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A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example and .
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. Under this definition, the Pound sterling (£), (€), 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. 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 Payment 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 : fiat money, commodity money, and representative money, depending on what guarantees a currency's value (the economy at large vs. the government's gold reserve). Some currencies function as legal tender in certain , or for specific purposes, such as payment to a government (), 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. 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 . Various countries have expressed concern about the opportunities that cryptocurrencies create for illegal activities such as Internet fraud, ransomware (extortion), money laundering and terrorism. 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.
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.
At around the same time in the medieval Islamic world, a vigorous monetary economy was created during the 7th–12th centuries on the basis of the expanding levels of circulation of a stable high-value currency (the dinar). Innovations introduced by Muslim economists, traders and merchants include the earliest uses of credit, , ,
, transaction accounts, , Trust law, , the transfer of credit and debt, and banking institutions for loans and deposit account.In Europe, paper currency was first introduced on a regular basis in Sweden in 1661 (although Washington Irving records an earlier emergency use of it, by the Spanish in a siege during the Conquest of Granada). As Sweden was rich in copper, many copper coins were in circulation, but its relatively low value necessitated extraordinarily big coins, often weighing several kilograms.
The advantages of paper currency were numerous: it reduced the need to transport gold and silver, which was risky; it facilitated loans of gold or silver at interest, since the underlying specie (money in the form of gold or silver coins rather than notes) never left the possession of the lender until someone else redeemed the note; and it allowed a division of currency into credit- and specie-backed forms. It enabled the sale of investment in joint-stock companies and the redemption of those shares in a paper.
But there were also disadvantages. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more notes than they had specie to back them with. Second, because this increased the money supply, it increased inflationary pressures, a fact observed by David Hume in the 18th century. Thus paper money would often lead to an inflationary bubble, which could collapse if people began demanding hard money, causing the demand for paper notes to fall to zero. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army. For these reasons, paper currency was held in suspicion and hostility in Europe and America. It was also addictive since the speculative profits of trade and capital creation were quite large. Major nations established mints to print money and mint coins, and branches of their treasury to collect taxes and hold gold and silver stock.
At that time, both silver and gold were considered a legal tender and accepted by governments for taxes. However, the instability in the exchange rate between the two grew over the course of the 19th century, with the increases both in the supply of these metals, particularly silver, and in trade. The parallel use of both metals is called bimetallism, and the attempt to create a Bimetallism standard where both gold and silver backed currency remained in circulation occupied the efforts of . Governments at this point could use currency as an instrument of policy, printing paper currency such as the United States greenback, to pay for military expenditures. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed.
By 1900, most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. Private and governments across the world followed Gresham's law: keeping the gold and silver they received but paying out in notes. This did not happen all around the world at the same time, but occurred sporadically, generally in times of war or financial crisis, beginning in the early 20th century and continuing across the world until the late 20th century, when the regime of floating fiat currencies came into force. One of the last countries to break away from the gold standard was the United States in 1971, an action which was known as the Nixon shock. No country has an enforceable gold standard or silver standard currency system.
Many currencies use a currency symbol. These are not subject to international standards and are not unique: the dollar sign in particular has many uses.
| + 20 major currencies in world payments (June 2025)
! Rank !! Currency !! % of world total | |
| 100.00% | |
| 47.19% | |
| Euro | 23.87% |
| Pound sterling | 7.59% |
| Japanese yen | 3.84% |
| Canadian dollar | 3.43% |
| Chinese renminbi | 2.88% |
| Hong Kong dollar | 1.88% |
| Australian dollar | 1.52% |
| Singapore dollar | 1.48% |
| Swiss franc | 1.04% |
| Polish złoty | 0.78% |
| Swedish krona | 0.56% |
| Norwegian krone | 0.47% |
| Danish krone | 0.34% |
| New Zealand dollar | 0.32% |
| South African rand | 0.29% |
| Mexican peso | 0.29% |
| Thai baht | 0.27% |
| Hungarian forint | 0.22% |
| Malaysian ringgit | 0.20% |
An exchange rate is a price at which two currencies can be exchanged against each other. This is used for trade between the two currency zones. Exchange rates can be classified as either floating or fixed. In the former, day-to-day movements in exchange rates are determined by the market; in the latter, governments intervene in the market to buy or sell their currency to balance supply and demand at a static exchange rate.
In cases where a country has control of its own currency, that control is exercised either by a central bank or by a Finance minister. The institution that has control of monetary policy is referred to as the Central bank. Monetary authorities have varying degrees of autonomy from the governments that create them. A monetary authority is created and supported by its sponsoring government, so independence can be reduced by the legislative or executive authority that creates it.
Several countries can use the same name for their own separate currencies (for example, a dollar in Australia, Canadian dollar, and the United States). By contrast, several countries can also use the same currency (for example, the euro or the CFA franc), or one country can declare the currency of another country to be legal tender. For example, Panama and El Salvador have declared US currency to be legal tender, and from 1791 to 1857, Spanish dollars were legal tender in the United States. At various times countries have either re-stamped foreign coins or used , issuing one note of currency for each note of a foreign government held, as Ecuador currently does.
Each currency typically has a main currency unit (the dollar, for example, or the euro) and a fractional unit, often defined as of the main unit: 100 cents = 1 dollar, 100 = 1 franc, 100 pence = 1 Pound sterling, although units of or occasionally also occur. Some currencies do not have any smaller units at all, such as the Icelandic króna and the Japanese yen.
Mauritania and Madagascar are the only remaining countries that have theoretical fractional units not based on the decimal system; instead, the Mauritanian ouguiya is in theory divided into 5 khoums, while the Malagasy ariary is theoretically divided into 5 iraimbilanja. In these countries, words like dollar or pound "were simply names for given weights of gold".
According to the three aspects of trade in goods and services, capital flows and national policies, the supply-demand relationship of different currencies determines the exchange ratio between currencies.
Trade in goods and services
Through cost transfer, goods and services circulating in the country (such as hotels, tourism, catering, advertising, household services) will indirectly affect the trade cost of goods and services and the price of export trade. Therefore, services and goods involved in international trade are not the only reason affecting the exchange rate. The large number of international tourists and overseas students has resulted in the flow of services and goods at home and abroad. It also represents that the competitiveness of global goods and services directly affects the change of international exchange rates.
Capital flows
National currencies will be traded on international markets for investment purposes. Investment opportunities in each country attract other countries into investment programs, so that these foreign currencies become the reserves of the central banks of each country. The exchange rate mechanism, in which currencies are quoted continuously between countries, is based on foreign exchange markets in which currencies are invested by individuals and traded or speculated by central banks and investment institutions. In addition, changes in interest rates, capital market fluctuations and changes in investment opportunities will affect the global capital inflows and outflows of countries around the world, and exchange rates will fluctuate accordingly.
National policies
The country's foreign trade, monetary and fiscal policies affect the exchange rate fluctuations. Foreign trade includes policies such as tariffs and import standards for commodity exports. The impact of monetary policy on the total amount and yield of money directly determines the changes in the international exchange rate. Fiscal policies, such as transfer payments, taxation ratios, and other factors, dominate the profitability of capital and economic development, and the ratio of national debt issuance to deficit determines the repayment capacity and credit rating of the country. Such policies determine the mechanism of linking domestic and foreign currencies and therefore have a significant impact on the generation of exchange rates.
Currency convertibility is closely linked to economic development and finance. There are strict conditions for countries to achieve currency convertibility, which is a good way for countries to improve their economies. The currencies of some countries or regions in the world are freely convertible, such as the US dollar, Australian dollar and Japanese yen. The requirements for currency convertibility can be roughly divided into four parts:
Local currencies can also come into being when there is economic turmoil involving the national currency. An example of this is the Argentinian economic crisis of 2002 in which IOUs issued by local governments quickly took on some of the characteristics of local currencies.
One of the best examples of a local currency is the original LETS currency, founded on Vancouver Island in the early 1980s. In 1982, the Canadian Central Bank's lending rates ran up to 14% which drove chartered bank lending rates as high as 19%. The resulting currency and credit scarcity left island residents with few options other than to create a local currency.
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