Helpful in Emergency: This principle is helpful in emergency. This means that in times of need such wars or natural disasters govt. can print notes without keeping 100% reserves.
Demerits
1. Danger of Over Issue:
The danger of over issue always exists in this principle. As no 100% backing isi required sp there is a tendency-tqwards issuance of notes which may lead to inflation that^
• can be disastrous for the economy.
2. Lack of Convertibility:
As there is no hundred percent backing, so bank failure may occur-in a veryunlikely situation if all notes-are presented fbf converting into gold. IJ&wevef, theft is
very rare chance that such situation appeal's
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