MODIFIED GOLD AND DOLLAR STANDARDS (3)

fractional-reserve banking and the gold-exchange standard ,with Germany and japan going on the gold standard ,the deflationary pressure on price would have been even worse had it not been for new methods of economizing on gold .Modern banks, which hold only fractional reserves ,began to develop :the demand-deposit M they created meant that not quite so much gold was needed to keep up with growing total output.Moreover,most of the countries on the gold standard did not keep 100 per cent gold reserve to back up the token coins and paper currency they issued.Thus,if the typical country held only one-fourth gold against its paper money,only a quarter as much gold would have to be mined to support the same world price level. this process of domestic banking evolution to economize on the use of gold is important.for,as we shall see , it foreshadows the modern international development of economizing on and displacing gold by creating so-called "paper gold ," i.e., SDRs which are Special Drawing Rights in the International Monetary fund (IMF).