Methods of note issue

METHODS OF NOTE ISSUE
Both the principles of note issue have merits and demerits. Based on these principles several systems and methods have been devised for the issuance of notes. These are as follows:
1. Fixed Fiduciary Issue:
This is widely recognised as an important method of note issue. Under tin's system a limit of volume of" currency has been fixed by central authority. This limit is called fiduciary limit. Any note issue in this fiduciary limit is to be backed by Government securities. However any note issued above this limit are to be 100% backed by gold. This system remained in force in many countries of the world at different times.
Following are the merits and demerits of the system:
Merits:
(a) Controlled Supply:
Under this system the supply of currency note can be held under control. The control can be exercised by way of fiduciary limit.
(b) No Danger of Over Issue:
Under this system, as notes issued above a particular limit are to be 100% backed, so there is not a danger of over issue. Any note above fiduciary limit are issued only after keeping 100% metallic reserves.
Demerits:
2 Inelastic:
This system was adopted by England in 1844 but it was subsequently abandoned :r, 1913. The major reasons were that of inelasticity and failure to response towards.the changing economic needs. This means that if economy is rapidly developing then there he increasing demand for the currency and credit. At this moment if required volume of gold is not available than bank will not be able to issue notes. This will produce adverse effects on the economy.