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Money and credit - Ivanov V.M.

6.2. Elements of the monetary system

Modern monetary systems in different countries, despite certain features, have many common features. They include the following elements: monetary unit; price scale; types of legal tender; emission system and state apparatus for regulating money circulation.

Monetary unit - a statutory banknote used to measure and express the prices of all goods and services. It is usually divided into small proportional parts. Most countries have a decimal division system (1 US dollar - 100 cents, 1 British pound sterling - 100 pence). The name of a monetary unit (national currency), as a rule, arises historically, but completely depends on the state, which fixes (or changes) this name with its legislative act. For example, in Russia - the ruble, India - the rupee, the United States - the dollar, Poland - the zloty.

By the way, the name "ruble" was assigned to the monetary unit of Russia many centuries ago. According to most researchers, this term comes from the word "chop." Silver bars of a certain form, which were called hryvnias, were cut and played a leading role in the money circulation of an even earlier (ruble) period.

After the collapse of the USSR and the declaration of the former union republics as sovereign states, the monetary system underwent changes. A number of republics introduced their national banknotes and gave them the corresponding names: for example, in Ukraine hryvnias began to be converted, in Lithuania - lits, in Latvia - lats.

Hryvnia is a monetary and weight unit of Kievan Rus from the time of Yaroslav the Wise. The weight of the hryvnia is approximately equal to a pound of silver. The name comes from the name of a hoop of gold or silver, which women wore around their neck as a piece of jewelry. For convenience, the hoops were cut into pieces that independently entered into circulation. This served as the basis for the name of the monetary unit - the ruble. During the time of the UPR (1918-1920), credit tickets of the State Bank of Ukraine - hryvnia - were issued. In 1991, after independence, based on a thousand-year tradition, the Supreme Council of Ukraine decided to name the hryvnia the monetary unit of Ukraine.

Price scale - a means of expressing value in monetary units, based on a state-fixed weight quantity of monetary metal in a monetary unit. Usually, with the formation of new monetary systems, the implementation of monetary reforms, devaluations and revaluations, the state also established the gold content of the monetary unit by law, which was an important element of the country's pricing system. For example, when the ruble was denominated in 1961, its gold content was set at 0.987412 g of pure gold, although no exchange of issued bank notes was made for gold. By the way, now no country in the world is exchanging banknotes for gold. In those countries where the gold content of monetary units is legally preserved, it has lost its economic meaning. The price scale is actually formed under the influence of supply and demand, serves to measure the value of goods through prices.

Types of money, which are legal tender, are primarily credit money, as well as paper money. For example, in the United States, banknotes of $ 100, 50, 20, 10, 5, 2, and 1 are in circulation (tickets for denominations of $ 500 or more have been discontinued), treasury notes (tickets issued by the US Treasury) for $ 100, and silver-copper and copper-nickel coins of 1 dollar, 50, 25, 10 and 1 cent. In economically developed countries, as a rule, state paper money (treasury tickets) are not issued or are issued in limited quantities, while in underdeveloped countries they have a fairly wide circulation. Thus, in Indonesia, banknotes in denominations of 10,000, 5,000, 1,000, 500, 100 rupees are circulating, treasury bills - 200, 100, 25, 10, 5 and 1 rupee and coins - 100, 50, 25, 10, 5, 2 and 1 Sep (Sep 1 equals 0.01 rupees).

Emission system - a legislatively established procedure for the issue and circulation of banknotes. Issuing operations (operations on the issue and withdrawal of money from circulation) in the state carry out:

• the central (issue) bank, which enjoys the monopoly right to issue bank tickets (banknotes), which make up the vast majority of cash circulation;

• the Treasury (state executive body), issuing small-cash paper currency (treasury tickets and coins made from cheap types of metal), which account for about 10% (in developed countries) of the total cash issue.

Banknotes are issued by the central bank in three ways:

• the provision of loans to credit institutions in the form of rediscounting of commercial bills;

• lending to the treasury against government securities;

• issuing banknotes by exchanging them for foreign currency.

The state, trying to weaken the possible cyclical fluctuations in economic processes, takes measures to regulate the production process, using the monetary and credit systems, which are closely interconnected, especially as a result of the dominance of credit money.

In many industrialized countries, under the influence of increasing inflation and growing crisis in the economy in the mid-70s, targeting became widespread - setting targets for regulating the growth of money supply in circulation and credit, which should guide central banks.

The Central Bank, in agreement with state bodies, determines the amount of increase in the money supply, limiting its growth in real terms. This measure is seen as an important form of combating inflation and ensuring stabilization of the economy. In the US, all four monetary aggregates are targeted (M1, M2, M3, M4), in France - only the M2 aggregate. However, practice has shown the weak effectiveness of this form of regulation, since money circulation is influenced by various economic factors, and not just the volume of monetary operations. In this regard, in the 80s, the central banks of several countries (Canada, Japan) refused to target.

So, the main features of the modern monetary system of foreign countries are:

• abolition of the official gold content of monetary units, demonetization of gold;

• transition to credit money unchangeable for gold, which slightly differs in nature from paper money;

• preservation in monetary circulation along with credit money of paper money in the form of treasury bills;

• issuance of banknotes in circulation in the order of lending to the economy, the state, as well as against the growth of official gold and foreign exchange reserves;

• the development and predominance of cashless cash flow while reducing cash;

• Strengthening state regulation of monetary circulation in connection with a constant violation of the fundamental principle of the monetary system - the correspondence of the amount of money to the objective needs of economic turnover, which leads to the inflationary process.