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Questions
Distinguish between convertible paper money and inconvertible paper money.
Distinguish between convertible and inconvertible money.
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Solution
| Convertible money | Inconvertible money | |
| 1. | The central bank issued currency that was fully convertible into gold. It was, therefore, known as convertible money. | Paper money became inconvertible, i.e., there is no compulsion for the central bank to exchange it for gold. |
| 2. | It is backed by metallic reserves and government securities. | It is not entirely backed by metallic reserves. |
| 3. | U.S. dollar under the gold standard (historically), freely tradable currencies. | Indian Rupee today, or any fiat currency not backed by gold. |
| 4. | Convertible paper money refers to currency notes which can be converted into standard gold or silver coins. | All paper currency is inconvertible, i.e., it is not convertible into gold or silver. |
| 5. | Convertible into other currencies or gold. | Not convertible into gold or other assets. |
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