A currency is a unit of exchange, facilitating the transfer of goods and services. It is a form of money, where money is defined as a medium of exchange (rather than e.g. a store of value). A currency zone is a country or region in which a specific currency is the dominant medium of exchange. To facilitate trade between currency zones, there are exchange rates i.e. prices at which currencies (and the goods and services of individual currency zones) can be exchanged against each other. Currencies can be classified as either floating currencies or fixed currencies based on their exchange rate regime. In common usage, currency sometimes refers to only paper money, as in "coins and currency", but this is incorrect. Coins and paper money are both forms of currency.
In most cases, each country has monopoly control over its own currency. Member countries of the European Monetary Union are a notable exception to this rule, as they have ceded control of monetary policy to the European Central Bank.
In cases where a country does have control of its own currency, that control is exercised either by a Central Bank or by a Ministry of Finance. In either case, 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. In the United States, the Federal Reserve operates with full independence from the government. It is important to note that a monetary authority is created and supported by its sponsoring government, so independence can be reduced or revoked by the legislative or executive authority that creates it. In almost all Western countries, the monetary authority is largely independent from the government.
Several countries can use the same name, each for their own currency (e.g. Canadian dollars and US dollars), several countries can use the same currency (e.g. the euro), or a country can declare the currency of another country to be legal tender. For example, Panama and El Salvador have declared US currency to be legal tender, and from 1791-1857, Spanish silver coins were legal tender in the United States. At various times countries have either restamped foreign coins, or used currency board issuing one note of currency for each note of a foreign government held, as Ecuador currently does.
Each currency typically has one fractional currency, often valued at 1/100 of the main currency: 100 cents = 1 dollar, 100 centimes = 1 franc, 100 pence = 1 pound. Units of 1/10 or 1/1000 are also common, but some currencies do not have any smaller units. Mauritania and Madagascar are the only remaining countries that do not use the decimal system; instead, the Mauritanian ouguiya is divided into 5 khoum, while the Malagasy ariary is divided into 5 iraimbilanja. However, due to inflation, both fractional units have in practice fallen into disuse.
See Non-decimal currencies for other (mostly historic) currencies with non-decimal divisions.
The origin of currency is the creation of a circulating medium of exchange based on a store of value. Currency evolved from two basic innovations: the use of counters to assure that shipments arrived with the same goods that were shipped, and the use of silver ingots to represent stored value in the form of grain. Both of these developments had occurred by 2000 BC.
This first stage of currency, where metals were used to represent stored value, and symbols to represent commodities, formed the basis of trade in the 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. Trade could only reach as far as the credibility of that military.
These factors led to the shift of the store of value being the metal itself: at first silver, then both silver and gold. Metals were mined, weighed, and stamped into coins. This was to assure the individual taking the coin that he was getting a certain known weight of precious metal. Coins could be counterfeited, but they also created a new unit of account, which helped lead to banking. It was with Archimedes' principle that the next link in currency occurred: coins could now be easily tested for their fine weight of metal, and thus the value of a coin could be determined, even if it had been shaved, debased or otherwise tampered with. (See Coinage).
In most major economies using coinage, copper, silver and gold formed three tiers of coins. Gold coins were used for large purchases, payment of the military and backing of state activities. Silver coins were used for large, but common, transactions, and as a unit of account for taxes, dues, contracts and fealty, while copper coins represented the coinage of common transaction. In Europe this system worked through the medieval period because there was virtually no new gold, silver or copper introduced through mining or conquest. Thus the overall ratios of the three coinages remained roughly equivalent.
In China, however, the need for credit and for circulating medium led to the introduction of paper money. In Europe paper money was first introduced in Sweden 1661. Sweden was rich on copper but because of copper's low value extraordinarily big coins had to be made. It was probably more convenient to have a note stating your possession of such a coin.
The Era of Hard and Credit Money
Paper money was, in one sense, a return to the oldest form of currency: it represented a store of value backed by the credibility of the issuing authority. Drafts and checks issued privately had been in intermittent use for centuries, however, it was with the rise of global trade that paper money would find a permanent place in currency.
The advantages of paper currency were numerous: it reduced transport of gold and silver, and thus lowered the risks; it made loaning gold or silver at interest easier, since the specie (gold or silver) never left the possession of the lender until someone else redeemed the note; and it allowed for a division of currency into credit and specie backed forms. It enabled the sale of stock in joint stock companies, and the redemption of those shares in paper.
However, these advantages held within them disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. Second, because it created money that did not exist, it was subject to Gresham's Law: people would exchange money rather than coins of the same value, and this increased the velocity of money and therefore increased inflationary pressures, a fact observed by David Hume in the 18th century. The result is that paper money would often lead to an inflationary bubble, which would then collapse when the demand for paper notes fell to zero, and people began demanding hard money. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army.
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.
Legal Tender Era
With the creation of central banks, currency underwent several significant changes. During both the coinage and credit money eras the number of entities which had the ability to coin or print money was quite large. One could, literally, have "a license to print money"; many nobles had the right of coinage. Royal colonial companies, such as the Massachusetts Bay Company or the British East India Company could issue notes of credit—money backed by the promise to pay later, or exchangeable for payments owed to the company itself. This led to continual instability of the value of money. The exposure of coins to debasement and shaving, however, presented the same problem in another form: with each pair of hands a coin passed through, its value grew less.
The solution which evolved beginning in the late 18th century and through the 19th century was the creation of a central monetary authority which had a virtual monopoly on issuing currency, and whose notes had to be accepted for "all debts public and private". The creation of a truly national currency, backed by the government's store of precious metals, and enforced by their military and governmental control over an area was, in its time, extremely controversial. Advocates of the old system of Free Banking repealed central banking laws, or slowed down the adoption of restrictions on local currency. (See Gold standard for a fuller discussion of the creation of a standard gold based currency).
At this time both silver and gold were considered legal tender, and accepted by governments for taxes. However, the instability in the ratio between the two grew over the course of the 19th century, with the increase both in supply of these metals, particularly silver, and of trade. This is called bimetallism and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. 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, with paper notes and silver coins constituting the circulating medium. Governments too followed Gresham's Law: keeping gold and silver paid, but paying out in notes.
The Paper Money Era
Nowadays ISO have introduced a system, ISO 4217, using three-letter codes to define currency (as opposed to simple names or currency signs), in order to remove the confusion that there are dozens of currencies called the dollar and many called the franc. Even the pound is used in nearly a dozen different countries, all, of course, with wildly differing 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 instance) as the third letter.
The International Monetary Fund uses a variant system when referring to national currencies.
- For exchange rates, see here.
Currency names of the world in alphabetic order by currency name:
- Afghani - Afghanistan
- Ariary - Madagascar
- Baht - Thailand
- Balboa - Panama (U.S. dollar used for paper money)
- Birr - Ethiopia
- Bolívar - Venezuela
- Boliviano - Bolivia
- Cedi - Ghana
- Colón - Costa Rica
- Córdoba - Nicaragua
- Dalasi - The Gambia
- Denar - Macedonia
- Dobra - São Tomé and Príncipe
- Australian dollar - Australia, Christmas Island, Cocos (Keeling) Islands, Heard Island and McDonald Islands, Norfolk Island, Kiribati, Nauru and Tuvalu
- Barbados dollar - Barbados
- Bahamian dollar - Bahama
- Belize dollar - Belize
- Bermuda dollar - Bermuda
- Brunei dollar - Brunei
- Canadian dollar - Canada
- Cayman Islands dollar - Cayman Islands
- Cook Islands dollar - Cook Islands
- East Caribbean dollar - Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines
- Fijian dollar - Fiji
- Guyanese dollar - Guyana
- Hong Kong dollar - Hong Kong
- International dollar - hypothetical currency pegged 1:1 to the United States dollar
- Jamaican dollar - Jamaica
- Liberian dollar - Liberia
- Namibian dollar - Namibia
- New Zealand dollar - New Zealand, Cook Islands, Niue, Tokelau, Pitcairn Islands.
- Singapore dollar - Singapore
- Solomon Islands dollar - Solomon Islands
- Suriname dollar - Suriname
- New Taiwan dollar - Taiwan
- Trinidad and Tobago dollar - Trinidad and Tobago
- Tuvaluan dollar - Tuvalu (not an independent currency, equivalent to Australian dollar)
- United States dollar - United States of America; also used officially in several other countries: East Timor (has own centavo coins), Ecuador (has own centavo coins), El Salvador, Marshall Islands, Federated States of Micronesia, Palau and Panama (has own Balboa currency)
- Zimbabwe dollar - Zimbabwe
- Dong - Vietnam
- Dram - Armenia
- Escudo - Cape Verde
- Euro - Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain
- Countries that have made legal agreements with the EU to use the euro: Monaco, San Marino, Vatican City
- Territories that unilaterally use the euro: Andorra, Montenegro, Kosovo
- Currencies pegged to the euro: Cape Verdean escudo, CFA franc, CFP franc, Comorian franc, Bulgarian lev, Estonian kroon, Lithuanian litas, Bosnia and Herzegovina convertible mark
- Florin - Aruba
- Forint - Hungary
- CFA franc - Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Côte d'Ivoire, Republic of the Congo, Equatorial Guinea, Gabon, Guinea-Bissau, Mali, Niger, Senegal, Togo
- CFP franc - New Caledonia, French Polynesia, Wallis and Futuna
- Comorian franc - Comoros
- Congolese franc - Democratic Republic of Congo (replaced in 1967, re-established in 1998)
- Burundi franc - Burundi
- Rwandan franc - Rwanda
- Djiboutian franc - Djibouti
- Guinean franc - Guinea (replaced in 1971, re-established in 1985)
- Malagasy franc - Madagascar (replaced by Ariary in 2004)
- Swiss franc - Switzerland, Liechtenstein.
- Gourde - Haiti
- Guaraní - Paraguay
- Gulden - Netherlands Antilles
- Hryvnia - Ukraine
- Kina - Papua New Guinea
- Kip - Laos
- Kroon - Estonia
- Krona - Sweden
- Kuna - Croatia
- Kwanza - Angola
- Kyat - Myanmar
- Lat - Latvia
- Lari - Georgia
- Lek - Albania
- Lempira - Honduras
- Leone - Sierra Leone
- Lev - Bulgaria
- Lilangeni - Swaziland
- Litas - Lithuania
- Loti - Lesotho
- Mark, convertible - Bosnia and Herzegovina
- Metical - Mozambique
- Nakfa - Eritrea
- Naira - Nigeria
- Ngultrum - Bhutan
- Ouguiya - Mauritania
- Pa'anga - Tonga
- Pataca - Macau
- Cyprus pound - Cyprus
- Egyptian pound - Egypt
- Falkland pound - Falkland Islands
- Gibraltar pound - Gibraltar
- Guernsey pound - Guernsey
- Isle of Man pound - Isle of Man
- Jersey pound - Jersey
- Lebanese pound - Lebanon
- Saint Helenian pound - Saint Helena
- Pound sterling - United Kingdom
- (New) Sudanese pound - Southern Sudan
- Syrian pound - Syria
- Pula - Botswana
- Quetzal - Guatemala
- Rand - South Africa
- Real - Brazil
- Renminbi - People's Republic of China
- Riel - Cambodia
- Ringgit - Malaysia
- Rufiyah - Maldives
- Rupiah - Indonesia
- Sol - Peru
- Somoni - Tajikistan
- Taka - Bangladesh
- Tala - Samoa
- Tenge - Kazakhstan
- Tolar - Slovenia
- Tugrug - Mongolia
- Vatu - Vanuatu
- Japanese yen - Japan
- Złoty - Poland
From the earliest times token coins were issued by companies in remote parts of the world to overcome the shortage of circulating currency.
Several large companies issue points to their customers, to be redeemed for products and services produced by that company. Often, a network of companies will join to share in the offering and redemption of points. While these can hardly be considered stable currency systems, they present many of the same features as "legitimate" currency: they are a store of value, issued in discrete units; they are controlled by a central issuing authority; and they have varying rates of exchange with other forms of currency. For example, frequent flyer miles can be bought using U.S. dollars.
- Frequent Flyer Miles: A type of private currency, different versions of which are issued by most major airlines to encourage customer loyalty. Other customer loyalty incentives have followed this model, including points systems offered by soft drink manufacturers such as PepsiCo. Subway tokens, issued by city transit authorities, can be considered a highly specialized form of currency.
- E-gold: Privately issued digital currency backed by gold
- Scrip: A type of private currency where a certain value is captured, and used to purchase goods from a company. Examples of scrip include gift certificates, gift cards, and Disney Dollars or Canadian Tire Money. However, scrip is not considered a currency in itself, but merely a store of value, denominated in another currency.
- Liberty Dollar: A currency backed by silver, with a one-to-one exchange rate with the U.S. Dollar.
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 which 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 Argentine economic crisis of 2002 in which IOUs issued by local governments quickly took on some of the characteristics of local currencies.
With such developments as the Euro allowing for facilitated trade and perhaps a corresponding increase in a wider identity, proposals for a global currency have accelerated, even while it is recognized that several political and economic factors would need to be addressed and intermediate steps taken before such a concept might be accepted by the diverse nations of the world.
- ISO 4217 Currency codes
- Dollar - Rhodesia
- Ekwele (Ekuele) - Equatorial Guinea
- Florin - Kenya, Somalia, Tanzania and Uganda
- Metica - Mozambique
- Peseta - Equatorial Guinea
- Peso - Guinea Bissau
- Gambian pound - Gambia
- Ghanaian pound - Ghana
- Libyan pound - Libya
- Malawian pound - Malaŵi
- Nigerian pound - Nigeria
- Rhodesian pound - Rhodesia and Nyasaland
- South African pound - South Africa
- Sudanese pound - Sudan
- West African pound - Cameroon, Gambia, Ghana, Nigeria and Sierra Leone
- Zambian pound - Zambia
- Rial - Morocco
- Rupee - Kenya, Somalia, Tanzania and Uganda
- Shilling - Kenya, Somalia, Tanzania and Uganda
- Somalo - Somalia
- Syli - Guinea
- Zaire - Zaire
- Austral - Argentina
- Colón - El Salvador
- Continental Currency - Colonial America
- Cruzeiro, Cruzado - Brazil
- Escudo - Chile
- Gulden - Suriname
- Inti - Peru
- Pound - Jamaica
- Scudo - Bolivia
- Sucre - Ecuador
- Trade dollar - United States of America
- Venezolano - Venezuela
- Dollar - Mongolia
- Escudo - East Timor
- Franc - Cambodia
- Hwan - Korea
- Lira - Turkey
- Mohar - Nepal
- Pound - Israel
- Rixdollar - Sri Lanka
- Ruble - Tajikistan
- Piastre - Cambodia, Laos and Vietnam
- Tael - China
- Tical - Cambodia
- Franc - New Hebrides
- 14 national currencies which were replaced by the Euro in 2002:
- Florin - Austria
- Karbovanets - Ukraine
- Koruna - Slovakia (Second World War)
- Lira - Turkey
- Marka - Poland
- Old Pound (united Kingdom) replaced with New Pound
- Rubłi - Latvia
- Peso - Spain
- Talonas - Lithuania
- Thaler - Germany, Austria, Hungary
- Franc Poincaré
- Special Drawing Rights
- European Currency Unit
- Currency sign
- Fictional currency
- Local currencies
- Currency Pair
- List of circulating currencies
- List of motifs on banknotes
- List of international trade topics
- List of historical exchange rates
- Table of currencies (from dictionary.com)
- The early currencies of Southern Africa
- Ron Wise's World Paper Money Homepage
- Currency exchange rate conversion calculator from ostermiller.org
- Historical Currency Charts, Matrix & Converter
- Minting New Security
- Currency resources on the net
- Foreign Currency Trading Articles
- Currency issued by the individual States of the Confederacy during the American Civil War
- Ad-Free website on worldwide currencies with short Descrption and Pictures
- FXhill.com Forex Portal - Directory, News, Forum, Trading Strategies, Service Providers, Products, Institutions, Culture
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