What is a monetary system and its elements? It would seem an easy question, but finding an answer to it is quite difficult. What is their essence? What does the concept of the monetary system and its elements include? All these questions will be answered.
General theoretical information
Initially, you need to deal with terminology. What is a monetary system? In fact, this is a form of state organization of circulation of finance. In this case, one can distinguish the following basic elements of the monetary system: unit of account, types of money, their issue and price scale. Depending on the specific historical period, they were presented in various forms: piece, metal (mono and bi), non-exchange paper and credit.
It should be noted that the monetary system and its elements took shape in different countries with their own specifics. Although sooner or later, this path has been traveled by each state.
What is there now?
The modern monetary system is based on the circulation of immutable and defective credit and paper money. They replaced gold, which has been used as a primary means of payment for two millennia. And the modern basic elements of the monetary system are:
- The national unit that is adopted for the price scale.
- Various banknotes (tickets and coins), as well as the procedure for their release into circulation (the process itself is called "issue").
- The procedure, restrictions and regulation of the turnover of funds.
- Methods of organization of circulation.
About monetary units
It is established by law that a certain sign (in the form of a ticket or a coin) serves to express and measure the prices of services and goods offered. In this case, the question is whether the monetary unit is used - national or international. In the first case, this means that it is used only in a certain country, while in the second - in their group. For the first case, rubles can be given, while in the second case, euros.
And what about the comparison? Many do not understand this, so let's dwell on this in more detail. Here in the Russian Federation there is a ruble / 100 kopeck banknote. It is used to express price. And in order to measure the value of the goods for the dollar / 100 cents banknote, the value of the measure is applied. Such an entity and element of the monetary system provide the basis for all other points.
About the scale of prices
In fact, it is used to express value in the valuation or sale of certain goods in monetary units of a certain country. The scale of prices is also seen as a way to measure the purchasing power or value of goods. That is, thanks to him, such a function as a measure of value is manifested in money.
Here it is necessary to make a small historical digression. Initially, as soon as the money appeared, its content completely coincided with the scale of prices. But gradually there was a tendency to move away from the weight content of coins. This was due to their wear and tear, and the transition to minting from much cheaper metals. After the exchange of credit money for gold stopped, the officially established price scale lost its economic meaning.
As a result of the Jamaican agreement, the value of precious metals is now determined by the market. That is, the formation takes place spontaneously. You can do without this information, but then the characteristic of the elements of the monetary system will not be complete.
Types of funds
Now legal tender is credit and paper money plus change coins. In this case, there is a fairly significant bias in their use. So, in economically developed countries, paper money is either issued in a limited amount or not printed at all. Whereas in the underdeveloped they are still in wide circulation.
When talking about types of money, they mean the denominations of coins and banknotes that are used in the financial system. Moreover, they are aimed at, as a rule, the convenience of bargaining. In the Russian Federation, the Central Bank issues cash tickets. The decision to issue new denominations or updated units of account is made by its board of directors. He also validates their samples.
Speaking about the types of money, it should be noted that they are presented as non-cash / cash. In the first case, these are electronic means, as well as credit and payment cards. They are gradually gaining more and more popularity. Cash is the previously mentioned paper and credit money plus a bargaining chip.
All that is now is the result of a certain historical development of systems in the specific national conditions of the country or their group. Their character, popularity and frequency of use is influenced by the development of trade, economic and a number of other relations. Under their influence, the monetary system and its elements develop. At the same time, cash goes to non-cash (to bank accounts) and vice versa.
The order of release of funds into circulation
Speaking about the elements of the monetary system, one cannot avoid the issue of emissions. In fact, this is the legislatively established procedure for the issue and circulation of marks. This is done by the Central Bank and the Treasury. Let's look at an example with the Russian Federation and see how the monetary system and its elements are structured in this case:
- The Central Bank monopolizes the organization of cash circulation. To fulfill his duties, he implements such measures: predicts, ensures the production and storage of cash and coins, and also creates reserve funds throughout the country; establishes the rules of collection, transportation and storage for banking institutions, signs of solvency, the procedure for replacing damaged units and their destruction.
- In the case of cashless payments, the Central Bank operates a little limited. Thus, it is legislatively entrusted with regulation, licensing and coordination. The Central Bank also organizes settlement systems, sets the rules, terms, standards and forms of non-cash payments for organizations and, in particular, financial institutions.
Organizational moments
The entire state-credit apparatus establishes the procedure, regulation and restrictions on monetary circulation. That is, the Ministry of Finance, the Treasury, and the Central Bank are engaged in this. They develop guidelines for the growth of money supply in circulation and loans, which serves to control inflationary processes. The main task that pursues this:
- Conduct an appropriate fiscal policy.
- Control the money supply and the speed of lending.
About liquidity
This implies the ability of money to be used at any time for the purchase of necessary goods and services, as well as payment for work. Moreover, their various forms have varying degrees of liquidity. But despite this, they form a kind of unity, with the help of which the functioning of economic relations is ensured.
In a market economy, this is realized in the form of cash flows. Liquidity itself may vary depending on where the elements of the country's monetary system are located. Say, in Brazil, Russian rubles are exotic, so before you buy something for them, you will need to find a place to exchange for local currency. Whereas with dollars it is easier to do. A completely different situation in Ukraine. There they trade in rubles on a par with dollars and euros: usually it is the rates of these three currencies that are indicated in exchange offices.
About cash flows
They are the sum of household goods or liabilities that are transferred between different entities (products, repayment of debts, loans and the like). Three characteristics are distinguished for them: time, amount, direction. All elements of the monetary system that operate within the framework of flows obey them.
And if it is more or less clear why the sum and direction are taken into account, then time requires explanation. The fact is that the flow can be determined at various intervals: week, month, year. Moreover, the longer the time interval, the higher the flow rate. In order for it to be able to function continuously, it is necessary to take care of a certain supply of money.
Each entity must constantly have at its disposal a certain amount of funds. All together they form a cash reserve. It is indicated not within a specific time interval, but at a specific date.
On the development and formation of the modern monetary system of the Russian Federation
Now let's look at the situation that has developed. How did the elements of modern monetary systems that we use now form?
The development of what can be seen now began during the monetary reform of the 22-24th years of the twentieth century. Then the main currency was declared a chervonets, which was compared with 10 rubles. Its content was set at the spool level. Now this is an outdated measure. And then she answered 78.24 shares of pure gold. Why so many? It was this amount of valuable metal that the pre-revolutionary ten-ruble gold coin contained.
In a decree of October 11, 1922, the monopoly on their issue was transferred to the State Bank of the USSR. To maintain the currency, all the necessary conditions were created. Chervonets could be exchanged for gold. Loans were issued only for easily realizable inventory items. The exchange of chervonets for stable foreign currency was allowed. To pay government debts and payments, they were accepted at face value.
These bank notes were not only credit money in form, but also in essence. After all, emissions were regulated not only by the needs of economic turnover, but also by the values that were on the balance sheet of the State Bank.
The end of reform
But initially there were only partial measures. By the beginning of 1924, there were already prerequisites for the completion of monetary reform. After all, the cost of funds significantly undermined the First World War, and then the Civil War. Because of this, the government actively used a printing press to cover a constantly arising budget deficit with a natural result - the depreciation of money. Therefore, at the end, all funds were exchanged. The course was as follows: 1 ruble of a treasury ticket was equivalent to 50 billion banknotes that were issued before 1922.
And then what?
After the monetary reforms of 22-24 years, the USSR had a new system that existed with minor changes until 1990. And what has changed? During the monetary reform of 1947, the ruble became the monetary unit. It should be noted that the scale of prices and the procedure for its establishment has repeatedly changed. The last change in the USSR occurred on the first of January 1962. Then it was found that one ruble corresponds to 0.987412 g of gold. This price scale reflected the purchasing power of the monetary unit and was quite consistent with existing gold prices.
Modern parameters in the Russian Federation were established in the legislative act of March 1, 2002 under the number No. 86- “On the Central Bank of the Russian Federation”. This law recognizes only the ruble and prohibits the circulation of other monetary units in the country, as well as the use of other surrogates. Monopoly right to issue received the Bank of Russia.
And before that there were nineties. You can only recall those times and the inflation that you had to work with. But, despite seemingly significant changes, the 1998 denomination cannot be considered a monetary reform. Why? The fact is that the purpose of its implementation was to solve certain technical problems, such as: streamlining the circulation of funds, facilitating accounting and settlements, returning to the usual scale of money.
Conclusion
So we examined what elements of the monetary system are modern money. Of course, this knowledge is not enough to become a specialist, but it is quite possible to get a general idea.
It should be noted that the formation of the monetary system and its elements is still not completed. New forms, tools and much more are constantly emerging. As an example, we can recall bitcoin. This is a very popular, albeit a very unusual currency, few people believed in its success and future ten years ago. At the same time, voices are heard that it is imperfect and that it is necessary to improve it. This gives reason to believe that this is far from the end.