Currency - What is currency?
Currency refers to any kind of money that is in circulation in an economy, used to purchase goods and services
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Most commonly, the word currency can refer to any form of money that used in circulation throughout the public. Today, currency usually contains both coins (hard money) and paper (soft money).
It is generally issued and maintained by a governing authority and is known as ‘fiat’ money. This means that the value of the currency does not come from the material it is made of, but by the value that it represents according to the economy and issuer.
Why currency is important
Aside from the obvious advantages of currency as a basis for trade (buying and selling), it also sets a standard of value - allowing for trade to function more smoothly than through barter.
Currency is also considered a store of value. This means that it can be stored and brought out later on while still retaining most, if not all of its value.
Other definitions of currency
As well as referring to any kind of money that is in circulation within an economy, ‘currency’ can also mean:
- The money that is used officially within a certain country, e.g. the currency of the United Kingdom is the Pound Sterling - GBP.
- Anything that is used as a form of exchange, i.e. banknotes, cheques, promissory notes, or otherwise.
- The amount of time that must pass before a bill of exchange reaches maturity.
Other types of currency
Aside from the physical currency used by countries, regulated by a governing body, there are a few other types of currency, both modern and antiquated.
- Digital currency
You’ve probably heard of bitcoins by now. Digital currency represents the newest type of currency available today. This currency is also virtual - meaning it does not have a physical form. All transactions occur online.
- Asset-backed currency
An asset backed currency means that the currency is tied to a particular resource or asset. It can be a precious metal such as gold, for example. An asset backed currency is then guaranteed and can also be exchanged for an amount of the asset. This type of currency can be a bit volatile because it is dependent on the asset value.
- Commodity-backed currency
This type of currency is rather old fashioned and is no longer in use today. Like asset backed currency, this type is tied to a commodity such as wheat or oil, for example. However, it was largely unreliable due to fluctuations in the markets.
Currency in Debitoor
Debitoor currently supports more than 50 currencies and exchange rates from around the world. Easily change the currency when invoicing a customer and the application automatically registers the exchange rate for the date that the transaction occurs.