Currencies Of The World

Basic economic activities such as buying and selling, commonly referred to as trade or commerce, have a history that stretches back thousands of years. In ancient times, there was no standardized medium of exchange like currency. Instead, goods and services were traded through bartering. However, this system was not sustainable and resulted in significant losses, particularly for individuals who exchanged more valuable items for those of lesser value. Thus, a need arose for a universally recognized means of buying and selling. Approximately 600 BC, the first currency, the Mesopotamian shekel, emerged in Lydia, now part of present-day Turkey.

What Is A Currency?

Generally, currency refers to money in various forms that serves as a medium of exchange, primarily in coins and banknotes. Money is defined as any legal tender provided by the government, accepted for payment of goods or services, settling taxes, and repaying debts. Therefore, currency functions as a monetary unit that a buyer uses to purchase goods or services from a seller. Most nations possess their own currencies, meaning a country's currency typically cannot be used in another nation without conversion to the local currency at an exchange rate. Nevertheless, multiple countries can share a single currency; for example, nineteen EU member states use a shared currency called the euro (€).

Currency Classification

Currencies are categorized into three types of monetary systems: representative, commodity, and fiat money. Representative money is paper currency that signifies the value of a specific item or commodity, such as a gold certificate that reflects the amount of gold one possesses. Commodity money consists of tangible items like gold or silk, which can be exchanged for goods. Fiat money, on the other hand, is government-issued currency not backed by any physical commodity. A rising category of currency is virtual currency, which is a digital, unregulated form created and governed by developers, with examples including Litecoin and Bitcoin. 

Popular Currencies

Most countries have their own distinct currency, though some nations utilize shared currencies. Presently, around 180 different currencies are in circulation worldwide and acknowledged by the United Nations. Nonetheless, these currencies vary in strength and value; some are more robust and are traded more frequently in foreign exchange markets. The Kuwaiti dinar stands out as the strongest and most valuable currency globally, a status derived from Kuwait’s abundant oil reserves.

The US dollar (US$) is the most used and trade currency. It is considered the world’s chief reserve currency held by most commercial and central banks globally. Besides the US, 22 other countries use different forms of the dollar currency, including Australia and Canada. The Euro currency (€) is used by 19 of the 27 EU member states, making it one of the currencies used by most countries. Pound sterling (£) is the oldest currency still in use and the UK’s official currency. Other powerful currencies include the Japanese Yen (¥) and the Indian Rupee (₹) 

Why Countries Need Currencies

Almost every country trades with other countries either within their regions or overseas. Some countries trade more than others. In most cases, barter trade is not practical, so money is used in such circumstances. However, countries have different types of currencies or money with different units of account. Therefore, they cannot buy goods from another country using the local currencies. The most common solution to this problem is currency exchange.

Currency is important to a country because of the exchange rate. Nations use their foreign currency reserves to fix exchange rates to become competitive in the export market, improve investor confidence, and remain liquid during a crisis. Currency reserves are also required to offset external debts and fund diverse sectors of the economy.

Note: currencies often change value without notice