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Currency

2007 Schools Wikipedia Selection. Related subjects: Currency

            Numismatics
   Numismatic terminology
   Currency

          Coins, Banknotes,
          Forgery

   Circulating currencies
   Community currencies

          Company scrip, LETS,
          Time dollars

   Fictional currencies
   Ancient currencies

          Greek, Roman,
          Byzantine

   Medieval currencies
   Modern currencies

          Africa, The Americas,
          Europe, Asia and Pacific

   Production

          Mint, Designers
          Coining, Milling,
          Hammering

   Exonumia

          Credit cards, Medals,
          Tokens

   Notaphily

          Banknotes

   Scripophily

          Stocks, Bonds

   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 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 misleading. Coins and paper money are both forms
   of currency.

   In most cases, each country has monopoly control over the supply and
   production of 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 without direct
   interference from the legislature or executive. 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. However, in
   practical terms, the revocation of authority is not likely since those
   who have the power to do so are generally beholden to the Fed for their
   positions. 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.

History

Early currency

   The origin of currency is the creation of a circulating medium of
   exchange based on a unit of account which quickly becomes 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 later with the use of silver ingots to represent stored value in
   the form of grain. Both of these developments had occurred by 2000 BC.
   Originally money was a form of receipting grain stored in temple
   granaries in Egypt and ancient Mesopotamia.

   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. By the late Bronze Age, however, a series of international
   treaties had established safe passage for merchants around the Eastern
   Mediterranean, spreading from Minoan Crete and Mycenae in the North
   West to Elam and Bahrein in the South East. Although it is not known
   what functionbed as a currency to facilitate these exhanges, it is
   thought that ox-hide shaped ingots of copper, produced in Cyprus may
   have functioned as a currency.

   It is thought that the increase in piracy and raiding associated with
   the Late Bronze Age general systems collapse, possibly produced by the
   Peoples of the Sea brought this trading system to an end. It was only
   with the recovery of Phoenician trade in the ninth and tenth centuries,
   that saw a return to prosperity, and the appearance of real coinage,
   possibly first in Anatolia with Croesus of Lydia and subsequently with
   the Greeks and Persians.

Coinage

   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. Archimedes' principle was
   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 Numismatics).

   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. This system had been used in ancient
   India since the time of the Mahajanapadas. 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.

The era of hard and credit money

   In China, the need for credit and for circulating medium led to the
   introduction of paper money, commonly known today as banknotes. In
   Europe paper money was first introduced in Sweden 1661. Sweden was rich
   on copper, thus, because of copper's low value, extraordinarily big
   coins (often weighing several kilograms) had to be made. Because the
   coin was so big, it was probably more convenient to carry a note
   stating your possession of such a coin than to actually carry the coin
   itself.

   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 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 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.

   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

   A banknote (more commonly known as a bill in the United States and
   Canada) is a type of currency, and commonly used as legal tender in
   many jurisdictions. With coins, banknotes make up the cash form of all
   modern money.

Modern currencies

   To find out which currency is used in a particular country, check list
   of circulating currencies.

   Nowadays, the International Organization for Standardization has
   introduced a system a three-letter system of codes ( ISO 4217) 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.

Privately issued currencies

   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.
     * Alternative currency: A currency such as the Liberty Dollar, with a
       one-to-one exchange rate with the U.S. Dollar.

     * Digital gold currency: Privately issued digital currency backed by
       gold

     * 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.

     * 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,
       Canadian Tire Money and more recently Microsoft Points on the Xbox
       Live Marketplace. However, scrip is not considered a currency in
       itself, but merely a store of value, denominated in another
       currency.

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
   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.

Single global currency

   With such developments as the euro allowing for facilitated trade and
   perhaps a corresponding increase in a wider identity, proposals for a
   single 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.
   Retrieved from " http://en.wikipedia.org/wiki/Currency"
   This reference article is mainly selected from the English Wikipedia
   with only minor checks and changes (see www.wikipedia.org for details
   of authors and sources) and is available under the GNU Free
   Documentation License. See also our Disclaimer.
