CURRENCY

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Currency

Whether we pull out paper bills or swipe a credit card, most of the transactions we engage in daily use currency. Indeed, money is the lifeblood of economies around the world. Currency refers to paper money or coins that are in circulation. But currency is actually only a small piece of the monetary economy and is just one consideration when looking at the total money supply.

Indeed, most money today exists as credit money or as electronic records stored in databases in banks or financial institutions. But still, the bread and butter of everyday transactions is currency, and that is what we will look more closely at here.

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Key Takeaways

  • Currency is the physical money in an economy, comprising the coins and paper notes in circulation.
  • Currency makes up just a small amount of the overall money supply, much of which exists as credit money or electronic entries in financial ledgers.
  • While early currency derived its value from the content of precious metal inside of it, today's fiat money is backed entirely by social agreement and faith in the issuer.
  • For traders, currencies are the units of account of various nation-states, whose exchange rates fluctuate between one another.