A currency[a] is a standardization of money in any form, in use or circulation as
a medium of exchange, for example banknotes and coins.[1][2] A more general definition
is that a currency is a system of money in common use within a specific environment
over time, especially for people in a nation state.[3] Under this definition, the British
Pound sterling (£), euros (€), Japanese yen (¥), and U.S. dollars (US$) are examples of
(government-issued) fiat currencies. Currencies may act as stores of value and be
traded between nations in foreign exchange markets, which determine the relative
values of the different currencies.[4] Currencies in this sense are either chosen by users
or decreed by governments, and each type has limited boundaries of acceptance;
i.e., legal tender laws may require a particular unit of account
for payments to government agencies.
Other definitions of the term currency appear in the respective synonymous
articles: banknote, coin, and money. This article uses the definition which focuses on
the currency systems of countries.
One can classify currencies into three monetary systems: fiat money, commodity
money, and representative money, depending on what guarantees a currency's value
(the economy at large vs. the government's precious metal reserves). Some currencies
function as legal tender in certain jurisdictions, or for specific purposes, such as
payment to a government (taxes), or government agencies (fees, fines). Others simply
get traded for their economic value.
The concept of a digital currency has arisen in recent years. Whether government-
backed digital notes and coins (such as the digital renminbi in China, for example) will
be successfully developed and implemented remains unknown. [5] Digital currencies that
are not issued by a government monetary authority, such
as cryptocurrencies like Bitcoin, are different because their value is market-dependent
and has no safety net. Various countries have expressed concern about the
opportunities that cryptocurrencies create for illegal activities such
as scams, ransomware (extortion), money laundering and terrorism.[6] In 2014, the
United States IRS advised that virtual currency is treated as property for federal income-
tax purposes, and it provides examples of how long-standing tax principles applicable to
transactions involving property apply to virtual currency.[7]
History
[edit]
Early currency
[edit]
This section needs additional citations for verification. Please
help improve this article by adding citations to reliable sources in
this section. Unsourced material may be challenged and removed.
Find sources: "Currency" – news · newspapers · books · scholar · JSTOR (July
2024) (Learn how and when to remove this message)
Cowry shells being used as money by an Arab trader
Originally, currency was a form of receipt, representing grain stored in temple granaries
in Sumer in ancient Mesopotamia and in Ancient Egypt.
In this first stage of currency, metals were used as symbols to represent value stored in
the form of commodities. This 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. A
trade could only reach as far as the credibility of that military. By the late Bronze Age,
however, a series of treaties had established safe passage for merchants around
the Eastern Mediterranean, spreading from Minoan Crete and Mycenae in the northwest
to Elam and Bahrain in the southeast. It is not known what was used as a currency for
these exchanges, but it is thought that oxhide-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 Bronze Age
collapse, possibly produced by the Peoples of the Sea, brought the trading system of
oxhide ingots to an end. It was only the recovery of Phoenician trade in the 10th and 9th
centuries BC that led to 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. In Africa, many forms of value store have been used, including beads,
ingots, ivory, various forms of weapons, livestock, the manilla currency, shell money,
and ochre and other earth oxides. The manilla rings of West Africa were one of the
currencies used from the 15th century onwards to sell slaves. African currency is still
notable for its variety, and in many places, various forms of barter still apply.
Coinage
[edit]
Main article: Coin
This section needs additional citations for verification. Please
help improve this article by adding citations to reliable sources in
this section. Unsourced material may be challenged and removed.
Find sources: "Currency" –
news · newspapers · books · scholar · JSTOR (December 2017) (Learn how
and when to remove this message)
The prevalence of metal coins possibly led to the metal itself being the store of value:
first copper, then both silver and gold, and at one point also bronze. Today other non-
precious metals are used for coins. Metals were mined, weighed, and stamped into
coins. This was to assure the individual accepting the coin that he was getting a certain
known weight of precious metal. Coins could be counterfeited, but the existence of
standard coins also created a new unit of account, which helped lead
to banking. Archimedes' principle provided the next link: coins could now be easily
tested for their fine weight of the metal, and thus the value of a coin could be
determined, even if it had been shaved, debased or otherwise tampered with
(see Numismatics).
