A currency acts as a medium of exchange to facilitate the trade or transfer of goods and services in a more advanced and accountable way to bartering. Each country has a currency of its own know as the Legal tender, which also serves as a standard of value and unit of account.
In the early stages metals were used as a currency. At first both gold and silver were used as coins – the bimetallic standard. Gold coins were used for government purchases. Silver coins were utilized for large but common transactions and for the most common transaction, copper coins were used. This system collapsed as the face value was much lesser than the actual value of the commodity. This gave rise to credit money: cheques, promissory notes etc. are some example of credit money. Fiat money (value determined by legal means rather then the availability of goods and services) came into existence after the credit money era. Lastly the Paper Currency which is still in existence.
Currencies belongs to the capital class, where the function of funds is to facilitate trade. Every country has their own jurisprudence and control over the money supply of it own currency. Generally measured by its unit value (the Euro for example,) and is often valued at 1⁄100 of the main currency: 100 Euro cents = 1 Euro, although there are currencies that do not have smaller units.
A currency can be fixed or floating. This completely depends on it’s exchange rate system. The exchange rates help businesses in comparing various currencies against each other. Every nation has power over the contribution and fabrication of its individual currency.
There are 175 currencies recognized by the United Nations. The Euro and Dollar are the major currencies of the world. Nations can adopt similar names for their individual currency such as Australian dollars and United States dollars. Quite a few countries have approved the currency of another nation as their official currency. For instance, Panama and El Salvador have affirmed U.S. currency to be their official currency.
How much of one currency can be generated from another is measured on the markets, using the exchange rates. Exchange rates fluctuate depending on the amount of currency being bought or sold at any one time. Until recently, foreign exchange trading was only done by financial institutions and major corporations, but now it’s been made available to all.