But the beginning of modern banking, by breaking the strict link between the commodity money and the money supply, added an element of flexibility to the money supply and further opened up the possibility for inflation.
During the international gold standard period, currency issue and coin production were linked to and convertible into gold, so that a country’s total domestic money supply was tied to the domestic supply of gold. This situation did not guarantee a stable price level, but it did remove the risk of government-induced inflation.