Management
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Monetary policy is one of the tools that a national Government uses to influence its economy. Using its monetary authority to control the supply and availablity of money, a government attempts to influence the overall level of economic activity in line with its political objectives. Usually this goal is “macroeconomic stability” – low unemployment, low inflation, economic growth, and a balance of external payments. Monetary policy is usually administered by a Government appointed “Central Bank”, the Bank of Canada and the Federal Reserve Bank in the United States.
Central banks have not always existed. In early economies, governments would supply currency by minting precious metals with their stamp. No matter what the creditworthiness of the government, the worth of the currency depended on the value of its underlying precious metal. A coin was worth its gold or silver content, as it could always be melted down to this. A countrys worth and economic clout was largely to its holdings of gold and silver in the national treasury. Monarchs, despots and even democrats tried to skirt this inviolate law by filing down their coinage or mixing in other substances to make more coins out of the same amount of gold or silver. They were inevitably found out by the traders, money lenders and others who depended on the worth of that currency. This the reason that movies show pirates and thieves biting Spanish dubloons to ascertain the value of their booty and loot.
The advent of paper money during the industrial revolution meant that it wasnt too difficult for a country to alter its amount of money in circulation. Instead of gold, all that was needed to produce more banknotes was paper, ink and a printing press. Because of the skepticism of all concerned, paper money was backed by a “promise to pay” upon demand. A holder of a “pound sterling” note of the United Kingdom could actually demand his pound of silver! When gold became the de facto backing of the worlds