Monetary Systems

the historically established forms of money circulation in different countries, which are subject to regulation on a national scale.

The basis of any monetary system is a defined money commodity that serves as a universal equivalent. Its stipulated weight represents the content of metal of the country’s monetary unit, but in its functions as a circulation and payment medium this commodity may be substituted for nominal symbols of value (hard or paper money). Feudal and subsequently bourgeois states legislatively regulated the conditions and forms of monetary turnover, establishing certain kinds of currencies, the rate of exchange of these currencies, and the conditions of their interchangeability and convertibility into real money (or into foreign exchange which could be converted into gold). State monetary policy in presocialist formations reflects interests and contradictions within and between classes, the struggle of social groups, the struggle between the interests of every state in the world economy, and economic and political contradictions between different countries and groups of countries (monetary unions and foreign-currency blocs).

In regulating money circulation, the state establishes the name of the monetary unit and the weight content of the monetary commodity (currency metal) contained in this unit, which serves as a monetary standard. (If the weight of the currency metal in the monetary unit is not fixed by law, its gold content is set indirectly through the rate of foreign exchange.) The state also determines the kind of money, whether hard or paper, the procedure of its issue into circulation and the nature of the security, the forms and conditions of clearing operations and the circulation of private credit money (notes, checks), and the procedure of exchange of national currency for foreign currency and of the establishment of the rate of exchange. From these fundamental principles follow the requirements of uniformity and also of the relative constancy of the value of monetary units and the elasticity of the mechanism of monetary systems.

There are several basic types of monetary systems. Systems of metal circulation in which the money commodity is functioning in monetary form can be divided into monometallic systems, in which one metal serves as currency, and bimetallism, in which two metals—gold and silver—serve as currency. In systems of the circulation of nominal money, the money commodity does not function at all in monetary form: these systems include paper money circulation and banknote circulation. Systems of both metallic and nominal-money circulation became predominant under the conditions of the general crisis of capitalism. With banknote circulation, the following subtypes of monetary systems are possible: (1) banknotes freely redeemable for gold in bullion (gold-bullion standard); (2) banknotes indirectly redeemable for gold through foreign currencies convertible in gold (gold-exchange standard); (3) banknotes redeemable with limitations for foreign exchange (allowed to all citizens, only to foreigners, only on current items of balance of payment, or different combinations of these conditions—at a single or differentiated rate of exchange); (4) restricted redemption of banknotes and monetary media on current accounts, redeemable in gold only for foreign central banks of issue (such an exchange system existed after World War II until August 1971 only in the USA); and (5) the inconvertibility of money media in the accounts of central and other banks either to gold or to foreign exchange (closed currency).

With regard to their role and importance in the capitalist world economy, there are three distinct types of monetary systems: imperialist systems, which play a leading role in currency blocs or areas; colonial and dependent systems; and sovereign systems. Despite the downfall of the colonial system, monetary systems of the colonial type are still not liquidated, and the neocolonialism in the monetary realm is manifested by the establishment of the currency dependence of developing countries on the imperialist powers through currency areas and constraining credits and loans, which lead to the violation and even loss of the monetary sovereignty of these countries.

At the time of the general crisis of capitalism, the formerly existing gold standard was abolished. During World War I and the following period of economic reconstruction, the most acute paper-money inflation in the history of capitalist countries set in. Later on, free fluctuating systems of gold-bullion and gold-exchange standards were established. Abandoning these systems as a result of world economic and money-credit crises of 1929-33, the overwhelming majority of countries adopted a monetary system of money and banknote circulation, in which the convertibility of currency notes into real money—gold—is indirect or restricted. The gold standard in its old form was not reestablished. Thus, in the era of imperialism and the general crisis of capitalism the instability of the monetary systems is continually increasing.

Unlike the capitalist monetary system, the socialist monetary system is a type of planned, nationwide organization of monetary circulation. The socialist monetary system has a number of distinctive features: the planning of money circulation and hence the control of money flows on a national scale and in individual regions. The system of regulation of the issuance of money in socialist countries flexibly combines the strictly centralized management and control of money issuance operations with the organizational and technical implementation of these operations at the local level. For timely replenishment of the peripheral regions, which is necessary for the money turnover, money is introduced into circulation not only in the center but also in every region of the country. Under socialist monetary systems, promissory (payment) notes (such as bills of exchange) do not circulate outside of banks and cannot function as credit circulation media: the issue of circulation media not only is monopolized by the government but also is centralized in one governmental body. Therefore, the anarchy of money circulation, a characteristic feature of capitalism connected with the issue and circulation of private credit instruments, is fully eliminated. The principle of centralization of the planned management of monetary systems is consistent with the economic role of a socialist state; it also reflects the importance of a monetary system which in a planned economy must ensure the coordination from a single center of activities of all elements of the economic structure. Under the socialist monetary system, the entire money turnover, including all settlement of accounts (cash and noncash) of enterprises, economic organizations, and institutions at the state, cooperative, and public levels are concentrated in a single governmental credit system. The spheres of the cash and noncash settlement of accounts are strictly delineated by law. (This is another way in which the socialist monetary system differs from the capitalist.) At the same time the unity of money turnover is ensured: the clearing monetary media are converted into cash and vice versa.

In the majority of socialist countries the gold content of the currency has been established and the rate of exchange in relation to foreign currencies has been fixed. But the gold content of the currencies of some countries (the Democratic Republic of Vietnam, the Korean People’s Democratic Republic) is being established indirectly by fixing the rate of exchange of these currencies in Soviet rubles and US dollars. In all socialist countries, hard and paper money are in circulation. Paper money is issued either only in the form of banknotes or in two forms—treasury bills and banknotes (USSR, Rumania, Czechoslovakia). However, treasury bills are not issued to cover a deficit in the state budget: treasury bills are issued by the same procedure as banknotes and are actually backed in the same way—by both commodities and gold. Thus, treasury bills differ only nominally from banknotes. Under normal conditions, the issuance of banknotes is used only as a source for crediting the national economy by the bank. Thus, the socialist monetary system is a system of banknote (credit) circulation, organized according to plan on the basis of balanced revenues and expenditures of the population. An important role in the strengthening of the socialist monetary system is played by the currency monopoly, which ensures economic and political independence and the planned development of the economy of each country and the stability of its monetary system. Its use precludes the possibility that imperialist states might, through fiscal or monetary measures, exert pressure to inflate or depress the exchange rates of the currencies of socialist countries.