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Currency

Posted by Manish Agrawal on Wednesday, 10 September, 2008

Currency is basically a unit of exchange, which facilitates the trading of goods and services. It is a form of money, which functions as a medium of exchange, a standard measurement of value, as well as a store of value. A currency zone refers to a region or country where a particular currency is the principal exchange medium.

In order to alleviate commerce and trade between different countries, various exchange rates prevail. The exchange rates are those prices or rates on which various currencies and also the goods and services of different countries can be traded with each other.

Currencies can be broadly categorized into two types, floating currencies and fixed currencies according to the exchange rate regime.

When used generally, currency denotes paper money (for example currency and coins) in some instances, however, this is misguiding. Currency includes both paper money or bank notes and coins.

In majority of instances, every country has complete dominance over the production and distribution of its currency. However, there are exceptions to this regulation. The countries, which have the membership of the Economic and Monetary Union of the European Union, do not follow this rule because the European Central Bank (ECB) controls their monetary policies.

When a country has dominance over its own currency, the Ministry of Finance or a central bank is empowered with the authority to practice that control. The institution, which controls the monetary policy of a particular country, is termed as the monetary authority. The degree of autonomy is variable in case of monetary authorities and it depends on the governments who establish them.

Various countries have the option to use similar names for their currencies, for example the U.S. Dollar and the Canadian Dollar and various countries are able to use the same currency such as the Euro. To simplify, a country has the discretion to declare a currency, which is running in another country to be its legal tender.

Source: Economywatch.com

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