The Fiat standard can consist of three different types, such as: utopian, involuntary and exchange standard. In actual practice, only the last two currently existing are observed.
Utopian paper standard. For purposes of academic interest, this type is included for your discussion.
The underlying philosophy behind the proposed adoption of this standard is that money today is desired primarily for what it will bring to the individual in the form of goods and services that they will buy, and not for what it represents, whether in a peso and a dollar. specific purity of gold or silver. As envisioned by its advocates, the government seal and the legal tender attribute are all that is needed to make money issued under this standard acceptable. Therefore, following this line of thought, it is argued that there is no need to accumulate gold reserves as required in the case of the gold standard.
On the other hand, their main objection lies in the fact that the money that is intended to be put into circulation is not defined in terms of any merchandise and, therefore, irredeemable. As such, critics point out that this standard presents the grave dangers of unlimited inflation.
The involuntary paper standard. When a nation, whether with a gold or silver standard, finds itself in a serious situation of not being able to redeem its money, such a situation brings in its path the consequent result of an involuntary paper standard.
This situation is often observed as a result of a war. Thus, despite the government’s desire to rescue its paper money, circumstances prevent it. However, the government and the people still hold on fervently to the hope that one day they can return the gold or silver standard, as the case may be.