Currency principle (MID-19TH CENTURY)

Currency principle is concerned with the metallist belief that the money supply or currency in circulation should be strictly related to the amount of gold deposited with the Bank of England. If this money supply were controlled, monetary stability would follow.

The Bank Acts of 1844 and 1845 embodied currency principle and helped establish the framework of modern British banking.

Also see: classical theory of money, bimetallism, free banking theory, real bills doctrine

Source:
F W Fetter, Development of British Monetary Orthodoxy 1719-1875 (Cambridge, Mass., 1965)

This concept was also known as convertibility and the currency principle. They argued that prices were mostly based on quantity of currency in circulation, although proponents did acknowledge that prices were also affected by deposits. Therefore, by controlling prices banks could limit outflow of gold.

One thought on “Currency principle (MID-19TH CENTURY)

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