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A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is
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 main functions of money are distinguished as: a ...

money
in any form when in use or
circulation Circulation may refer to: Science and technology * Atmospheric circulation, the large-scale movement of air * Circulation (physics), the path integral of the fluid velocity around a closed curve in a fluid flow field * Circulatory system, a biolo ...
as a
medium of exchange In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies. ...
, especially circulating
banknote A banknote (often known as a bill (in the US and Canada), paper money, or simply a note) is a type of negotiable promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument ''Legal instrument'' is a ...
s and
coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hell ...

coin
s. A more general definition is that a currency is a ''system of money'' (monetary units) in common use, especially for people in a nation. Under this definition, U.S. dollars (US$),
euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, code: EUR) is the official currency of 19 of the Member state of the European Union, member states of the European Union. This group of states is known as the eurozone or euro area ...

euro
s (€),
Indian rupee The Indian rupee (symbol A symbol is a mark, sign, or that indicates, signifies, or is understood as representing an , , or . Symbols allow people to go beyond what is n or seen by creating linkages between otherwise very different s a ...
(₹),
Japanese yen The is the official currency of Japan. It is the third most traded currency in the foreign exchange market The foreign exchange market (Forex, FX, or currency market) is a global decentralized Decentralization or decentralisation ...
(¥), and
pounds sterling The pound sterling (symbol: £; ISO code: GBP), known in some contexts simply as the pound or sterling, is the official currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the ...
(£) are examples of currencies. 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 Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision makin ...
s, which determine the relative values of the different currencies. Currencies in this sense are defined by governments, and each type has limited boundaries of acceptance. Other definitions of the term "currency" appear in the respective synonymous articles:
banknote A banknote (often known as a bill (in the US and Canada), paper money, or simply a note) is a type of negotiable promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument ''Legal instrument'' is a ...
,
coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hell ...

coin
, 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 main functions of money are distinguished as: a ...

money
. 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 (facility), mint, central bank, the central banks and commercial banks. Commodity ...
s:
fiat money Fiat money (from la, fiat, ) is a type of money that is not backed by any commodity such as gold or silver, and typically declared by a decree from the government to be legal tender. Throughout history, fiat money was sometimes issued by local ...
,
commodity money Commodity money is money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 174x174px ...
, and
representative money Representative money is any medium of exchange Medium of exchange is a term in economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution ...
, depending on what guarantees a currency's value (the
economy An economy (; ) is an area of the production Production may be: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products ...

economy
at large vs. the government's physical metal reserves). Some currencies function as
legal tender Legal tender is a form of money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 1 ...
in certain political jurisdictions. 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 The Intern ...
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 automatically. Modern computers can perform generic sets of operations known as Computer program, programs. These ...

computer
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 ''internetworking, network of networks'' that consist ...

Internet
. 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 collection of binary data which is designed to work as a medium of exchange In economics Economics () is a social science Social science is the Branches of science, branch of s ...
are not legal currency, strictly speaking, since 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 targeting, inflation, interest rates, real GDP or unemployment rate. With its mone ...
(although one of them, Bitcoin, has become legal tender in El Salvador). 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 changing large amounts of money obtained from crimes, such as drug trafficking Uncoated tablets, consisting of about 90% acetylsalicylic acid, along with a minor amount of inert fillers and binders. Aspi ...
and
terrorism Terrorism, in its broadest sense, is the use of intentional violence to achieve political aims. The term is used in this regard primarily to refer to violence during peacetime Peace is a concept of societal friendship and harmony in the ...
. In 2014 the United States
IRS The Internal Revenue Service (IRS) is the revenue service A revenue service, revenue agency or taxation authority is a government agency responsible for the intake of government revenue, including taxes and sometimes non-tax revenue. ...

IRS
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

Originally money was a form of receipt, representing grain stored in temple granaries in
Sumer Sumer ()The name is from Akkadian language, Akkadian '; Sumerian language, Sumerian ''kig̃ir'', written and ,approximately "land of the civilized kings" or "native land". means "native, local", iĝir NATIVE (7x: Old Babylonian)from ''The ...

Sumer
in ancient
Mesopotamia Mesopotamia ( grc, Μεσοποταμία ''Mesopotamíā''; ar, بِلَاد ٱلرَّافِدَيْن ; syc, ܐܪܡ ܢܗܪ̈ܝܢ, or , ) is a historical region of Western Asia situated within the Tigris–Euphrates river system, in th ...

Mesopotamia
and in
Ancient Egypt Ancient Egypt was a civilization  A civilization (or civilisation) is a that is characterized by , , a form of government, and systems of communication (such as ). Civilizations are intimately associated with additional char ...

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 is a crescent-shaped region in the Middle East The Middle East ( ar, الشرق الأوسط, ISO 233 The international standard An international standard is a technical standard A technical standard is an establishe ...

Fertile Crescent
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 prehistoric Periodization, period that was characterized by the use of bronze, in some areas proto-writing, and other early features of urban civilization. The Bronze Age is the second principal period of the Three-age sys ...
, however, a series of
treaties A treaty is a formal, legally binding written agreement between actors in international law International law, also known as public international law and law of nations, is the set of rules, norms, and standards generally accepted in relati ...

treaties
had established safe passage for merchants around the
Eastern Mediterranean Eastern Mediterranean is a loose definition of the eastern Eastern may refer to: Transportation *China Eastern Airlines, a current Chinese airline based in Shanghai *Eastern Air, former name of Zambia Skyways *Eastern Air Lines, a defunct Amer ...

Eastern Mediterranean
, spreading from
Minoan The Minoan civilization was a Bronze Age Aegean civilization on the island of Crete and other Aegean Islands, flourishing from c. 3000 BC to c. 1450 BC and, after a late period of decline, finally ending around 1100 BC, during the early Greek Da ...
Crete Crete ( el, Κρήτη, translit=, Modern Modern may refer to: History *Modern history Human history, also known as world history, is the description of humanity's past. It is informed by archaeology Archaeology or archeology ...

Crete
and
Mycenae Mycenae ( ; grc, Μυκῆναι or , ''Mykē̂nai'' or ''Mykḗnē'') is an archaeological site near Mykines, Greece, Mykines in Argolis, north-eastern Peloponnese, Greece. It is located about south-west of Athens; north of Argos, Peloponne ...

Mycenae
in the northwest to
Elam Elam (; Linear Elamite: ''hatamti''; Cuneiform Cuneiform is a Logogram, logo-Syllabary, syllabic writing system, script that was used to write several languages of the Ancient Near East. The script was in active use from the early Bronz ...

Elam
and
Bahrain Bahrain ( ; ar, البحرين, al-Baḥrayn, , locally ), officially the Kingdom of Bahrain ( ar, مملكة البحرين, links=no '), is a country in the Arab states of the Persian Gulf, Persian Gulf. The Island country, island nation c ...

Bahrain
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 called the Republic of Cyprus,, , lit: Republic of Cyprus is an island country An island country or an island nation is a country A country is a distinct territory, territorial body or poli ...

Cyprus
, 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 transition period in a large area covering much of Southeast Europe, West Asia and North Africa North Africa is a region encompassing the northern portion of the African continent. There is no singularly ac ...
, possibly produced by the
Peoples of the Sea The Sea Peoples are a purported seafaring confederation A confederation (also known as a confederacy or league) is a union of sovereign groups or states united for purposes of common action. Usually created by a treaty A treaty is a ...
, 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 Lydian may refer to: * Lydians, an ancient people of Anatolia * Lydian language, an ancient Anatolian language * Lydian alphabet ** Lydian (Unicode block) * Lydian (typeface), a decorative typeface * Lydian dominant scale or aco ...

Croesus
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 ...

Lydia
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 tusk Tusks are elongated, continuously growing front teeth A tooth (plural teeth) is a hard, calcification, calcified structure found in the jaws (or mouths) of many vertebrates and used to Mastica ...
, various forms of weapons, livestock, the manilla currency, 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 17 countries of Benin, Burkina Faso, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania ...

West Africa
were one of the currencies used from the 15th century onwards to sell slaves. African currency 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 (economics), exchange in which participants in a financial transaction, transaction directly exchange good (economics), goods or service (economics), services for other goods or ...

barter
still apply.


Coinage

The prevalance 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. Now 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 Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods a ...
, which helped lead to
banking A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

banking
.
Archimedes' principle Archimedes' principle states that the upward buoyant force that is exerted on a body immersed in a fluid In physics, a fluid is a substance that continually Deformation (mechanics), deforms (flows) under an applied shear stress, or external f ...
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'' * Fine/Officer Fine, character in Tales from the Crypt, played by Vincent Spano Vincent M. Spano (born October 18, 1962) is an American film, stage and ...
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 A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a 1786 James ...

Numismatics
). 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 coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon ...
), might be used for everyday transactions. This system had been used in ancient
India India, officially the Republic of India (Hindi Hindi (Devanagari: , हिंदी, ISO 15919, ISO: ), or more precisely Modern Standard Hindi (Devanagari: , ISO 15919, ISO: ), is an Indo-Aryan language spoken chiefly in Hindi Belt, ...
since the time of the
Mahajanapadas The Mahājanapadas ( sa, great realm, from ''maha'', "great", and ''janapada'' "foothold of a people") were sixteen Realm, kingdoms or oligarchy, oligarchic republics that existed in Northern History of India, ancient India from the sixth to ...
. 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 Lower Saxony (german: Niedersachsen ; nds, Neddersassen; stq, Läichsaksen) is ...

Harz
mountains of central Europe made silver relatively less valuable, as did the flood of
New World The "New World" is a term for the majority of Earth Earth is the third planet from the Sun and the only astronomical object known to harbour and support life. 29.2% of Earth's surface is land consisting of continents and islands. The re ...
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
premodern
China China (), officially the People's Republic of China (PRC; ), is a country in East Asia East Asia is the eastern region of Asia Asia () is Earth's largest and most populous continent, located primarily in the Eastern Hemisphere ...

China
, the need for credit and for a medium of exchange that was less physically cumbersome than large numbers of
copper Copper is a chemical element In chemistry, an element is a pure Chemical substance, substance consisting only of atoms that all have the same numbers of protons in their atomic nucleus, nuclei. Unlike chemical compounds, chemical elem ...

copper
coins led to the introduction of
paper money A banknote (often known as a bill (in the US and Canada), 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 we ...
, i.e.
banknote A banknote (often known as a bill (in the US and Canada), paper money, or simply a note) is a type of negotiable promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument ''Legal instrument'' is a ...
s. Their introduction was a gradual process that lasted from the late
Tang dynasty The Tang dynasty (, ; ), or Tang Empire, was an imperial dynasty of China that ruled from 618 to 907, with an interregnum An interregnum (plural interregna or interregnums) is a period of discontinuity or "gap" in a government, organiza ...
(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 Emperor Taizu of Song (21 March 927 – 14 November 976), personal name Zhao Kua ...
(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 parcel, Manifest (transportation), manifest or customer receipt) is a document acknowledging that a person has rece ...

receipt
s of deposit issued as
promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument ''Legal instrument'' is a legal Law is a system of rules created and law enforcement, enforced through social or governmental institutions to regulate behav ...
s by
wholesaler Wholesaling or distributing is the sale of goods or merchandise Merchandising is any practice which contributes to the sale of products to a retail consumer A consumer is a person or a group who intends to order, orders, or uses purchased ...
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 Emperor Taizu of Song (21 March 927 – 14 November 976), personal name Zhao Kua ...
government began to circulate these notes amongst the traders in its
monopolized
monopolized
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 textile printing, printing on textiles and later paper. As a Woodbl ...
and then
Bi Sheng Bi Sheng and his invention at Beijing Printing Museum Bì Shēng (畢昇 972–1051 AD) was a Chinese artisan, engineer, and inventor of the world's first movable type Movable type (US English; moveable type in British English) is the system ...
's
movable type Movable type (US English; moveable type in British English) is the system and technology Technology ("science of craft", from Ancient Greek, Greek , ''techne'', "art, skill, cunning of hand"; and , ''wikt:-logia, -logia'') is the sum of a ...
printing Printing is a process for mass reproducing text and images An Synthetic aperture radar, SAR radar imaging, radar image acquired by the SIR-C/X-SAR radar on board the Space Shuttle Endeavour shows the Teide volcano. The city of Santa Cru ...

printing
by the 11th century were the impetus for the mass production of paper money in premodern China. At around the same time in the medieval Islamic world, a vigorous
monetary economy Monetary economics is the branch of economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (e ...
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, the main coin of the medieval Islamic e ...

dinar
). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of
credit px, Domestic credit to private sector in 2005 Credit (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, k ...
,
cheque A cheque, or check (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English language native to the United States. Currently, A ...
s,
promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument ''Legal instrument'' is a legal Law is a system of rules created and law enforcement, enforced through social or governmental institutions to regulate behav ...
s,
savings account A savings account is a at a . Common features include a limited number of withdrawals, a lack of cheque and linked facilities, limited transfer options, and the inability to be overdrawn. Traditionally, transactions on savings accounts were w ...
s,
transaction account Transaction or transactional may refer to: Commerce *Financial transaction A financial transaction is an agreement, or communication, carried out between a buyer and a seller to Trade, exchange an asset for payment. It involves a change in ...
s,
loan In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avai ...
ing,
trusts A trust is a legal relationship in which the holder of a right (eg. title to a chattel) gives it to another person or entity who must keep and use it solely for another's benefit. In English common law English law is the common law legal sy ...
,
exchange rate In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availa ...
s, the transfer of credit and
debt Debt is an obligation that requires one party, the debtor A debtor or debitor is a legal entity (legal person) that owes a debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to ...

debt
, and
banking institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by pr ...
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 other ...
. In Europe, paper money was first introduced on a regular basis in
Sweden Sweden ( sv, Sverige ), officially the Kingdom of Sweden ( sv, links=no, Konungariket Sverige ), is a Nordic country The Nordic countries, or the Nordics, are a geographical and cultural region In geography, regions are areas that ...

Sweden
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 Lege ...

Washington Irving
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 The term Catholic Monarchs refers to Queen Isabella I of Castile and King Ferdinand II of Aragon, ...
). As
Sweden Sweden ( sv, Sverige ), officially the Kingdom of Sweden ( sv, links=no, Konungariket Sverige ), is a Nordic country The Nordic countries, or the Nordics, are a geographical and cultural region In geography, regions are areas that ...

Sweden
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: * Coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when fresh ...
(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 of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
in
joint-stock companies A joint-stock company is a business entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness, and be ...
and the redemption of those
shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known ...
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 it 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 999999 or triple nine most often refers to: * 999 (emergency telephone number) 250px, A sign on a beach ...

David Hume
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 Military reserve force, army reserves, who are enrolled for the long term, but activate ...
. 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 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 Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 1 ...
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 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 between them. For scholarly purposes, "proper" bim ...
, 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 refers to a general progressive increase in prices 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 r ...

inflation
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 Gold certificates were used as paper currency in the United States">paper_currency.html" ;"title="Gold certificates were used as paper currency">Gold certificates were used as paper currency in the United States from 1882 to 1933. These certifi ...
, with paper notes and silver coins constituting the circulating medium. Private
bank A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

bank
s and governments across the world followed
Gresham's law In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
: 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 The Nixon shock was a series of economic measures undertaken by United States The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a country Contiguous United States, primarily located in ...
. No country has an enforceable gold standard or
silver standard The silver standard is a 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 (facility), mint, central bank, the cen ...
currency system.


Banknote era

A
banknote A banknote (often known as a bill (in the US and Canada), paper money, or simply a note) is a type of negotiable promissory note A promissory note, sometimes referred to as a note payable, is a legal instrument ''Legal instrument'' is a ...
(more commonly known as a bill in 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 Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
and
Canada Canada is a country in the northern part of North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, ...

Canada
) 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 A metal (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hell ...

coin
s, banknotes make up the
cash In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societie ...
form of all money. Banknotes are 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 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 The "National Anthem of the Isle of Man" ( gv, Arrane Ashoonagh Vannin) was written and composed by William Henry Gill (1839–1923), with the Manx translation by John J. Kneen (1873–1939). It is often r ...

Isle of Man
in 1983. As of 2016, polymer currency 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

The currency used is based on the concept of lex monetae; that a sovereign state decides which currency it shall use. The International Organization for Standardization has introduced a system of three-letter codes (ISO 4217) to denote currency (as opposed to simple names or currency signs), in order to remove the confusion arising because there are dozens of currencies called the dollar and several called the franc. Even the List of countries using pound currency, "pound" is used in nearly a dozen different countries; most of these are tied to the pound sterling, while the remainder has varying values. In general, the three-letter code uses the ISO 3166-1 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 United States dollar, USD. 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 instead of the United Kingdom. The former currencies include the Mark (currency), marks that were in circulation in Germany and Finland. The International Monetary Fund uses a different system when referring to national currencies.


Alternative currencies

Distinct from centrally controlled government-issued currencies, private decentralized trust-less networks support alternative currencies such as Bitcoin, Ethereum, Litecoin, Monero (cryptocurrency), Monero, Peercoin or Dogecoin, which are classified as cryptocurrency since the transfer of value is assured through cryptography, cryptographic signatures validated by all users. There are also branded 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 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 United States Congress, Congress 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

In most cases, a central bank has the exclusive power to issue all forms of currency, including coins and banknotes (
fiat money Fiat money (from la, fiat, ) is a type of money that is not backed by any commodity such as gold or silver, and typically declared by a decree from the government to be legal tender. Throughout history, fiat money was sometimes issued by local ...
), 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 (finance), credit) through monetary policy. An
exchange rate In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availa ...
is a price at which two currencies can be exchanged against each other. This is used for international trade, trade between the two currency zones. Exchange rates can be classified as either floating exchange rate, floating or fixed exchange-rate system, fixed. 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 or by a Finance minister, Ministry of Finance. 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 Australian dollar, Australia, Canadian dollar, Canada, and the United States dollar, United States). By contrast, several countries can also use the same currency (for example, the
euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, code: EUR) is the official currency of 19 of the Member state of the European Union, member states of the European Union. This group of states is known as the eurozone or euro area ...

euro
or the CFA franc), or one country can declare the currency of another country to be
legal tender Legal tender is a form of money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 1 ...
. For example, Panama and El Salvador have declared US currency to be legal tender, and from 1791 to 1857, Spanish dollars were legal tender in the United States. At various times countries have either re-stamped foreign coins or used currency boards, issuing one note of currency for each note of a foreign government held, as Ecuador currently does. Each currency typically has a main currency unit (the dollar, for example, or the
euro The euro (currency symbol, symbol: euro sign, €; ISO 4217, code: EUR) is the official currency of 19 of the Member state of the European Union, member states of the European Union. This group of states is known as the eurozone or euro area ...

euro
) and a fractional unit, often defined as of the main unit: 100 Cent (currency), cents = 1 dollar, 100 centimes = 1 franc, 100 Penny sterling, pence = 1 Pound sterling, pound, although units of or occasionally also occur. Some currencies do not have any smaller units at all, such as the Icelandic króna and the
Japanese yen The is the official currency of Japan. It is the third most traded currency in the foreign exchange market The foreign exchange market (Forex, FX, or currency market) is a global decentralized Decentralization or decentralisation ...
. Mauritania and Madagascar are the only remaining countries that have theoretical fractional units not based on the decimal system; instead, the Mauritanian ouguiya is in theory divided into 5 khoums, while the Malagasy ariary is theoretically divided into 5 iraimbilanja. In these countries, words like ''dollar'' or ''pound'' "were simply names for given weights of gold". Due to
inflation In economics, inflation refers to a general progressive increase in prices 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 r ...

inflation
khoums and iraimbilanja have in practice fallen into disuse. (See non-decimal currencies 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 Decentralization or decentralisation is the process by which the activities of an organization, particularly those regarding planning and decision makin ...
. 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 and the Cuban peso.


Local currencies

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 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 and comparative advantage and that in some cases they can serve as a means of tax evasion. 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 IOU (debt), IOUs 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 currency, founded on Vancouver Island in the early 1980s. In 1982, the Bank of Canada, 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 15 most frequently used currencies in world payments from January 2018 and August 2019 by SWIFT.RMB Tracker August 2019
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See also

Related concepts * Counterfeit money * Currency band * Currency transaction tax * Debasement * Exchange rate * Fiscal localism * Foreign exchange market * Foreign exchange reserves * Functional currency * History of banking * History of money * Mutilated currency * Optimum currency area * Slang terms for money * Virtual currency * World currency Accounting units * Currency pair * Currency symbol * Currency strength * European Currency Unit * Fictional currency * Franc Poincaré * Local currencies * Petrocurrency * Special drawing rights Lists * ISO 4217 * List of alternative names for currency * List of currencies * List of circulating currencies * List of proposed currencies * List of historical currencies * List of historical exchange rates * List of international trade topics * List of motifs on banknotes


Notes


References


External links

* * * {{Authority control Currency, Foreign exchange market