Does it ever occur to you that why we use certain currency and different countries always use varied currencies? And who decides which currency used in each country? Currency is a standardized form of money for exchange, such as banknotes and coins. One can always classify currencies into three monetary systems: fiat money(currency not backed up by any commodity, such as gold and silver), commodity money(whose value comes from a commodity of which it is made), and representative money(printed or digital, without actual value in them), depending on what guarantees a currency’s value. We always recognize money as the third one mentioned above. But who on earth decide the currency used in every country? And what factors would affect the decision about currency used? Let’s dive in!
Who Decide the Currency Used in Countries?
Each country decides what currency they use in circulation. This is why each country has a different currency rather than using the same one And the decisive factors to decide the legal tender is related to the country’s economic history and monetary policy, not economic strength.
The academic study of historical economies or economic events in the past is known as economic history. The application of economic theory to historical circumstances and institutions, historical methodologies, and statistical methods are all used in research. The field can cover a wide range of subjects, including as business, money, technology, labor, and equality. It places a strong emphasis on the economy’s historicalization, analyzes it as a dynamic force, and makes an effort to offer insights into how it is conceptualized and constructed.
Economic history would affect the choice of currency use in contemporary by emphasizing the culture and religious tattoo on it. Of course, we hope the currency itself conveys some soothing information on it, but not just a piece of paper or iron metal.
The other factors in who decides which currency to use is the monetary policy, actually it is also the factors influences the exchange rate between one currency to another. Monetary policy refers to the control of money available in the economy system. How would the decision of currency used in countries has anything to do with the monetary policy? I mean, there is an order between the choice of currency and monetary police, right?
By managing the money supply, the central bank of countries aim to influence macroeconomic factors including inflation, the rate of consumption, economic growth, and overall liquidity.
What Makes A Currency Valuable?
We all aware that a currency is of no value itself, then what add price on it? Economic and culture demand led us to pursue the currency. The value of any good is determined by its supply and demand, and the supply and demand for other goods in the economy, no exception for currency. The price is the amount of money it takes to get it. Inflation occurs when the price increases—in other words, when money becomes less valuable relative to those other goods.