What is currency

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What is currency

From the English current = in circulation, the term currency is a generally accepted form of money or medium of exchange occurring in any form. It includes, for example, banknotes, coins, cryptocurrencies and others.

Currency

Currency is everything that determines the value of goods or services. The term includes all the money in circulation, not just our money. In general, each country has its own national currency, with the euro being the exception bringing together eurozone countries. Some countries, e.g. Haiti, use multiple currencies; this situation is called a parallel currency. Another case is when a non-sovereign territory uses its own currency, as in Hong Kong or Macau.

The currency performs three primary functions: a unit of account, a custodian, and a medium of exchange. It holds them because they are accepted by the company or household when settling debts. However, modern currencies have no value tied to precious metals and are essentially worthless. Its fair value is derived from its general acceptability, and the state guarantees its value as a medium of exchange.

Facts about currency

Currency is divided into two systems – commodity and fiat money. Commodity money is generally demanded goods serving as a universal medium of exchange. For example, gold or cattle fulfilled this role in the past. Fiat money is the term for money with forced circulation, i.e. all modern national currencies.

Currency is a designation of money, such as the dollar, euro or koruna. It is accepted as a payment in a specific area or between certain people. In most cases, it is governed by the central issuing institution – a central bank. However, cryptocurrencies are an exception to this rule.

Investors can trade currencies, for example, on Forex. Trades are executed in currency pairs, where a certain amount of one currency is bought by selling the other. Currencies are traded at exchange rates that vary depending on the demand.

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