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End of "gold for money"
Formerly, the National Bank was required to redeem its banknotes in gold on request, since banknotes represented gold. Gold - by its nature a scare commodity - guaranteed the value of money and acted as a sort of anchor. Today gold no longer performs this anchor function for currencies. Banknotes have been declared legal tender, the obligation to redeem banknotes in gold and the gold backing requirement have been abolished and coins that no longer contain any precious metal have been put into circulation. The National Bank holds less gold reserves than in the past. Nowadays it seeks to ensure that money retains its value through the conduct of monetary policy.
If a central bank fails to keep the value of money stable, people may lose confidence in the national currency and will instead start using other countries' currencies, like the US dollar, as a means of payment.
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