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Currency

CURRENCY, in modern finance, is considered to be synonymous with paper money. In the past some writers stretched the term to include all forms of money that circulate (coins, banknotes). Currency - this is the kind of money used in a particular country. For example Dollar ($) — in the United States of America, ISO 4217 Code - USD, Yen (¥) — Japan, ISO 4217 Code - JPY and etc.

Currency serves as hand-to-hand money, smoothing the flow of trade in daily life around the world. A currency is the dominant medium of exchange. When properly used by governments, paper money is one of the greatest conveniences devised by man. Governments, however, are tempted to overissue paper money — that is, to print unsupported paper in excessive amounts. Currency inflation of this kind gave rise to the expression "not worth a Continental," referring to the extreme depreciation of the Continental currency of American revolutionary times. The dramatic inflation of the German mark, the Italian lira, the French franc, and other currencies immediately after World War I conclusively demonstrates that it takes more than fiat — that is, government authorization — to make money out of paper.

Credit and Currency Issue

Currency has as its dominant characteristic the element of credit. It is a record of an obligation to pay, made in a form suitable for monetary purposes. It may be the obligation of a government, of a privately owned central bank, of a commercial bank, or, in some undeveloped countries, of a private business organization or even a private person. In all of the more developed countries, however, currency issue is an extremely important government function that is either exercised directly or delegated as a monopoly to a bank of issue (usually the central bank, such as the Federal Reserve System in the United States). Counterfeiting or any other interference with the official currency is punished under laws designed to protect the integrity of the issue.

The Value of Currency is always expressed in terms of the monetary unit of the country in which it is issued. It is a freely circulating promise to pay the bearer on demand the indicated number of monetary units. The denominations issued are determined by the price level—that is, they must be in small denominations suitable for use as hand-to-hand money.

Quality and Quantify

In a modern economy with its great division of labor, a circulating medium of exchange is indispensable. Therefore currency — paper money without intrinsic value-will circulate even though the credit standing of the issuer leaves much to be desired. So long as there is not too much overissue, its use as money will give the currency value. It will be freely accepted unless, of course, there are more attractive alternatives such as gold bullion or gold coins. But modern nations, with one or two minor exceptions, have long since removed such alternatives, so that their citizens are forced to accept their currency regardless of its ultimate quality. Because of this, monetary use now gives currency its value more than ever before.

Currency issues in the past have tended to be either too much or too little — in most cases, too much. In either case, prices and business activity were adversely affected. Modern controlled currency systems attempt to avoid such impacts on economic activity or to adjust such impacts to government policy or expediency by controlling the amount of currency issued. At best, the aim is to fit the quantity of currency to the needs of the economy; at worst, currency "management" becomes a dishonest and dangerous political weapon.

Flexibility in the currency supply is desirable and necessary. But an effort is made to keep the control of such changes in the hands of an independent body not subject to the whims of immediately popular issues. In the United States, money management is achieved by the central bank — that is, the Federal Reserve's system of controlling total money supply quantities — even though the choke between holding money in currency form and holding it in checkbook form is under the control of the public.

Legal tender, or debt-extinguishing power conferred by law, is one of the devices used to make different forms of currency equally desirable. In the United States, all domestic currency is full legal tender for all debts, public or private.