MODERN MONETARY SYSTEMS 
(b) System of Paper Money. 
A system of paper money is usually the result of excep- 
tional circumstances in which notes are no longer con- 
vertible and are granted forced currency. In theory, gold 
and silver coins continue to be exchanged internally for 
notes according to the previous exchange rate correspond- 
ing to the number of units of account inscribed upon each 
monetary instrument. At the present time in France a ten 
franc note ought to be exchangeable for two five and two 
ten franc notes for one twenty franc piece ; no other pro- 
ceeding is known to the law. 
But in such circumstances gold coin soon disappears in 
practice through being exported or hoarded; and silver 
may likewise disappear unless it continues to perform the 
function of subsidiary coin. 
A régime of paper currency is usually preceded, accom- 
panied or followed by abnormal issues, but its essential 
characteristic is not necessarily either inflation or the 
disappearance of coin from internal circulation, but that 
the currency only circulates internally. Hitherto a given 
paper currency has almost always been peculiar to a single 
country ; hence this system does not provide a monetary 
basis in common with other national monetary systems. 
Almost all monetary phenomena which require elucida- 
tion and almost all the problems which need solution in 
countries on a paper currency will be seen to derive from 
this essential characteristic. 
The only requirement for bringing a system of paper 
currency back to the gold exchange standard is that paper 
should again become convertible into gold at a fixed rate 
for the purpose of payments abroad, although coin may 
have ceased to circulate internally and the note issue may 
not have been reduced to the previous figure. 
§ 2. Monetary systems in operation; rudimentary notions of 
the mechanism of exchange. 
With the above definitions in mind it is easy to under- 
stand how monetary systems work generally and to grasp 
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