Foreign Currency – Understanding the Economics Behind Currencies

A currency in the most specific use of the term refers to money in any form when in real use or flow as a medium of exchange, circulating banknotes and cash especially. Examples of currency include the dollar, the British pound and the Australian dollar.

How Was Currency Invented?

Two different innovations were combined to create currency and many foreign currency that we know. Metals were first used as symbol to represent value. In the Fertile Crescent, they used this method for over 1500 years.

Why Do We Have Paper Money?

Paper money was invented in China when there was a need for a less cumbersome way to exchange goods and services. It started with Chinese citizens going to wholesalers’ shops to receive a receipt of deposit in exchange for coinage. The receipts were valid for use in a small territory.

Modern Currencies

Each nation gets to decide which currency they would like to use. The International Organization for Standardization came up with a three-letter system of codes to define currency. This was created in order to lessen the confusion between currencies. They did this because many countries use a currency called the dollar and many also use a foreign currency called the franc.

Although, with the rise of the Internet, many Internet-based currencies have come around, such as bitcoin mixer, Litecoin, Peercoin, and Dogecoin.

How are Currencies Controlled?

Most of the time, there is a central bank that controls the currency. This bank reserves the right to issue coins and paper notes for its nation or region of circulation. An exchange rate is the price that two currencies can be exchange at.

Most countries use the same name for their separate currencies. An example of this is the dollar; it is used in Australia, the United States and Canada.

Each currency and foreign currency generally has a currency unit and a fractional unit. For the dollar: 1 dollar; 1 cent (one-hundredth of a dollar), respectively. Mauritania and Madagascar are the only countries that don’t use this system. Due to inflation, their smaller currencies have become obsolete.


The use of money is obviously the most important aspect of any country. Having started in China, they have become one the most powerful countries in the entire world. The Internet has also introduced many different ways of paying for goods and services – many not being controlled by a central bank. This makes transactions much harder to trace.


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