monetary system

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Related to monetary standard: gold standard, Monetary policy

monetary system

the assets which make up a country's MONEY SUPPLY and the institutions involved in deposit-taking, money transmission and the provision of credit facilities, together constitute the monetary side of the ECONOMY.

The money supply consists of a number of assets (banknotes, coins etc.), denominated in terms of MONETARY UNITS (pounds and pence in the case of the UK). The institutions involved in handling money include various BANKS, FINANCE HOUSES, BUILDING SOCIETIES etc. The monetary system of a country is controlled by its CENTRAL BANK which uses a number of techniques to regulate the supply of money and interest rates (see MONETARY POLICY).

The monetary system also has an external dimension in that participation by countries in INTERNATIONAL TRADE and FOREIGN INVESTMENT requires the establishment of interactive mechanisms such as EXCHANGE RATES and INTERNATIONAL RESERVES. See INTERNATIONAL MONETARY FUND.

monetary system

the policies and instruments employed by a country to regulate its MONEY SUPPLY. The physical form of the money supply (bank notes, coins, etc.), the denomination of the values of monetary units (pounds and pence, etc.) and the total size of the money supply are basic policy issues.

The instruments that can be used to control the money supply include OPEN MARKET OPERATIONS, SPECIAL DEPOSITS, DIRECTIVES and INTEREST RATES.

The monetary system also has an external dimension insofar as countries engage in international trade and investment, which involve interactive mechanisms such as the EXCHANGE RATE, CONVERTIBILITY and INTERNATIONAL RESERVES. See also MONETARY POLICY, INTERNATIONAL MONETARY SYSTEM.