How Currencies Facilitate Free Trade

Google+ Pinterest LinkedIn Tumblr +

A currency is characterized by the confidence of users in the stability of its value and its capacity to function as a medium of exchange. Thus, it plays a central role in the life of a country on wide spectrum of areas such as social, political,  legal and economic.

Currency has three principal roles, it serves as an intermediary in trade, the expressive unit of account as regards economic activities or accounting, and also functions as a carrier of value.

Every currency is defined as the currency for a particular economic territory be it a country or regional bloc. It comes in the form of bank notes and coins.

Due to the importance of money, states have sought early on to secure optimum monetary power, by adding value through productive strength and industrial innovation.

In the absence of currency, the exchange of goods can be realized by way of barter trading. Hence, the the pertinent role of being means of payment, in some cases presented as a fourth function of money. It is a primary aspect of the role of money as it serves as an intermediary in trade. By facilitating trade, currency becomes an essential tool of free trade.

Currency is a key tool for the economy of modern society based on freedom of employment, production, consumption and savings. However, in some instances the buying power of the monetary unit is trimmed down by inflation.

A currency circulating freely in an economy naturally becomes the unit of account applied to express prices. In a situation where the assets are plenty, and relative prices can shift regularly on free markets, the monetary expression of the price is said to be unstable.

Coins form part of the denominations of a currency, and over time economic systems have displayed the utmost pragmatism in the choice of coins that circulate very quickly.

Money is a universal means of expression of the value trade flows and stocks, and the hoarding of money is the most liquid form of investment. The collective propensity to maintain liquidity in financial markets, is a fiscal phenomenon that is also monitored by the monetary authorities.

In the early days, the advantages of paper currency were numerous; it cut back on the need for the transportation of gold and silver. Thereby reducing the risks, and it rendered loaning of gold or silver at interest much easier, simply because gold or silver stayed with the lender until the redemption the note.


About Author

Leave A Reply