What is Currency?

What is Currency?

What is currency? Currency is something which has a recognizable value by all parties involved in the transaction. Merriam-Webster defines currency as “something (such as coins, treasury notes and bank notes) that is in circulation as a medium of exchange.” We all have a tendency to see currency as traditional money. This is not always the case.

For example, pretty rocks are valued in a particular culture. I have a bag of pretty rocks. I take this bag of pretty rocks to the local potter and trade them for a vase. The potter, in turn, takes the pretty rocks to the farmer and trades them for food. The farmer takes the pretty rocks and trades them for fertilizer to grow more food and so on. Some might laugh at the idea of pretty rocks as currency, but are not gold, silver and diamonds pretty rocks? Ultimately, currency is anything used in exchange for goods or services. Labor, livestock, advice or anything else can be used as a currency, provided it is accepted by all parties involved.

However, when we think of currency, most of us think of physical money. We think of paper banknotes and coins. These items fall under the identifying term known as fiat money. Fiat money, as defined by the Financial Times is, “Paper money or coins of little or no intrinsic value in themselves and not convertible into gold or silver, but made legal tender by fiat (order) of the government.” Basically, this form of money has value because the government says it does. All countries issue fiat money unless they are part of the eurozone which uses the euro as its form of currency. The euro is fiat money for 19 countries. Rupiah is fiat money for Indonesia.

[Hirsch, Paddy][Marketplace] (2013, December 8) Fiat Money explained [Video File]. Retrieved from
https://www.youtube.com/watch?v=U8Yn5jT8Hyc&t=4s

In today’s world, we have even more options being defined as currency. It is the world of digital currency. In my next posting, I will examine the history behind digital currencies and the bumpy road which has lead to the present. Be sure to check back as I explore the world of digital currency.

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