Question

Distinguish between Convertible Paper Money and Inconvertible Paper Money.

Answer 1

1. Meaning: Convertible Paper Money is that money that can be converted into standard money on demand. Inconvertible Paper Money is also known as fiat money, this money is sanctioned on the command of the government.

2. Backed by Reserves: Convertible Paper Money is normally backed by gold or silver reserves. Therefore, it can be converted into gold or silver. Inconvertible Paper Money is not backed by gold or silver reserves. Therefore, it cannot be converted into gold or silver.

3. Current Usage: Nowadays, Convertible Paper Money is not in use. Nowadays, Inconvertible Paper Money is in use in almost all countries.