Besides currencies based on commodities, there are also other forms of currency in use. Some of these forms include paper money, coins, and global reserve currency.
During the past century, paper money has become an increasingly important factor in the global economy. Whether paper money is a good thing or not is a subject of debate, but there are arguments that justify its use.
Paper money has many advantages over metallic money. It is cheaper, it can be easily counted and it saves precious metals. In addition, it is more durable.
Paper money is also more recognizable. It can be used to pay debts. It can be used for loans, letters of credit and other types of payments. It is also easy to carry.
The first paper money was introduced in China during the 7th century. It was backed by coins and had pictures of people and trees on the front. It was issued by the government’s official bank. It was used by wealthy merchants.
Using coins in a meaningful way has been a practice since the dawn of time. The ancient Chinese may have been the first to coin the oh-so-famous coin, but the earliest inhabitants of our fair nation were no slackers. The earliest recorded use of gold was in Anatolia in the late 7th century BC. As the crow flies, the gold was in tidal form. While coins were not minted in record numbers, they were nonetheless minted in a limited fashion. This was not only a time consuming undertaking, it was also costly to administer. In the long run, the most enlightened minted entomologists opted for a more stable alternative: the paper based one. Although the aforementioned silver tailed eteta were relegated to the periphery of the empire, their illustrious progenitors were some of the most enlightened and enlightening of their day.
Commodity-based currency systems
Unlike fiat currencies, commodity-based monetary systems are backed by some sort of physical asset. The most common example is gold, but silver, copper and other commodities have been used as currency in some form or another since the beginning of civilization.
The biggest advantage of a commodity-based currency system over a fiat one is that the government is forced to keep a good proportion of its money in gold reserves, meaning there is less risk of inflation and currency depreciation. However, these systems are expensive to maintain. Governments have to borrow to maintain a stable currency, leading to a slew of debt problems. It is no wonder that governments are more likely to opt for a fiat currency system.
There are plenty of other options, though. Many of the better ones have been de-emphasized in favor of fiat currency systems.
Global reserve currency
Despite the fact that the dollar has remained the world’s largest reserve currency for over a century, the international reserve currency system is in need of reform. The system’s inequity and lack of stability contribute to payments imbalances and recessionary pressures on the world economy.
The current system has a fiduciary dollar, which has no backing other than the trust of its treasury. In addition, the dollar’s status as a reserve asset has not increased in recent years. Rather, its share of global foreign exchange reserves has fallen to below 59 percent in the last quarter of 2015.
The euro has emerged as a reserve currency, as it has increased in share of global foreign exchange reserves to about 19 percent by the end of 2015. The euro is not backed by a large group of countries like the United States, Russia and the European Union. It is backed by a heterogeneous group of countries.
Other forms of currency
Among the plethora of currencies in the world, the United States dollar is unquestionably the gold standard, and arguably the only currency on which the average consumer clings to in this economically diverse country. Nevertheless, the aforementioned currency is a mere pawn in a vast chessboard of competing currencies, including the likes of the Euro, Japanese yen, and Aussie dollars, to name a few. Interestingly, the US dollar has its share of idiosyncrasies, such as its unremitting volatility, and the high costs of importing and exporting goods and services. The best way to combat this is to learn how to best manage your money. Thankfully, the US is also home to some of the most progressive and friendly monetary policy in the world. With that, we can look forward to a more stable currency in the years to come.