Monetary Effects

Abstract

The transactions that the Commodities Reserve Department of a Central Bank would be required to make in order to maintain the convertibility of the currency into specified commodities through standing ready to exchange bank balances for commodities on specified terms, and vice versa would have a number of monetary effects. These effects can be conveniently considered under three headings:

• 1. directly stabilising the real value of money;

• 2. altering the quantity of money in circulation in response to changes in the relative demand for money and for commodities;

• 3. influencing monetary policy by providing information to the public and to the monetary authorities concerning the need for changes in credit conditions, and in particular in interest rates.