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Monetary System - Essay Example

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A certain government has the right to have its own currency. By doing so, it opens its doors to the world economic scenario. This would mean that their currency is available for the exchange of other currency that is much recognized by the world market in purchasing goods and services…
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Monetary System
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Download file to see previous pages In. order to compensate with the needs, they have to buy currencies which are more recognized in the world and with this, they need a larger volume of their monetary resources in which they will have to spend tremendous amount just to meet or purchase a certain currency. By doing so, the value of their currency will be more likely affected and it may cause sudden change of the prices of basic goods and commodities. To add to that, if they do have a lesser monetary value, that certain country might resort in money in some monetary agencies in both local and international. Having this practice will ease or lessen the burden of a certain country with regards to their monetary scheme. However, if that certain debt would not be paid off immediately or given proper attention, then it would be another factor in weakening the value of a certain currency. The concerned country will further focus in paying off their debts and with this it will also need tremendous amount of money in terms of payment of the principal as well as the interest. If the concerned party would pay for their debts, it will need tremendous amount of money and the inflation rate would also rise, as the value of their money would be further weakened. ...
If this happens, the economy of that certain government would face stagnation in which their economy would rely on loans and debts made by the government. The question is, if there comes a time that this government would not be able to lend a new one, how would they be able to pay their obligations and deliver the needs of its constituents. Then, it would be more difficult for that government to establish the stability of its currency. With this, it would more likely to produce another inflation and will lead to another depreciation of the value of their currency. Also, this would also mean that they would fail to pay their current obligations and with this they not be entitled for future loans in some international monetary institutions and this would really mean a serious problem. During these stages, prices of basic commodities will rise as prices in producing goods with the use of electricity, manpower, raw materials and the likes would also have their own highs and this would really mean a serious problem for that certain country. If the cost of production were high, then the burden would also be passed to the consumer, which will affect the prices of goods. Prices of transportation, communication and some related industries would not be spared in encountering such a scenario. This would also mean that the workforce would demand for higher wages to compensate their daily needs in which sometimes lead to closure of the industries or field specialization that they are working. Without further production then there would be a little source of income for the country, there would be less tax payers, and will affect the revenue collection of the government. With this, the government would be pressured to sell ...Download file to see next pagesRead More
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