Currency can be best described as money in any form. It can be hard money such as coins or soft money such as paper notes. It is only issued by the government. Once issued, it is then ready for public circulation.
Money, when circulated in the economy, is used as the ideal medium for buying goods as well as services. Simply put, it forms the basis for trading and purchasing commodities.
Every country has a different and specific currency which is known as its official currency. For example, the official currency of:
- The US is the American Dollar
- Japan is Yen
- India is Rupee
- Turkey is Lira
- Sweden is Krona
- Mexico is Peso
Here, it is important to understand that Euro is the only currency that is used for trading in numerous European countries. It can be seen as an exception.
Different Types of Currencies
Besides the official state currency or the fiat currency that is issued by the government and controlled typically through monetary policies, several other types of currencies have emerged over the years such as cryptocurrency and Bitcoin. These types of currencies are branded digital currencies that are not associated with any country.
Bitcoin is an online currency that was introduced in 2009. It does not exist physically but is used for trading goods and items over the web. It is managed by a decentralized authority.
Foreign Exchange Rate - Trading Currencies
Currencies of different countries are traded in the Forex market. They are traded for an exchange rate which can be either fixed or floating. Floating rates are when the currency value keeps changing with respect to the Forex market mechanisms while fixed rate is when the currency is tied with another currency, such as gold.
Most currencies, such as the Japanese Yen or US dollar, are considered as fully convertible currencies as they can be traded easily. However, there are some currencies that fall under the category of being partially convertible. The partially convertible currencies are controlled by the Central Bank to regulate hot-money flows and even international investment. On the other hand, non convertible currencies are those currencies that cannot be converted in the Forex market.