A currency, "in circulation", from la,
currens, -entis, literally meaning "running" or "traversing" is a standardization of
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
in any form, in use or
circulation as a
medium of exchange
In economics, a medium of exchange is any item that is widely acceptable in exchange for goods and services. In modern economies, the most commonly used medium of exchange is currency.
The origin of "mediums of exchange" in human societies is ass ...
, for example
banknote
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes w ...
s and
coin
A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order t ...
s.
A more general definition is that a currency is a ''system of money'' in common use within a specific environment over time, especially for people in a nation state. Under this definition,
the British Pound Sterling (£),
euro
The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
s (€),
Japanese yen
The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the ...
(¥), and
U.S. dollars
The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...
(US$)) are examples of (government-issued)
fiat currencies
Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...
. Currencies may act as
stores of value and be traded between nations in
foreign exchange market
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspec ...
s, which determine the relative values of the different currencies. Currencies in this sense are either chosen by users or decreed by governments, and each type has limited boundaries of acceptance - i.e.
legal tender
Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in pa ...
laws may require a particular unit of account for payments to
government
A government is the system or group of people governing an organized community, generally a state.
In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...
agencies.
Other definitions of the term "currency" appear in the respective synonymous articles:
banknote
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes w ...
,
coin
A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order t ...
, and
money
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
. This article uses the definition which focuses on the currency systems of countries.
One can classify currencies into three
monetary system
A monetary system is a system by which a government provides money in a country's economy. Modern monetary systems usually consist of the national treasury, the mint, the central banks and commercial banks.
Commodity money system
A commodity m ...
s:
fiat money
Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...
,
commodity money
Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods.
This is in contrast to representati ...
, and
representative money
Representative money or receipt money is any medium of exchange, printed or digital, that represents something of value, but has little or no value of its own (intrinsic value). Unlike some forms of fiat money (which may have no commodity backing ...
, depending on what guarantees a currency's value (the
economy
An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...
at large vs. the government's physical metal
reserve
Reserve or reserves may refer to:
Places
* Reserve, Kansas, a US city
* Reserve, Louisiana, a census-designated place in St. John the Baptist Parish
* Reserve, Montana, a census-designated place in Sheridan County
* Reserve, New Mexico, a US vi ...
s). Some currencies function as
legal tender
Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in pa ...
in certain jurisdictions, or for specific purposes, such as payment to a government (
taxes
A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or ...
), or government agencies (fees, fines). Others simply get traded for their economic value.
Digital currency
Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital cu ...
has arisen with the popularity of
computer
A computer is a machine that can be programmed to Execution (computing), carry out sequences of arithmetic or logical operations (computation) automatically. Modern digital electronic computers can perform generic sets of operations known as C ...
s and the
Internet
The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...
. Whether digital notes and coins will be successfully developed remains dubious. Decentralized digital currencies, such as
cryptocurrencies
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank
A bank is a financial i ...
are different as they are not issued by a government
monetary authority
In finance and economics, a monetary authority is the entity that manages a country’s currency and money supply, often with the objective of controlling inflation, interest rates, real GDP or unemployment rate. With its monetary tools, a moneta ...
. Many warnings issued by various countries note the opportunities that cryptocurrencies create for illegal activities, such as
money laundering
Money laundering is the process of concealing the origin of money, obtained from illicit activities such as drug trafficking, corruption, embezzlement or gambling, by converting it into a legitimate source. It is a crime in many jurisdictions ...
and
terrorism
Terrorism, in its broadest sense, is the use of criminal violence to provoke a state of terror or fear, mostly with the intention to achieve political or religious aims. The term is used in this regard primarily to refer to intentional violen ...
.
In 2014 the United States
IRS
The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...
issued a statement explaining that virtual currency is treated as
property
Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
for Federal
income-tax purposes and providing examples of how longstanding tax principles applicable to transactions involving property apply to virtual currency.
History
Early currency
![A print from 1845 shows cowry shells being used as money by an Arab trader](https://upload.wikimedia.org/wikipedia/commons/5/52/A_print_from_1845_shows_cowry_shells_being_used_as_money_by_an_Arab_trader.jpg)
Originally currency was a form of receipt, representing grain stored in temple granaries in
Sumer
Sumer () is the earliest known civilization in the historical region of southern Mesopotamia (south-central Iraq), emerging during the Chalcolithic and early Bronze Ages between the sixth and fifth millennium BC. It is one of the cradles of c ...
in ancient
Mesopotamia
Mesopotamia ''Mesopotamíā''; ar, بِلَاد ٱلرَّافِدَيْن or ; syc, ܐܪܡ ܢܗܪ̈ܝܢ, or , ) is a historical region of Western Asia situated within the Tigris–Euphrates river system, in the northern part of the F ...
and in
Ancient Egypt.
In this first stage of currency, metals were used as symbols to represent value stored in the form of commodities. This formed the basis of trade in the
Fertile Crescent
The Fertile Crescent ( ar, الهلال الخصيب) is a crescent-shaped region in the Middle East, spanning modern-day Iraq, Syria, Lebanon, Israel, Palestine and Jordan, together with the northern region of Kuwait, southeastern region of ...
for over 1500 years. However, the
collapse of the Near Eastern trading system pointed to a flaw: in an era where there was no place that was safe to store value, the value of a circulating medium could only be as sound as the forces that defended that store. A trade could only reach as far as the credibility of that military. By the late
Bronze Age
The Bronze Age is a historic period, lasting approximately from 3300 BC to 1200 BC, characterized by the use of bronze, the presence of writing in some areas, and other early features of urban civilization. The Bronze Age is the second pri ...
, however, a series of
treaties
A treaty is a formal, legally binding written agreement between actors in international law. It is usually made by and between sovereign states, but can include international organizations, individuals, business entities, and other legal perso ...
had established safe passage for merchants around the
Eastern Mediterranean
Eastern Mediterranean is a loose definition of the eastern approximate half, or third, of the Mediterranean Sea, often defined as the countries around the Levantine Sea.
It typically embraces all of that sea's coastal zones, referring to communi ...
, spreading from
Minoan
The Minoan civilization was a Bronze Age Aegean civilization on the island of Crete and other Aegean Islands, whose earliest beginnings were from 3500BC, with the complex urban civilization beginning around 2000BC, and then declining from 1450B ...
Crete
Crete ( el, Κρήτη, translit=, Modern: , Ancient: ) is the largest and most populous of the Greek islands, the 88th largest island in the world and the fifth largest island in the Mediterranean Sea, after Sicily, Sardinia, Cyprus, and ...
and
Mycenae
Mycenae ( ; grc, Μυκῆναι or , ''Mykē̂nai'' or ''Mykḗnē'') is an archaeological site near Mykines in Argolis, north-eastern Peloponnese, Greece. It is located about south-west of Athens; north of Argos; and south of Corinth. Th ...
in the northwest to
Elam
Elam (; Linear Elamite: ''hatamti''; Cuneiform Elamite: ; Sumerian: ; Akkadian: ; he, עֵילָם ''ʿēlām''; peo, 𐎢𐎺𐎩 ''hūja'') was an ancient civilization centered in the far west and southwest of modern-day Iran, stretc ...
and
Bahrain
Bahrain ( ; ; ar, البحرين, al-Bahrayn, locally ), officially the Kingdom of Bahrain, ' is an island country in Western Asia. It is situated on the Persian Gulf, and comprises a small archipelago made up of 50 natural islands and an ...
in the southeast. It is not known what was used as a currency for these exchanges, but it is thought that
ox-hide shaped ingots of copper, produced in
Cyprus
Cyprus ; tr, Kıbrıs (), officially the Republic of Cyprus,, , lit: Republic of Cyprus is an island country located south of the Anatolian Peninsula in the eastern Mediterranean Sea. Its continental position is disputed; while it is geo ...
, may have functioned as a currency.
It is thought that the increase in piracy and raiding associated with the
Bronze Age collapse
The Late Bronze Age collapse was a time of widespread societal collapse during the 12th century BC, between c. 1200 and 1150. The collapse affected a large area of the Eastern Mediterranean (North Africa and Southeast Europe) and the Near Ea ...
, possibly produced by the
Peoples of the Sea
The Sea Peoples are a hypothesized seafaring confederation that attacked ancient Egypt and other regions in the East Mediterranean prior to and during the Late Bronze Age collapse (1200–900 BCE).. Quote: "First coined in 1881 by the Fren ...
, brought the trading system of oxhide ingots to an end. It was only the recovery of Phoenician trade in the 10th and 9th centuries BC that led to a return to prosperity, and the appearance of real coinage, possibly first in Anatolia with
Croesus
Croesus ( ; Lydian: ; Phrygian: ; grc, Κροισος, Kroisos; Latin: ; reigned: c. 585 – c. 546 BC) was the king of Lydia, who reigned from 585 BC until his defeat by the Persian king Cyrus the Great in 547 or 546 BC.
Croesus was ...
of
Lydia
Lydia (Lydian language, Lydian: 𐤮𐤱𐤠𐤭𐤣𐤠, ''Śfarda''; Aramaic: ''Lydia''; el, Λυδία, ''Lȳdíā''; tr, Lidya) was an Iron Age Monarchy, kingdom of western Asia Minor located generally east of ancient Ionia in the mod ...
and subsequently with the Greeks and Persians. In Africa, many forms of value store have been used, including beads, ingots,
ivory
Ivory is a hard, white material from the tusks (traditionally from elephants) and teeth of animals, that consists mainly of dentine, one of the physical structures of teeth and tusks. The chemical structure of the teeth and tusks of mammals is ...
, various forms of weapons, livestock, the
manilla currency
Manillas are a form of commodity money, usually made of bronze or copper, which were used in West Africa.Chamberlain, C. C.(1963). The Teach Yourself ''Guide to Numismatics''. English Universities Press. p. 92. They were produced in large number ...
, and ochre and other earth oxides. The manilla rings of
West Africa
West Africa or Western Africa is the westernmost region of Africa. The United Nations defines Western Africa as the 16 countries of Benin, Burkina Faso, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Maurit ...
were one of the currencies used from the 15th century onwards to sell slaves.
African currency
African currency was originally formed from basic items, materials, animals and even people available in the locality to create a medium of exchange. This started to change from the 17th century onwards, as European colonial powers introduced thei ...
is still notable for its variety, and in many places, various forms of
barter
In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists distingu ...
still apply.
Coinage
The prevalence of metal coins possibly led to the metal itself being the store of value: first copper, then both silver and gold, and at one point also bronze. Today other non-precious metals are used for coins. Metals were mined, weighed, and stamped into coins. This was to assure the individual accepting the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but the existence of standard coins also created a new
unit of account
In economics, unit of account is one of the money functions. A unit of account is a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of rela ...
, which helped lead to
banking
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
.
Archimedes' principle
Archimedes' principle (also spelled Archimedes's principle) states that the upward buoyant force that is exerted on a body immersed in a fluid, whether fully or partially, is equal to the weight of the fluid that the body displaces. Archimede ...
provided the next link: coins could now be easily tested for their
fine
Fine may refer to:
Characters
* Sylvia Fine (''The Nanny''), Fran's mother on ''The Nanny''
* Officer Fine, a character in ''Tales from the Crypt'', played by Vincent Spano
Legal terms
* Fine (penalty), money to be paid as punishment for an offe ...
weight of the metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with (see
Numismatics
Numismatics is the study or collection of currency, including coins, tokens, paper money, medals and related objects.
Specialists, known as numismatists, are often characterized as students or collectors of coins, but the discipline also includ ...
).
![Electrum trite, Alyattes, Lydia, 620-563 BC](https://upload.wikimedia.org/wikipedia/commons/f/f7/Electrum_trite%2C_Alyattes%2C_Lydia%2C_620-563_BC.jpg)
Most major economies using coinage had several tiers of coins of different values, made of copper, silver, and gold. Gold coins were the most valuable and were used for large purchases, payment of the military, and backing of state activities. Units of account were often defined as the value of a particular type of gold coin. Silver coins were used for midsized transactions, and sometimes also defined a unit of account, while coins of copper or silver, or some mixture of them (see
debasement
A debasement of coinage is the practice of lowering the intrinsic value of coins, especially when used in connection with commodity money, such as gold or silver coins. A coin is said to be debased if the quantity of gold, silver, copper or nick ...
), might be used for everyday transactions. This system had been used in ancient
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
since the time of the
Mahajanapadas
The Mahājanapadas ( sa, great realm, from ''maha'', "great", and '' janapada'' "foothold of a people") were sixteen kingdoms or oligarchic republics that existed in ancient India from the sixth to fourth centuries BCE during the second urban ...
. The exact ratios between the values of the three metals varied greatly between different eras and places; for example, the opening of silver mines in the
Harz
The Harz () is a highland area in northern Germany. It has the highest elevations for that region, and its rugged terrain extends across parts of Lower Saxony, Saxony-Anhalt, and Thuringia. The name ''Harz'' derives from the Middle High German ...
mountains of central Europe made silver relatively less valuable, as did the flood of
New World
The term ''New World'' is often used to mean the majority of Earth's Western Hemisphere, specifically the Americas."America." ''The Oxford Companion to the English Language'' (). McArthur, Tom, ed., 1992. New York: Oxford University Press, p. 3 ...
silver
after the Spanish conquests. However, the rarity of gold consistently made it more valuable than silver, and likewise silver was consistently worth more than copper.
Paper money
In
premodern
The term premodern refers to the period in human history immediately preceding the modern era, as well as the conceptual framework in the humanities and social sciences relating to the artistic, literary and philosophical practices which preceded t ...
China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
, the need for lending and for a medium of exchange that was less physically cumbersome than large numbers of
copper
Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pinkis ...
coins led to the introduction of
paper money
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes were originally issued ...
, i.e.
banknote
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes w ...
s. Their introduction was a gradual process that lasted from the late
Tang dynasty
The Tang dynasty (, ; zh, t= ), or Tang Empire, was an Dynasties in Chinese history, imperial dynasty of China that ruled from 618 to 907 AD, with an Zhou dynasty (690–705), interregnum between 690 and 705. It was preceded by the Sui dyn ...
(618–907) into the
Song dynasty
The Song dynasty (; ; 960–1279) was an imperial dynasty of China that began in 960 and lasted until 1279. The dynasty was founded by Emperor Taizu of Song following his usurpation of the throne of the Later Zhou. The Song conquered the rest ...
(960–1279). It began as a means for merchants to exchange heavy coinage for
receipt
A receipt (also known as a packing list, packing slip, packaging slip, (delivery) docket, shipping list, delivery list, bill of the parcel, manifest, or customer receipt) is a document acknowledging that a person has received money or propert ...
s of deposit issued as
promissory note
A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
s by
wholesaler
Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In g ...
s' shops. These notes were valid for temporary use in a small regional territory. In the 10th century, the
Song dynasty
The Song dynasty (; ; 960–1279) was an imperial dynasty of China that began in 960 and lasted until 1279. The dynasty was founded by Emperor Taizu of Song following his usurpation of the throne of the Later Zhou. The Song conquered the rest ...
government began to circulate these notes amongst the traders in its
monopolized
A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a spec ...
salt industry. The Song government granted several shops the right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. Yet the banknotes issued were still only locally and temporarily valid: it was not until the mid 13th century that a standard and uniform government issue of paper money became an acceptable nationwide currency. The already widespread methods of
woodblock printing
Woodblock printing or block printing is a technique for printing text, images or patterns used widely throughout East Asia and originating in China in antiquity as a method of printing on textiles and later paper. Each page or image is create ...
and then
Bi Sheng
Bi Sheng (; 972–1051 AD) was a Chinese artisan, engineer, and inventor of the world's first movable type technology, with printing being one of the Four Great Inventions. Bi Sheng's system was made of Chinese porcelain and was invented betwee ...
's
movable type
Movable type (US English; moveable type in British English) is the system and technology of printing and typography that uses movable components to reproduce the elements of a document (usually individual alphanumeric characters or punctuatio ...
printing
Printing is a process for mass reproducing text and images using a master form or template. The earliest non-paper products involving printing include cylinder seals and objects such as the Cyrus Cylinder and the Cylinders of Nabonidus. The ea ...
by the 11th century were the impetus for the mass production of paper money in premodern China.
![Jiao zi](https://upload.wikimedia.org/wikipedia/commons/d/d9/Jiao_zi.jpg)
At around the same time in the
medieval Islamic world
The Islamic Golden Age was a period of cultural, economic, and scientific flourishing in the history of Islam, traditionally dated from the 8th century to the 14th century. This period is traditionally understood to have begun during the reign ...
, a vigorous
monetary economy
Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions (such as medium of exchange, store of value and unit of account), and it ...
was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the
dinar
The dinar () is the principal currency unit in several countries near the Mediterranean Sea, and its historical use is even more widespread.
The modern dinar's historical antecedents are the gold dinar and the silver dirham, the main coin of ...
). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
,
cheque
A cheque, or check (American English; see spelling differences) is a document that orders a bank (or credit union) to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The pers ...
s,
promissory note
A promissory note, sometimes referred to as a note payable, is a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the ''maker'' or ''issuer'') promises in writing to pay a determinate sum of ...
s,
savings account
A savings account is a bank account at a retail bank. Common features include a limited number of withdrawals, a lack of cheque and linked debit card facilities, limited transfer options and the inability to be overdrawn. Traditionally, transac ...
s,
transaction account
A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the ...
s,
loan
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...
ing,
trusts
A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...
,
exchange rate
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...
s, the transfer of credit and
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
,
and
banking institution
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...
s for loans and
deposits
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, Transaction account#Current accounts, current accounts or any of several othe ...
.
In Europe, paper currency was first introduced on a regular basis in
Sweden
Sweden, formally the Kingdom of Sweden,The United Nations Group of Experts on Geographical Names states that the country's formal name is the Kingdom of SwedenUNGEGN World Geographical Names, Sweden./ref> is a Nordic country located on ...
in 1661 (although
Washington Irving
Washington Irving (April 3, 1783 – November 28, 1859) was an American short-story writer, essayist, biographer, historian, and diplomat of the early 19th century. He is best known for his short stories "Rip Van Winkle" (1819) and " The Legen ...
records an earlier emergency use of it, by the Spanish in a siege during the
Conquest of Granada
The Granada War ( es, Guerra de Granada) was a series of military campaigns between 1482 and 1491 during the reign of the Catholic Monarchs, Isabella I of Castile and Ferdinand II of Aragon, against the Nasrid dynasty's Emirate of Granada. It e ...
). As
Sweden
Sweden, formally the Kingdom of Sweden,The United Nations Group of Experts on Geographical Names states that the country's formal name is the Kingdom of SwedenUNGEGN World Geographical Names, Sweden./ref> is a Nordic country located on ...
was rich in copper, many copper coins were in circulation, but its relatively low value necessitated extraordinarily big coins, often weighing several kilograms.
The advantages of paper currency were numerous: it reduced the need to transport gold and silver, which was risky; it facilitated loans of gold or silver at interest, since the underlying
specie
Specie may refer to:
* Coins or other metal money in mass circulation
* Bullion coins
* Hard money (policy)
* Commodity money
* Specie Circular, 1836 executive order by US President Andrew Jackson regarding hard money
* Specie Payment Resumption Ac ...
(money in the form of gold or silver coins rather than notes) never left the possession of the lender until someone else redeemed the note; and it allowed a division of currency into credit- and specie-backed forms. It enabled the sale of
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
in
joint-stock companies
A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are ...
and the redemption of those
shares
In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...
in a paper.
But there were also disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more notes than they had specie to back them with. Second, because this increased the money supply, it increased inflationary pressures, a fact observed by
David Hume
David Hume (; born David Home; 7 May 1711 NS (26 April 1711 OS) – 25 August 1776) Cranston, Maurice, and Thomas Edmund Jessop. 2020 999br>David Hume" ''Encyclopædia Britannica''. Retrieved 18 May 2020. was a Scottish Enlightenment philo ...
in the 18th century. Thus paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a
standing army
A standing army is a permanent, often professional, army. It is composed of full-time soldiers who may be either career soldiers or conscripts. It differs from army reserves, who are enrolled for the long term, but activated only during wars or n ...
. For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive since the speculative profits of trade and capital creation were quite large. Major nations established
mints
A mint or breath mint is a food item often consumed as an after-meal refreshment or before business and social engagements to improve breath odor. Mints are commonly believed to soothe the stomach given their association with natural byproducts ...
to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.
At that time, both silver and gold were considered a
legal tender
Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in pa ...
and accepted by governments for taxes. However, the
instability in the exchange rate between the two grew over the course of the 19th century, with the increases both in the supply of these metals, particularly silver, and in trade. The parallel use of both metals is called
bimetallism
Bimetallism, also known as the bimetallic standard, is a monetary standard in which the value of the monetary unit is defined as equivalent to certain quantities of two metals, typically gold and silver, creating a fixed rate of exchange betwee ...
, and the attempt to create a
bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
ists. Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States
greenback, to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed.
By 1900, most of the industrializing nations were on some form of
gold standard
A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...
, with paper notes and silver coins constituting the circulating medium. Private
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s and governments across the world followed
Gresham's law
In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable co ...
: keeping the gold and silver they received but paying out in notes. This did not happen all around the world at the same time, but occurred sporadically, generally in times of war or financial crisis, beginning in the early 20th century and continuing across the world until the late 20th century, when the regime of floating fiat currencies came into force. One of the last countries to break away from the gold standard was the United States in 1971, an action which was known as the
Nixon shock. No country has an enforceable gold standard or
silver standard
The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. Silver was far more widespread than gold as the monetary standard worldwide, from the Sumerians 3000 BC until 1873. Following t ...
currency system.
Banknote era
A
banknote
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes w ...
or bill is a type of currency and is commonly used as legal tender in many jurisdictions. Together with
coin
A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order t ...
s, banknotes make up the
cash
In economics, cash is money in the physical form of currency, such as banknotes and coins.
In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-imm ...
form of a currency. Banknotes were initially mostly paper, but Australia's
Commonwealth Scientific and Industrial Research Organisation
The Commonwealth Scientific and Industrial Research Organisation (CSIRO) is an Australian Government agency responsible for scientific research.
CSIRO works with leading organisations around the world. From its headquarters in Canberra, CSIRO ...
developed a
polymer currency
Polymer banknotes are banknotes made from a synthetic polymer such as biaxially oriented polypropylene (BOPP). Such notes incorporate many security features not available in paper banknotes, including the use of metameric inks. Polymer banknote ...
in the 1980s; it went into circulation on the nation's bicentenary in 1988. Polymer banknotes
had already been introduced in the
Isle of Man
)
, anthem = "O Land of Our Birth"
, image = Isle of Man by Sentinel-2.jpg
, image_map = Europe-Isle_of_Man.svg
, mapsize =
, map_alt = Location of the Isle of Man in Europe
, map_caption = Location of the Isle of Man (green)
in Europe ...
in 1983. As of 2016,
polymer currency
Polymer banknotes are banknotes made from a synthetic polymer such as biaxially oriented polypropylene (BOPP). Such notes incorporate many security features not available in paper banknotes, including the use of metameric inks. Polymer banknote ...
is used in over 20 countries (over 40 if counting commemorative issues), and dramatically increases the life span of banknotes and reduces counterfeiting.
Modern currencies
![Mapa dos nomes de moedas do mundo](https://upload.wikimedia.org/wikipedia/commons/0/02/Mapa_dos_nomes_de_moedas_do_mundo.png)
The currency used is based on the concept of
lex monetae ''Lex monetae'' is a Latin phrase which means that a sovereign state chooses which currency it will use and that the meaning of units of above-mentioned currency is determined by the law of the country whose money is in question.
The concept has be ...
; that a sovereign state decides which currency it shall use. The
International Organization for Standardization
The International Organization for Standardization (ISO ) is an international standard development organization composed of representatives from the national standards organizations of member countries. Membership requirements are given in Ar ...
has introduced a system of three-letter codes (
ISO 4217
ISO 4217 is a standard published by the International Organization for Standardization (ISO) that defines alpha codes and numeric codes for the representation of currencies and provides information about the relationships between individual cu ...
) to denote currency (as opposed to simple names or
currency sign
A currency symbol or currency sign is a graphic symbol used to denote a currency unit. Usually it is defined by the monetary authority, like the national central bank for the currency concerned.
In formatting, the symbol can use various format ...
s), in order to remove the confusion arising because there are dozens of currencies called the
dollar
Dollar is the name of more than 20 currencies. They include the Australian dollar, Brunei dollar, Canadian dollar, Hong Kong dollar, Jamaican dollar, Liberian dollar, Namibian dollar, New Taiwan dollar, New Zealand dollar, Singapore dollar, U ...
and several called the
franc
The franc is any of various units of currency. One franc is typically divided into 100 centimes. The name is said to derive from the Latin inscription ''francorum rex'' (Style of the French sovereign, King of the Franks) used on early France, ...
. Even the
"pound" is used in nearly a dozen different countries; most of these are tied to the
pound sterling
Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and t ...
, while the remainder has varying values. In general, the three-letter code uses the
ISO 3166-1
ISO 3166-1 (''Codes for the representation of names of countries and their subdivisions – Part 1: Country codes'') is a standard defining codes for the names of countries, dependent territories, and special areas of geographical interest. It ...
country code for the first two letters and the first letter of the name of the currency (D for dollar, for example) as the third letter. United States currency, for instance, is globally referred to as
USD
The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...
. Currencies such as the pound sterling have different codes, as the first two letters denote not the exact country name but an alternative name also used to describe the country. The pound's code is GBP where ''GB'' denotes
Great Britain
Great Britain is an island in the North Atlantic Ocean off the northwest coast of continental Europe. With an area of , it is the largest of the British Isles, the largest European island and the ninth-largest island in the world. It is ...
instead of the United Kingdom.
The former currencies include the
marks
Marks may refer to:
Business
* Mark's, a Canadian retail chain
* Marks & Spencer, a British retail chain
* Collective trade marks, trademarks owned by an organisation for the benefit of its members
* Marks & Co, the inspiration for the novel '' ...
that were in circulation in
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
and
Finland
Finland ( fi, Suomi ; sv, Finland ), officially the Republic of Finland (; ), is a Nordic country in Northern Europe. It shares land borders with Sweden to the northwest, Norway to the north, and Russia to the east, with the Gulf of B ...
.
The
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
uses a different system when referring to national currencies.
Alternative currencies
Distinct from centrally controlled government-issued currencies, private decentralized trust-reduced networks support alternative currencies such as
Cardano (blockchain platform)
Cardano is a public blockchain platform. It is open-source and decentralized, with consensus achieved using proof of stake. It can facilitate peer-to-peer transactions with its internal cryptocurrency, ADA.
Cardano's development began in 2015 ...
,
bitcoin
Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
,
Ethereum's ether,
Litecoin
Litecoin (Abbreviation: LTC; sign: Ł) is a decentralized peer-to-peer cryptocurrency and open-source software project released under the MIT/X11 license. Inspired by Bitcoin, Litecoin was among the earliest altcoins, starting in October 2011. ...
,
Monero
Monero (; Abbreviation: XMR) is a decentralized cryptocurrency. It uses a public distributed ledger with privacy-enhancing technologies that obfuscate transactions to achieve anonymity and fungibility. Observers cannot decipher addresses tradi ...
,
Peercoin
Peercoin, also known as Peer-to-Peer Coin, PP Coin, or PPC is a cryptocurrency utilizing both proof-of-stake and proof-of-work systems.
History
Peercoin is based on an August 2012 paper which listed the authors as Scott Nadal and Sunny King. Ki ...
, or
Dogecoin
Dogecoin ( or , Abbreviation: DOGE; sign: Ð) is a cryptocurrency created by software engineers Billy Markus and Jackson Palmer, who decided to create a payment system as a "joke", making fun of the wild speculation in cryptocurrencies at the ...
, which are classified as
cryptocurrency
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
since the transfer of value is assured through
cryptographic signatures validated by all users. There are also
brand
A brand is a name, term, design, symbol or any other feature that distinguishes one seller's good or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create an ...
ed currencies, for example 'obligation' based stores of value, such as quasi-regulated BarterCard, Loyalty Points (Credit Cards, Airlines) or Game-Credits (MMO games) that are based on reputation of commercial products, or highly regulated 'asset-backed' 'alternative currencies' such as mobile-money schemes like MPESA (called E-Money Issuance).
[● ''TED Video:'' ● ''Corresponding written article:'' ]
The currency may be Internet-based and digital, for instance,
bitcoin
Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
is not tied to any specific country, or the IMF's SDR that is based on a basket of currencies (and assets held).
Possession and sale of alternative forms of currencies is often outlawed by governments in order to preserve the legitimacy of the constitutional currency for the benefit of all citizens. For example, Article I, section 8, clause 5 of the United States Constitution delegates to
Congress
A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of a ...
the power to coin money and to regulate the value thereof. This power was delegated to Congress in order to establish and preserve a uniform standard of value and to insure a singular monetary system for all purchases and debts in the United States, public and private. Along with the power to coin money, the United States Congress has the concurrent power to restrain the circulation of money which is not issued under its own authority in order to protect and preserve the constitutional currency. It is a violation of federal law for individuals, or organizations to create private coin or currency systems to compete with the official coinage and currency of the United States.
Control and production
![2002 currency exchange AIGA euro money](https://upload.wikimedia.org/wikipedia/commons/a/a1/2002_currency_exchange_AIGA_euro_money.png)
In most cases, a
central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
has the exclusive power to issue all forms of currency, including coins and banknotes (
fiat money
Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...
), and to restrain the circulation alternative currencies for its own area of circulation (a country or group of countries); it regulates the production of currency by banks (
credit
Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...
) through
monetary policy
Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
.
An
exchange rate
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...
is a price at which two currencies can be exchanged against each other. This is used for
trade
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
between the two currency zones. Exchange rates can be classified as either
floating or
fixed
Fixed may refer to:
* ''Fixed'' (EP), EP by Nine Inch Nails
* ''Fixed'', an upcoming 2D adult animated film directed by Genndy Tartakovsky
* Fixed (typeface), a collection of monospace bitmap fonts that is distributed with the X Window System
* ...
. In the former, day-to-day movements in exchange rates are determined by the market; in the latter, governments intervene in the market to buy or sell their currency to balance supply and demand at a static exchange rate.
In cases where a country has control of its own currency, that control is exercised either by a
central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
or by a
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
. The institution that has control of monetary policy is referred to as the monetary authority. Monetary authorities have varying degrees of autonomy from the governments that create them. A monetary authority is created and supported by its sponsoring government, so independence can be reduced by the legislative or executive authority that creates it.
Several countries can use the same name for their own separate currencies (for example, a ''dollar'' in
Australia
Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
,
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
, and the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
). By contrast, several countries can also use the same currency (for example, the
euro
The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
or the
CFA franc
The CFA franc (french: franc CFA, , Franc of the Financial Community of Africa, originally Franc of the French Colonies in Africa, or colloquially ; abbreviation: F.CFA) is the name of two currencies, the West African CFA franc, used in eight Wes ...
), or one country can declare the currency of another country to be
legal tender
Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in pa ...
. For example,
Panama
Panama ( , ; es, link=no, Panamá ), officially the Republic of Panama ( es, República de Panamá), is a transcontinental country spanning the southern part of North America and the northern part of South America. It is bordered by Cos ...
and
El Salvador
El Salvador (; , meaning " The Saviour"), officially the Republic of El Salvador ( es, República de El Salvador), is a country in Central America. It is bordered on the northeast by Honduras, on the northwest by Guatemala, and on the south b ...
have declared US currency to be legal tender, and from 1791 to 1857,
Spanish dollars
The Spanish dollar, also known as the piece of eight ( es, Real de a ocho, , , or ), is a silver coin of approximately diameter worth eight Spanish reales. It was minted in the Spanish Empire following a monetary reform in 1497 with content ...
were legal tender in the United States. At various times countries have either re-stamped foreign coins or used
currency board
In public finance, a currency board is a monetary authority which is required to maintain a fixed exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchan ...
s, issuing one note of currency for each note of a foreign government held, as
Ecuador
Ecuador ( ; ; Quechua: ''Ikwayur''; Shuar: ''Ecuador'' or ''Ekuatur''), officially the Republic of Ecuador ( es, República del Ecuador, which literally translates as "Republic of the Equator"; Quechua: ''Ikwadur Ripuwlika''; Shuar: ''Eku ...
currently does.
Each currency typically has a main currency unit (the
dollar
Dollar is the name of more than 20 currencies. They include the Australian dollar, Brunei dollar, Canadian dollar, Hong Kong dollar, Jamaican dollar, Liberian dollar, Namibian dollar, New Taiwan dollar, New Zealand dollar, Singapore dollar, U ...
, for example, or the
euro
The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
) and a fractional unit, often defined as of the main unit: 100
cents = 1
dollar
Dollar is the name of more than 20 currencies. They include the Australian dollar, Brunei dollar, Canadian dollar, Hong Kong dollar, Jamaican dollar, Liberian dollar, Namibian dollar, New Taiwan dollar, New Zealand dollar, Singapore dollar, U ...
, 100
centime
Centime (from la, centesimus) is French for " cent", and is used in English as the name of the fraction currency in several Francophone countries (including Switzerland, Algeria, Belgium, Morocco and France).
In France, the usage of ''centim ...
s = 1
franc
The franc is any of various units of currency. One franc is typically divided into 100 centimes. The name is said to derive from the Latin inscription ''francorum rex'' (Style of the French sovereign, King of the Franks) used on early France, ...
, 100 pence = 1
pound
Pound or Pounds may refer to:
Units
* Pound (currency), a unit of currency
* Pound sterling, the official currency of the United Kingdom
* Pound (mass), a unit of mass
* Pound (force), a unit of force
* Rail pound, in rail profile
Symbols
* Po ...
, although units of or occasionally also occur. Some currencies do not have any smaller units at all, such as the
Icelandic króna
The króna or krona (sometimes called Icelandic crown; sign: kr; code: ISK) is the currency of Iceland. Iceland is the second-smallest country by population, after the Seychelles, to have its own currency and monetary policy.
Name
Like the ...
and the
Japanese yen
The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the ...
.
Mauritania
Mauritania (; ar, موريتانيا, ', french: Mauritanie; Berber: ''Agawej'' or ''Cengit''; Pulaar: ''Moritani''; Wolof: ''Gànnaar''; Soninke:), officially the Islamic Republic of Mauritania ( ar, الجمهورية الإسلامية ...
and
Madagascar
Madagascar (; mg, Madagasikara, ), officially the Republic of Madagascar ( mg, Repoblikan'i Madagasikara, links=no, ; french: République de Madagascar), is an island country in the Indian Ocean, approximately off the coast of East Africa ...
are the only remaining countries that have theoretical fractional units not based on the decimal system; instead, the
Mauritanian ouguiya
The ouguiya ( ar, rtl=yes, 1=أوقية موريتانية, links=, lit=, translit= (); sign: UM; code: MRU), at one time spelled "ougiya", is the currency of Mauritania. Each ouguiya constitutes five khoums (meaning "one fifth"). As such it is o ...
is in theory divided into 5
khoums
The khoums (singular and plural in English; ar, خمس, "fifth") is the subdivisory unit of the Mauritanian monetary system, the ouguiya. Five khoums make an ouguiya, hence one khoums can be expressed as 0.2 ouguiya.
When the ouguiya was adapted ...
, while the
Malagasy ariary
The ariary (sign: Ar; ISO 4217 code MGA) is the currency of Madagascar. It is notionally subdivided into 5 ''iraimbilanja'' and is one of only two non-decimal currencies currently circulating (the other is the ''Mauritanian ouguiya''). The names a ...
is theoretically divided into 5
iraimbilanja
The iraimbilanja (singular and plural) is the divisory currency unit of Madagascar, being equal to one fifth of an ariary.
Etymology
Iraimbilanja means literally "one iron weight" and was the name of an old coin worth of an ariary.
Value
The ...
. In these countries, words like ''dollar'' or ''pound'' "were simply names for given weights of gold".
Due to
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
khoums and iraimbilanja have in practice fallen into disuse. (See
non-decimal currencies
A non-decimal currency is a currency that has sub-units that are a non-decimal fraction of the main unit, i.e. the number of sub-units in a main unit is not a power of 10. Historically, most currencies were non-decimal, though today virtually all ...
for other historic currencies with non-decimal divisions.)
Currency convertibility
Subject to variation around the world, local currency can be converted to another currency or vice versa with or without central bank/government intervention. Such conversions take place in the
foreign exchange market
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspec ...
. Based on the above restrictions or free and readily conversion features, currencies are classified as:
; Fully convertible: When there are no restrictions or limitations on the amount of currency that can be traded on the international market, and the government does not artificially impose a fixed value or minimum value on the currency in international trade. The US dollar is one of the main fully convertible currencies.
; Partially convertible: Central banks control international investments flowing into and out of a country. While most domestic transactions are handled without any special requirements, there are significant restrictions on international investing, and special approval is often required in order to convert into other currencies. The Indian rupee and the renminbi are examples of partially convertible currencies.
; Nonconvertible: A government neither participates in the international currency market nor allows the conversion of its currency by individuals or companies. These currencies are also known as ''blocked'', e.g. the
North Korean won
The Korean People's won, sometimes known as the North Korean won (Symbol: ₩; Code: KPW; Korean: ) or Democratic People's Republic of Korea won (Korean: ), is the official currency of North Korea. It is subdivided into 100 ''chon''. The curre ...
and the
Cuban peso
The Cuban peso (in Spanish , ISO 4217 code: CUP) also known as , is the official currency of Cuba.
The Cuban peso historically circulated at par with the Spanish-American silver dollar from the 16th to 19th centuries, and then at par with the U ...
.
According to the three aspects of trade in
goods and services
Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doctor ...
, capital flows and national policies, the supply-demand relationship of different currencies determines the exchange ratio between currencies.
Trade in goods and services
Through cost transfer, goods and services circulating in the country (such as hotels, tourism, catering, advertising, household services) will indirectly affect the trade cost of goods and services and the price of export trade. Therefore, services and goods involved in
international trade
International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy)
In most countries, such trade represents a significant ...
are not the only reason affecting the exchange rate. The large number of international tourists and overseas students has resulted in the flow of services and goods at home and abroad. It also represents that the competitiveness of global goods and services directly affects the change of international exchange rates.
Capital flows
National currencies will be traded on international markets for investment purposes. Investment opportunities in each country attract other countries into investment programs, so that these foreign currencies become the reserves of the
central banks
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
of each country. The exchange rate mechanism, in which currencies are quoted continuously between countries, is based on foreign exchange markets in which currencies are invested by individuals and traded or speculated by central banks and investment institutions. In addition, changes in interest rates, capital market fluctuations and changes in investment opportunities will affect the global capital inflows and outflows of countries around the world, and exchange rates will fluctuate accordingly.
National policies
The country's foreign trade, monetary and fiscal policies affect the exchange rate fluctuations. Foreign trade includes policies such as tariffs and import standards for commodity exports. The impact of
monetary policy
Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
on the total amount and yield of money directly determines the changes in the international exchange rate.
Fiscal policies
In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables d ...
, such as transfer payments, taxation ratios, and other factors, dominate the profitability of capital and economic development, and the ratio of national debt issuance to deficit determines the repayment capacity and credit rating of the country. Such policies determine the mechanism of linking domestic and foreign currencies and therefore have a significant impact on the generation of exchange rates.
Currency convertibility is closely linked to economic development and finance. There are strict conditions for countries to achieve currency convertibility, which is a good way for countries to improve their economies. The currencies of some countries or regions in the world are freely convertible, such as the US dollar, Australian dollar and Japanese yen. The requirements for currency convertibility can be roughly divided into four parts:
; Sound microeconomic agency
With a freely convertible currency, domestic firms will have to compete fiercely with their foreign counterparts. The development of competition among them will affect the implementation effect of currency convertibility. In addition, microeconomics is a prerequisite for macroeconomic conditions.
; The macroeconomic situation and policies are stable
Since currency convertibility is the cross-border flow of goods and capital, it will have an impact on the macro economy. This requires that the national economy be in a normal and orderly state, that is, there is no serious inflation and economic overheating. In addition, the government should use macro policies to make mature adjustments to deal with the impact of currency exchange on the economy.
; A reasonable and open economy
The maintainability of international balance of payments is the main performance of reasonable economic structure. Currency convertibility not only causes difficulties in the sustainability of international balance of payments but also affects the government's direct control over international economic transactions. To eliminate the foreign exchange shortage, the government needs adequate international reserves.
; Appropriate exchange rate regime and level
The level of exchange rate is an important factor in maintaining exchange rate stability, both before and after currency convertibility. The exchange rate of freely convertible currency is too high or too low, which can easily trigger speculation and undermine the stability of macroeconomic and financial markets. Therefore, to maintain the level of exchange rate, a proper exchange rate regime is crucial.
Local currency
In economics, a local currency is a currency not backed by a national government and intended to trade only in a small area. Advocates such as
Jane Jacobs
Jane Jacobs (''née'' Butzner; 4 May 1916 – 25 April 2006) was an American-Canadian journalist, author, theorist, and activist who influenced urban studies, sociology, and economics. Her book '' The Death and Life of Great American Cities ...
argue that this enables an economically depressed region to pull itself up, by giving the people living there a medium of exchange that they can use to exchange services and locally produced goods (in a broader sense, this is the original purpose of all money). Opponents of this concept argue that local currency creates a barrier that can interfere with
economies of scale
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
and comparative advantage and that in some cases they can serve as a means of
tax evasion
Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxp ...
.
Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentinian economic crisis of 2002 in which
IOUs
An IOU (abbreviated from the phrase "I owe you") is usually an informal document acknowledging debt. An IOU differs from a promissory note in that an IOU is not a negotiable instrument and does not specify repayment terms such as the time of re ...
issued by local governments quickly took on some of the characteristics of local currencies.
One of the best examples of a local currency is the original
LETS
A local exchange trading system (also local employment and trading system or local energy transfer system; abbreviated LETS) is a locally initiated, democratically organised, not-for-profit community enterprise that provides a community infor ...
currency, founded on Vancouver Island in the early 1980s. In 1982, the
Canadian Central Bank’s lending rates ran up to 14% which drove chartered bank lending rates as high as 19%. The resulting currency and credit scarcity left island residents with few options other than to create a local currency.
List of major world payment currencies
The following table are estimates of the 20 most frequently used currencies in world payments in November 2022 by
SWIFT
Swift or SWIFT most commonly refers to:
* SWIFT, an international organization facilitating transactions between banks
** SWIFT code
* Swift (programming language)
* Swift (bird), a family of birds
It may also refer to:
Organizations
* SWIFT, ...
.
Tracker Monthly reporting and statistics on renminbi(RMB) progress towards becoming an international currency
/ref>
See also
Related concepts
* Counterfeit money
Counterfeit money is currency produced without the legal sanction of a state or government, usually in a deliberate attempt to imitate that currency and so as to deceive its recipient. Producing or using counterfeit money is a form of fraud or fo ...
* Currency band
A currency band is a range of values for the exchange rate for a country’s currency which the country’s central bank acts to keep the exchange rate within.
The central bank selects a range, or "band", of values at which to set their currency ...
* Currency transaction tax
A currency transaction tax is a tax placed on the use of currency for various types of transactions. The tax is associated with the financial sector and is a type of financial transaction tax, as opposed to a consumption tax paid by consumers, th ...
* Debasement
A debasement of coinage is the practice of lowering the intrinsic value of coins, especially when used in connection with commodity money, such as gold or silver coins. A coin is said to be debased if the quantity of gold, silver, copper or nick ...
* Exchange rate
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...
* Fiscal localism
Fiscal localism comprises institutions of localized monetary exchange. Sometimes considered a backlash against global capitalism or economic globalization, fiscal localism affords voluntary, market structures that help communities trade more effici ...
* Foreign exchange market
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspec ...
* Foreign exchange reserves
Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
* Functional currency Functional currency refers to the main currency used by a business or unit of a business. It is the monetary unit of account of the principal economic environment in which an economic entity operates.
International Accounting Standards (IAS) and U ...
* History of banking
The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BCE in Assyria, India and Sumeria. Later, in anci ...
* History of money
The history of money concerns the development throughout time of systems that provide the functions of money. Such systems can be understood as means of trading wealth indirectly; not directly as with bartering. Money is a mechanism that facilit ...
* Mutilated currency
Mutilated currency is a term used by the United States Bureau of Engraving and Printing (BEP) to describe currency which is damaged to the point where it is difficult to determine the value of the currency, or where it is not clear that at least ...
* Optimum currency area In economics, an optimum currency area (OCA) or optimal currency region (OCR) is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency.
The underlying theory describes the optimal cha ...
* Slang terms for money
Slang terms for money often derive from the appearance and features of banknotes or coins, their values, historical associations or the units of currency concerned. Within a language community, some of the slang terms vary in social, ethnic, ec ...
* Virtual currency
Virtual currency, or virtual money, is a digital currency that is largely unregulated and issued and usually controlled by its developers and used and accepted electronically among the members of a specific virtual community. In 2014, the Europe ...
* World currency
In international finance, a world currency, supranational currency, or global currency is a currency that would be transacted internationally, with no set borders.
History First European Banknotes (17th century)
The first European banknotes we ...
Accounting units
* Currency pair
A currency pair is the dyadic quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market. The currency that is used as the reference is called the counter currency, quote currency, or ...
* Currency symbol
A currency symbol or currency sign is a graphic symbol used to denote a currency unit. Usually it is defined by the monetary authority, like the national central bank for the currency concerned.
In formatting, the symbol can use various format ...
* Currency strength
Currency strength expresses the value of currency. For economists, it is often calculated as purchasing power, while for financial traders, it can be described as an indicator, reflecting many factors related to the currency; for example, fundament ...
* European Currency Unit
The European Currency Unit (, ; , ECU, or XEU) was a unit of account used by the European Economic Community and composed of a basket of member country currencies. The ECU came in to operation on 13 March 1979 and was assigned the ISO 421 ...
* Fictional currency
A fictional currency is some form of system of money defined, depicted, or alluded to, in works of fiction, such as novels, films or video games. The names of units of such currency are sometimes based on extant or historic currencies (e.g. " ...
* Franc Poincaré
* Local currencies
In economics, a local currency is a currency that can be spent in a particular geographical locality at participating organisations. A regional currency is a form of local currency encompassing a larger geographical area, while a community curren ...
* Petrocurrency
Petrocurrency (or petrodollar) is a word used with three distinct meanings, often confused:
#Dollars paid to oil-producing nations (petrodollar recycling)—a term invented in the 1970s meaning trading surpluses of oil-producing nations.
#Currenci ...
* Special drawing rights
Special drawing rights (SDRs, code ) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency ''per se''. They represent a claim ...
Lists
* ISO 4217
ISO 4217 is a standard published by the International Organization for Standardization (ISO) that defines alpha codes and numeric codes for the representation of currencies and provides information about the relationships between individual cu ...
* List of alternative names for currency
This is a list of alternative names for currency. A currency refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins. A more general definition is that a currency is a ''sy ...
* List of currencies
A list of all currencies, current and historic. The local name of the currency is used in this list, with the adjectival form of the country or region.
A
* Afghani – Afghanistan
* Akşa – Tuva
*Angolar – Angola
* Apsar - Abkhazia
* ...
* List of circulating currencies
There are 180 currency, currencies recognized as legal tender in United Nations (UN) Member states of the United Nations, member states, United Nations General Assembly observers, UN General Assembly non-member observer states, List of states w ...
* List of proposed currencies
This is a list of proposed currencies. Currencies are listed by their latest significant proposal.
19th century
* Montenegrin perun, Perun, planned to be introduced by Petar II Petrović-Njegoš in Principality of Montenegro, Montenegro
* Unite ...
* List of historical currencies
This is a list of historical currencies.
Greece
* Aeginian stater (gold)
* Corinthian stater (silver)
* Aurous
* Athenian drachma (silver)
*Stater (silver)
*Tetradrachm (silver)
*Drachma (silver)
** Alexandrian coinage
** Ptolemaic coinage
**Sel ...
* List of historical exchange rates
Listed below is a table of historical exchange rates relative to the United States dollar, U.S. dollar, at present the most widely traded currency in the world.Financial GuidFX FundamentalsRetrieved on July 6, 2007 An exchange rate represents the ...
* List of international trade topics
This is a list of international trade topics.
* Absolute advantage
* Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
* Asia-Pacific Economic Cooperation (APEC)
* Autarky
* Balance of trade
* Barter
* Bilateral Investm ...
* List of motifs on banknotes
This is a list of current motifs on the banknotes of different countries. The customary design of banknotes in most countries is a portrait of a notable citizen on the front (or ''obverse'') and a different motif on the back (or ''reverse'') - oft ...
Notes
References
External links
*
*
*
{{Authority control
Foreign exchange market