What is Currency?

People hear the word “currency” in their everyday lives but can anyone really put a definition on it? Currency may be a system of money in use in a particular country, but every country has its own unique currency that is commonly known by the individuals living in these countries.

In the article, “What is Money” https://www.imf.org/external/pubs/ft/fandd/2012/09/basics.htm by the authors Irena Asmundson and Ceyda Oner published September 2012 explain, “If there were no money, we would be reduced to a barter economy. Every item someone wanted to purchase would have to be exchanged for something that person could provide. For example, a person who specialized in fixing cars and needed to trade for food would have to find a farmer with a broken car. But what if the farmer did not have anything that needed to be fixed?” In our day and age this exchange system would not work out the way it did a long time ago before any type of currency was enacted. The example mentioned in the article pinpoints the flaws of the old exchange methods by explaining how chaotic our society would be today if exchanges were kept the way they were before currency was established. The accessibility of money today and the way it is exchanged for goods and services is said to be a much simpler way of exchange. The example the authors used in this article is very eye-opening because the realization that a long time ago this is how goods and services were exchanged before there was any type of currency.

In the Pacific Ocean, there lies a tiny island with the name of Yap. Silver and gold are not found on Yap. However, Yapan explorers discovered limestone formations on an island thousands of kilometers away hundreds of years ago. They then used their small bamboo boats to transport the enormous stone discs they had carved out of this limestone back across the ocean. The origin of these stones’ use as currency is unknown. However, the Yapeans eventually came to understand what most communities understand. They required a means of payment that could be used by anyone. The Yap people, like many other communities, took what they possessed that was attractive and turned it into their version of gold. The story of the island of Yap and the stone money currency that it holds is a great representation of why to possess something doesn’t mean that an individual needs to have that item of currency on hand. The stones on this island were used as currency or something to exchange for another good or service. For example, if a warrior from a specific village died in combat, the rock could be used to get that warrior’s body back to the home village. These human sized rocks were not meant to be drug around with whoever owned it, the rock could be on the other side of the island and is still owned by someone. This is the difference between society’s knowledge of currency today and the way currency was depicted years back.

The U.S. dollar is a very iconic form of currency because it is mostly viewed as the most used form of currency. The U.S. dollar is by far the most widely utilized currency in international trade. A currency’s use as a medium of exchange is another way to gauge its international standing. In the article, “How the U.S. Dollar Became the World’s Reserve Currency” https://www.investopedia.com/articles/forex-currencies/092316/how-us-dollar-became-worlds-reserve-currency.asp , the author Richard Best states that, “The U.S. dollar became the official reserve currency of the world in 1944. The decision was made by a delegation from 44 Allied countries called the Bretton Woods Agreement.” This means that there are large amounts of the U.S. dollar held by central banks to use for international transactions. The idea planned behind the Bretton Woods Agreement makes sense to the human mind because if there is ever a shortage of currency, then there is the world’s reserve currency on standby for international transactions in case of emergencies. In the past the U.S. has had instances where there is a pandemic breakout like Covid 19 or there have been international affairs between other countries and are left to scramble for ideas and answers to their nation’s problems. The world’s reserve currency has been a great safety blanket for our country and all of the other countries in the world that go through the same difficulties as the U.S. does from time to time. The dollar’s status as the world’s reserve currency has been stronger than it ever has been since the Covid 19 pandemic and economic crisis. In the article, “ The Dollar is Still a Global Reserve Currency” https://www.washingtonpost.com/politics/2022/06/02/usd-dollar-reserve-currency-economy/ Mark Copelovitchhe states that “ Simply, the global economy runs on dollars. This has been true for decades, despite repeated prognostications of imminent change. Indeed, we are now entering our sixth decade of dire predictions of the dollar’s demise, dating back at least to 1971, when President Richard M. Nixon ended the dollar’s convertibility into gold. In the 1980s and 1990s, the yen was going to take over. In the aughts, it was the euro. Pundits now praise bitcoin and the Chinese renminbi the new heirs apparent. Nevertheless, dollar hegemony persists.” The author goes on to explain the U.S. dollar has been the dominant form of currency for the past 6 decades. After reading this article, it is clear that the U.S. dollar is most certainly the world’s reserve currency because of how often this U.S. dollar is used all around the world over other forms of currency.

Currency can be looked at by just another item in an exchange and the information backing this statement up is through the articles mentioned throughout this paper. It is crazy to think about how much currency has changed from the past to the present.

References

Analysis | Jack Dorsey is wrong. The dollar is still a global reserve currency. (n.d.). Washington Post. https://www.washingtonpost.com/politics/2022/06/02/usd-dollar-reserve-currency-economy/

Back to Basics: What Is Money? – Finance & Development, September 2012. (2012). Imf.org. https://www.imf.org/external/pubs/ft/fandd/2012/09/basics.htm

Best, R. (2020). How the U.S. Dollar Became the World’s Reserve Currency. Investopedia. https://www.investopedia.com/articles/forex-currencies/092316/how-us-dollar-became-worlds-reserve-currency.asp