The currency is an economic good of major importance by its three functions:
* The role of intermediary in the exchange,
* The expression of values and unity for economic calculation and accounting,
* The store of value function.
Some writers see as a means of payment or capital as distinct functions.
Because of its importance, States have very early seek the maximum monetary power, even if possible to ensure a monopoly, making the currency one of their symbols and a mark of their power.
The currency of a particular country is called currency.
In the absence of currency exchanges can be realized in the form of barter of goods against another. For two agents A and B share assets X and Y, it is necessary that whoever possesses X and Y preferred that someone who owns Y prefers X. This is called the condition of "double coincidence of wants." This requirement severely limits the number of situations where barter is possible.
The currency makes it possible to overcome these conditions, by providing a central well we can redeem all the others. An officer accepts money in exchange for a property that sells because he knows that the other agents will accept in exchange for one, although it wishes to acquire. The currency still has a value for all by the ability to swap any other property.
A swap of a property against another is separated into two separate operations in time: first exchange of the property possessed against the currency, and then exchange the currency against the property desired. The function of a means of payment, sometimes presented as a fourth function of the currency, is only one aspect of its function as an intermediary in the exchange.
By facilitating trade, the currency is a critical tool for the division of labor and thus an essential institution of modern societies.
For a store of value is defined as the ability which a financial instrument or actual transfer of purchasing power over time. For example, a property is a store of value because it can now be bought and sold in the future by providing purchasing power to its holder. This is called a real asset as opposed to the concept of financial assets or securities, including stocks and bonds are a part.
This function of the currency stems directly from its role as an intermediary in international trade and does not constitute a separate function. In addition, it is not specific to the currency. Any property can be viewed as a store of value to the extent that the holder can exchange it at any time against a much he wants more, this may well be the currency.
Unit of Account
When a currency is used as a common medium of exchange, each business attaches to each property prices, corresponding to the amount of money he can get if he has, or how much money it must give to get it. The currency becomes a universal means of expression of the values of assets, that officers can use to compare different goods or individual action plans relating to these assets. They talk about economic calculation when the assessment is made a priori and accounting when it is made retrospectively. It should be noted that this assignment of a quantity of currency at a property does not constitute an act of measurement in the real sense. It is therefore incorrect to speak of money as a yardstick of values, as is done often.
There has been no instance where a currency of account has been used that is not a bargaining chip. However, it is common to use trading currencies in which we do not take into account (eg foreign currency whose value is recognized, or in the international monetary bi-metal, the value of the One of the two metals was set by the other tŕ Reporter), and continue to express promptly prices in currencies that are no longer hit long (penniless, french franc since the changeover to the euro and the former Franc before him, in the guinea shops UK, and so on.). Both usages can separate them, in theory than in practice, the function unit of account from that of means of payment.
The term money comes from the Latin verb monere, which means "alert".
Indeed currency Roman was first minted coins minted in a nearby temple of Juno Moneta - warns that "Juno" - on Capitol Hill. This temple had received the nickname as a result of the episode geese Capitol.
The need for a monetary instrument to facilitate exchanges between members of a society appeared very early. Since prehistoric times, humans have used for this hardware range shells, precious minerals or useful as salt, small tools (carved flint, iron nails, etc. ...).
The metals, and especially precious metals, gold, silver have gradually imposed during antiquity. Indeed, they are rare and incorruptible, so they retain their value over time. They are divisible into small fragments allowing low-value payments, and they have a high intrinsic value, therefore they allow payments of great value with a reasonable amount of metal.
Using pieces of metal as a currency necessary to verify each exchange the contents of these pieces of precious metals. To simplify, metals chosen as currency have been shaped in the form of discs, in order to facilitate its storage and handling, and hit a mark certifying the quantity of precious metal contained in the disk. A single currency (gold or silver) and was presented in different forms to reflect different physical metal contents, which could be certified by different authorities
The birth of the currency hit and singled lies under the reign of the last two kings of the dynasty Mermnades, Alyattès (610-560 BC.), And Croesus (560-546 BC.) , in western Asia Minor.
Throughout the period when large gold (and silver) were virtually universal currency, each country or each region had its own currency, but payment in gold (or silver) from any origin were often accepted (usually at a discount compared to the local currency, precious metal weight of the same, and sometimes ignoring prohibitions imposed by the local lord). For example, the France of the ancien régime counted in pounds tournaments (ie in the region of Tours), but there was paying - as in the whole of Europe - with Venetian ducats, ECU french, guilders (Florence), duplicates Spanish, and so on.
This system requires the confidence in the ability of the issuer to control the titling of its currency, and his honesty. It gives the issuer the option to defraud or cut parts or by mixing the precious metal less precious metals, and thus create ex nihilo money for his own use, ultimately reducing the value of money and producing l inflation.
Moreover, since in practice the real value of each piece depends on the confidence given to the issuer, the public treats them, in fact, as different currencies, although it is still possible to measure the contents of each piece of metal valuable, and thus determine its actual value and its value relative to other parts.
The currency paper
The next step is the establishment of a second tier currency, which itself represents a certain amount of money on deposit metal left in a safe place. Thus appears the currency paper (the banknote, known in China since the eighth century), which represents originally a debt payable to view in the form of metal or other property.
Tickets were issued which represented a return to gold. Because so to speak anywhere gold can be received in return. Only commercial banks (after cities, lords, guilds and other groups) were given the privilege of issuing tickets. Significantly, the central bank since the eighteenth century in Britain, and banks in France under Napoleon should have for each ticket issued or guaranteed. The increase in the money supply allowed facilitated economic growth. But such a monopoly guaranteed by the state would afford to do without the guarantee gold. Subissant an economic crisis it was decided to "liberate" the currency of its guarantee gold. This enabled the western states to issue more currency that there was physical counterpart to it. They pallièrent and the economic crisis in endettant citizens.
There are several stages in the historical development that led to the coinage to the paper money as we know it today:
* The system bi-metal (up to the nineteenth century): all currencies are defined at the same time as compared to gold and compared to the money (metal). Each State, depending on its availability metal preferentially uses one or other metal, and uses the other as booster. The pieces of gold and silver in particular, because of their intrinsic value, moved frequently outside their country of origin. Discovery mining and financial developments in a globalized economy heavily at the time the proportions are fluctuate between the two metals, and the development of paper money and credit can reduce the needs of metal, and remove money - metal as the standard.
* The gold standard "classic" (until 1914): All currencies are defined in relation to gold. The currency paper is a substitute for gold (one ounce of gold equivalent to 20 dollars, British pounds 4, and so on.). The conversion rates of each currency in gold, and thus between them, are fixed. This ensures the stability of the currency and prevent inflation artificially caused by an increase in the money supply (which carried States will constantly thereafter).
# In 1865, created the Latin Monetary Union, a monetary agreement between Belgium, France, Italy and Switzerland, which adheres to convention Greece in 1868. The agreement remained in force, subject to certain adjustments, until 1 January 1927. Its aim was to harmonise the currencies of these countries (module, title, weight), which had cross-border movement.
* The gold exchange standard (1914-1971): This is a mixed system in which some countries want to retain the benefits of the gold standard, while others want to keep the flexibility (via "more money") have variable rates of exchange. This system will become obsolete in a few decades:
# First World War because of the cost of the war all the European currencies were devalued sharply relative to gold.
# 1922: Conference of Genoa. A new currency is in place where only the United States retain the classical gold standard. The dollar is based on gold, the British pound on the dollar and other European currencies on the British pound.
# 1931: the United Kingdom, leading to increase its money supply, abandoning the system of exchange-gold.
# 1934: the dollar was defined as 1 / 35 of an ounce of gold. The United States' citizens do not have the right to own gold.
# 1944: Bretton Woods monetary system based on the dollar, the only currency still anchored to gold.
# 1971: Under Nixon, the United States can no longer maintain the price of gold at $ 35 an ounce or avoid a devaluation of the dollar, abandoning the gold standard.
* The system of floating exchange rates (from March 1973), after the abandonment of the Bretton Woods agreements, the currencies freely between them vary, depending on supply and demand and, therefore, in principle, depending on the amount of credit issued by each country (a lax monetary policy is "punished" by a decline in the value of the local currency in relation to other currencies). There is no counterpart to the metal currency issued, only the debt.
On the organization and evolution of the foreign exchange market since 1973, see: Forex and US Dollar.
Today the money has replaced most of the coins and banknotes. New monetary instruments have appeared, such as credit cards or automatic transfers. The currency has gradually dematerialized ...
Typically, these days, each country gives a monopoly to a single currency controlled by a central bank of State, although there are exceptions. Several countries can use the same name, each for its own currency (eg french franc, Belgian, Swiss, FSC), several countries can use the same currency (eg the euro) or a country may declare that the currency d another country has legal status (often the dollar). The CFA franc is a special occasion that its value is linked to that of french franc. Thus, 1 french franc to 100 CFA francs, or given parity french franc - euro 1 euro = 655.96 CFA francs.
The unit of currency is usually most subdivided into small units. Very often, the monetary unit subdivision has a value equal to 1 / 100 of the base unit. However, some countries have a subdivision worth 1 / 10, 1 / 20 or even 1 / 1000 of the base unit, while a few, like Italy before the euro and Japan, do not possess because the value of the basic unit of the currency is sufficiently low.
Money in economic thought
The currency is a very old and very frequently discussed throughout the history of economic thought.
Aristotle was the first to define its functions, first in Politics, and in the Nicomachean Ethics. In the fourteenth century, Jean Buridan then Nicolas Oresme denounce the manipulative behaviour already powerful who received the privilege to print money. In the sixteenth century, Copernicus gives the first formulation of the quantity theory of money: "depreciates the currency when it becomes too abundant", which will be taken up by the School of Salamanca and developed by Jean Bodin, then in the seventeenth century by John Locke and David Hume.
Richard Cantillon (Essay on the nature of trade in general, 1730) studied the differential effects of the money on various economic over time. The benefits go primarily to those in the hands where the currency is newly created, and then gradually spreads to the whole society. At the end of the cycle, not only the general price level was high, but the relative prices of goods have been modified and the first receivers of the currency have become rich at the expense of all others. This phenomenon is known as "Cantillon effect."
In other words, contrary to the legend, the classics do not say that money creation is "neutral", but on the contrary it has irreversible effects on the "real" economy and the effects of excessive monetary creation is harmful. That's why they say it must be severely limited, controversies between schools of thought does not only on the best way to conduct such a limitation which is contrary to the immediate interests of power.
In their major treaties of the eighteenth and nineteenth centuries, Turgot, Smith, Say, Ricardo, John Stuart Mill resume the quantity theory of money and have excessive creation of money as an evil. Alone or almost John Law introduced a discordant note in considering that the issuance of paper money can be a beneficial economic policy, foreshadowing the position of Keynes.
For Karl Marx, the currency has worked initially as a measure of values and as a means of purchase and payment, and later works as capital. Real products from circulation market, it has become the engine. While remaining faithful to the traditional view of the currency, he sees different roles depending on whether it is used to acquire consumer goods, or physical means of production, and the labour force. For him, holding money is sought by capitalists for social power it confers. In addition, the money is needed for capital accumulation. He also accuses the currency to replace the relations between men by simple relationships to objects and to hide the reality of the relations of domination in the capitalist system.
The fathers of the marginalist school of the late nineteenth see money in very different ways. In the construction of the intellectual overall balance of Walras, money is only used as a unit of expression relative values at the auction phase, but is not involved in the trade. Thereafter the domination of the school and its walrasienne of money outside the scope of the economic thinking accredit the misconception that the classics had no monetary theory and lead some to try to reintroduce the currency in part of the overall balance.
On the contrary, Carl Menger recognizes the central role of money and describes his invention as that of a spontaneous order. The various primitive means of payment have been gradually replaced by those who were the most lasting, more convenient to use and the value of which was the most enduring because of their rarity, ie precious metals. All functions of the currency are aspects or consequences of its function as a medium of exchange. This attitude is consistent with that of the classic is being developed by the economists of the Austrian tradition, which Ludwig von Mises which sees excessive creation of money and credit by the State origin single economic crises. This position is also that of monetarists, whose leader is Milton Friedman.
To Keynes, the quantity theory of money is wrong because, according to him, an increase in the quantity of money would lead to higher prices if all factors of production are used to their full capacity, which implies in particular, there is no unemployment. Otherwise, the money helps eliminate underemployment. Moreover, he stressed that the currency may be hoarded as a precaution before the inherent uncertainty in economic life. The management of the money is for him an essential instrument of the economic policy of government, is needed to ensure price stability and full employment, especially. It is this idea which is the most popular nowadays, and that inspires most of the work of economists on the currency, as well as considerations to the margins of the economy such as the sociological and psychological aspects of the currency.
For example, Michel Aglietta and Andre Orleans, the currency is primarily "an expression of the entire society" and its management is a key function of the State, to the point that they reserve the denomination of currency only payment of which the State has a monopoly.