What is a Currency?

The system of money that is officially used in a country or region is its Currency. The US, UK, and Germany, for example, have the dollar, pound, and euro as their currencies, respectively.

Currency is the medium through which we buy and sell goods and services. It makes trade possible beyond the simple barter system.

The Corporate Finance Institute has the following definition of the term:

“Currency refers to money, that which is used as a medium of exchange for goods and services in an economy. Before the concept of currency was introduced, goods and services were exchanged for other goods and services under the barter system.

A brief history

Currency has been around for over three thousand years. Its origins trace back to ancient Mesopotamia, which today is primarily located in modern-day Iraq, with parts extending into Iran, Syria, and Turkey.

The earliest form of currency was the shekel, a unit of weight that was used to measure specific amounts of grains, which eventually led to the creation of silver bars, that is, the first coins.

The development of currency was pivotal in the evolution of economies, allowing for more sophisticated and far-reaching trade networks.

Symbols of many currencies and definition of the word Currency.
Image created by Market Business News.

Physical and digital currency

Coins and banknotes are examples of physical currency, that is, money we can touch, hold, and place in our pockets.

Online bank balances and electronic transfers are examples of digital currency. The most recent type of digital currency is cryptocurrencies, which have no central bank, use cryptography as security, and operate on a technology called blockchain.

Other digital examples are central bank digital currencies (CBDCs), digital wallets, electronic money, and virtual currencies.

People trust a currency

We accept currency in exchange for goods and services because we trust that other people and businesses will do the same.

In most cases, this trust is backed by a financial institution or a country’s government. However, this is not always the case. Cryptocurrencies, for example, are not backed by governments or any type of entity; their existence is based entirely on trust.

Countries use different currencies

There are more than 198 different currencies across the world. Each one has its symbol, subdivisions (cents or pence) and exchange rates with other currencies.

Exchange rates fluctuate based on market forces, that is, the forces of supply and demand, as well as psychological factors. The US dollar, for example, is seen as a safe haven. Whenever something unsettling happens in the world, geopolitical conflicts, financial crises, or sudden economic downturns, demand for dollars rises, which pushes up its price.

Meanings of currency

Below you can see seven different definitions of the word “currency” plus an example sentence containing each meaning:

  • Money used as a medium of exchange
    Example: “The Euro is the official currency of many countries in the European Union.”
  • The general acceptance or use of an idea or practice
    Example: “The concept of telecommuting gained currency during the global pandemic.”
  • The state of being current or up-to-date
    Example: “All our textbooks are of the latest currency to ensure students have current information.”
  • The period during which something is in use or operation
    Example: “The license had a currency of three years before it needed to be renewed.”
  • A quality of something that leads it to be accepted or circulated easily
    Example: “The rumor gained currency among the staff, despite having no basis in fact.”
  • The property of flowing, like the currency of water or air
    Example: “The currency of the river through the valley creates a perfect habitat for trout.”
  • A particular form of digital asset
    Example: “With the rise of digital platforms, virtual currency has become a key aspect of online transactions.”
  • In electrical engineering, a flow of electric charge
    Example: “The currency of electrons in this circuit is what powers the device.”

Video – What is a Currency?

This video presentation, from our sister channel on YouTube – Marketing Business Network, explains what a ‘Currency’ is using simple and easy-to-understand language and examples.