contestada

You are in charge of your country's currency, which is backed by a gold standard. Unfortunately, gold production is dropping sharply and is not expected to recover. What is your best option?

Respuesta :

Answer:

The best option is to shift to fiat currency.

Explanation:

A fiat currency is the type of currency which is not backed by any valuable asset but by the government that has issued it. Commodity money, on the other hand, is the money which is backed by some physical commodity, generally a valuable asset such as gold or silver.  

In the case of commodity money, its value is based on the value of the asset it is backed by.  

If a currency is backed by gold and gold production is declining sharply and is not expected to rise. Then in this situation, the government will not be able to increase the money supply.  

In this situation, the best option is to move to fiat currency which is not backed by any asset so its value will not fluctuate with the value of the underlying asset.