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Money: Limited vs Unlimited Legal Tenders, Fiat & Fiduciary Money, Gold standard - UPSC Exam Video Lecture
FAQs on Money: Limited vs Unlimited Legal Tenders, Fiat & Fiduciary Money, Gold standard - UPSC Exam Video Lecture
| 1. What is the difference between limited and unlimited legal tenders? |  |
Ans. Limited legal tender refers to a form of money that is issued by the government and has a limited acceptance for the payment of debts. It means that there are certain restrictions on the use of this money, such as being accepted only within a specific jurisdiction or for a specific period. On the other hand, unlimited legal tender refers to a form of money that has no such restrictions and can be used for any purpose and anywhere within the country.
| 2. What is the concept of fiat money? | |
Ans. Fiat money is a type of currency that is not backed by a physical commodity such as gold or silver. Its value is derived from the confidence and trust that people have in the government or central bank that issues it. Unlike commodity money, which has intrinsic value, fiat money has value because the government declares it as legal tender and people accept it as a medium of exchange.
| 3. What is fiduciary money? | |
Ans. Fiduciary money refers to a type of currency that is not backed by any physical commodity or precious metal but is issued by the government or central bank based on the trust and confidence people have in the issuing authority. It is essentially a form of fiat money, where the value is derived from the trust placed in the government's ability to maintain the stability and integrity of the currency.
| 4. What is the gold standard? | |
Ans. The gold standard is a monetary system in which the value of a country's currency is directly linked to a fixed quantity of gold. Under this system, the government or central bank is required to hold a certain amount of gold reserves to back the currency in circulation. The gold standard provides stability to the currency as its value is tied to a tangible asset. However, this system has been largely abandoned by most countries in favor of fiat money.
| 5. How does the choice of money system affect the economy? | |
Ans. The choice of money system can have significant implications for the economy. For example, a limited legal tender may restrict the use of money and limit economic transactions. On the other hand, an unlimited legal tender allows for greater flexibility and ease of transactions. The use of fiat money provides the central bank with more control over the money supply, allowing for monetary policy adjustments to influence economic conditions. The gold standard, while providing stability, limits the ability of the government to respond to economic crises through monetary measures. Ultimately, the choice of money system can impact inflation, economic growth, and financial stability.
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Oct 03, 2025
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