currencies, their coins and banknotes, and thus the means of payment is held legally. Here it is noted how complementary currencies or free currencies are allowed.

As a rule, there is a currency monopoly is established, and transfer this privileged central banks. These are thus entitled to issue legal tender.

Furthermore, it is established the right to mint as well as the circulation of coins and paper money. There are also regulations on seigniorage.

Currency reserve

In the event that the cash value exceeds the material value, purchasing power can only be maintained by a credible reserve currency.

Coins whose nominal value is covered by the material value is called a Kurantmünzen. In most of the coins in circulation today are coins, where the nominal value is above the material value. The banknotes of the material value is usually below the nominal value. Fiat money has no Einlösungsversprechung (eg gold ) more.

Currencies whose coverage is precisely controlled, is referred to as " bound " currencies. Historically, this was particularly the binding to precious metals like gold and silver. A gold standard or silver standard were characterized by a fixed exchange obligation. Besides, a strong bond and currency reserves or in a mixed form so-called gold exchange currencies take place.

Unless the monetary constitution no Einlöseverpflichtung is installed, the coverage is determined by assets and loan receivables in the balance sheet of the monetary authority competent.

A distinction is made between particular reserve systems and full reserve monetary systems and different theoretical concepts about the value of money.

Exchange rate system

Another determinant in the context of the monetary system is the exchange rate regime of a currency. This refers to the way how the exchange rate, ie the exchange relation between two currencies forms.

We can distinguish two basic forms: the exchange rate Forms freely through the supply and demand behavior in the foreign exchange market, a system of flexible exchange rates is available. In systems of fixed exchange rates, however, it is fixed by government intervention, usually through foreign exchange market intervention, to a certain value. In addition, there are numerous intermediate forms.

Monetary and exchange rate policy

Among the schemes under the monetary regime is one economic policy orientation, which includes the monetary and exchange rate policy.

In the context of monetary policy, the determinants are hereby instruments (eg interest rates ), strategies (eg, direct inflation targeting or monetary targeting ) and goals (for example, price stability or economic growth).

Most important determinant of monetary policy is the amount of foreign reserves. A determinant for both measures of economic policy is the degree of central bank independence from other political actors, especially the government. At low independence, the monetary policy can be used to achieve the monetary policy.