Currency is any medium of exchange by which the processes of trade are facilitated. Originally all exchanges may be supposed .to have been made directly by barter, one commodity being exchanged against another according to the convenience of the particular holders. In barter, however, it would obviously be often difficult to find two persons whose disposable goods suited each other's needs, and there would also arise difficulties in the way of estimating the terms of exchange between unlike things, and of subdividing many kinds of goods in the barter of objects of different value. To obviate these some special commodities in general esteem and demand would be chosen as a medium of exchange and common measure of value, the selection varying with the conditions of social life.
In the hunting state furs and skins have been employed by many nations; in the pastoral state sheep and cattle are the chief negotiable property. Articles of ornament, corn, nuts, olive-oil, and other vegetable products, cotton cloth, straw mats, salt, cubes of gum, bees'-wax, etc, have all been at various times employed to facilitate exchange. These, however, while removing some of the difficulties attendant upon barter would only partially solve others. It would be felt by degrees that any satisfactory medium must not only possess utility and value, but it must be portable, not easily destructible, homogeneous, readily divisible, stable in value, and cognizable without great difficulty. The metals would naturally commend themselves as best satisfying these requirements, and accordingly in all historic ages gold, silver, copper, tin, lead, and iron have been the most frequent materials of currency.
The primitive method of circulating metals appears to have consisted simply in buying and selling them against other commodities by a rough estimation of the weight or size of the portions of metal. Sometimes the metal was in its native state (e.g. rough copper or alluvial gold-dust), at others in the form of bars or spikes, the first approximation to a coinage being probably rudely-shaped rings.
The earliest money was stamped on one side only, and rather of the nature of stamped ingots than coins as we know them. The chief desiderata influencing the subsequent development of coinage were the prevention of counterfeiting, the prevention of any fraudulent subtraction of metal from the coin, the removal as far as possible of anything likely to occasion loss of metal in the wear and tear of usage, and the production of an artistic and historical monument of the state issuing the coin. Early coinage, which had intrinsic value, frequently had a little clipped off before being passed on, the coin then passed being of reduced intrinsic value Hence the elaboration of designs to cover the whole of a given portion of metal, and the nicer determination of quality, size, degree of relief, inscription, etc, for example the ridge pattern around the edge of a coin which was introduced to reveal if the coin had had some of the edge clipped off.
While, however, metallic money of a guaranteed standard value was at an early period found to facilitate in a high degree the mechanism of exchange, it was speedily discovered that it was possible in large part to replace the standard gold or silver or copper coins by various forms of currency of a representative character. The standard money depended solely for its value in exchange upon the value of the material of which it was composed; its metallic value and its nominal value were coincident; the representative money derived its value from a theoretic convertibility at will into the standard coin. Thus in token coins the metallic value may be much less than the nominal value, which is defined by the fact that they can either by force of law or custom be exchanged in a certain fixed ratio for standard coins. Gradually a series of devices came to be employed to further the interchange of commodities with the least friction and the least possible actual use of the coinage except as a standard and common denominator of value in terms of which exchanges were made. Even in home transactions, but especially in international transactions, the use of actual specie was found to involve a loss of interest and a risk of still more serious loss, and a paper currency based upon credit offered the readiest solution of the difficulty. In this way bank-notes, bills of exchange, and cheques - warrants or representative documents convertible, if desired, into standard coin - took their place alongside the metallic currency, partly displacing it, partly extending and supplementing it.
The requisites of circulation are that the monetary issues, whether of coin or paper, shall be from a recognized or official source, and that they admit of being freely returned when necessary to the source from which they are issued. The certification of the fineness of the masses of metal circulating in a community, and the protection from adulteration and fraud, clearly falls among the necessary acts of police. It has long been argued, as by Herbert Spencer in his Social Statics, that the coinage should be left to the ordinary competition of manufacturers and traders; but when this has occurred the currency has uniformly become debased, and it is generally held, in accordance with the maxims of civil and constitutional law, that the right of coining is a prerogative of the crown. Even in the case of state-issues base money has been circulated, as in England in the reigns of Henry VIII and Edward VI, but the attempt is little likely to be repeated, the last of such debased issues, with the refusal to redeem it at its nominal value, having been made by a petty German prince early in the 19th century. In the matter of state supervision two precautions are particularly necessary: that the standard coins shall be issued as nearly as possible of the standard weight, and that all coin worn below the least legal weight shall be withdrawn from circulation. The ground for these precautions is to be found in the broad general principle relating to the circulation of money, and known as Gresham's Law, that bad money invariably drives good money out of circulation, the heaviest coins being selected for exporting, hoarding, melting, conversion into jewellery, gold-leaf, etc. The law holds good not only with regard to coins in one kind of metal, but to all kinds of money in the same circulation, the relatively cheaper medium of exchange being retained in circulation while the other disappears. Though the increased use of token coins with no intrinsic value reduced the ce significantly.
Of the various systems of metallic currency the first adopted was that known as the single-legal-tender system, in which the state issued certified coins in one metal only. It was found, however, that in such cases the people invariably circulated for convenience coins of other metals, and there naturally arose out of this the adoption of a double or multiple legal tender system, in which coins were issued in different metals at a fixed rate of exchange. To obviate difficulties arising from the possession of two or more metals as concurrent standards of value, with the constant tendency of one or other to become more valuable as metal than as currency, a third system, the composite-legal-tender, came into existence, in which coins of one metal were adopted as the standard of value, and token coins only issued in the other metals for the payment of small amounts. The last system became prevalent in Britain and America: but the double-legal-tender system, to which the French long adhered, was revived in a more philosophic form by 19th century economists, and has found an increasing number of advocates for its universal adoption. After the Second World War currency in most industrial nations became universally representative money, the use of gold and silver relegated to ceremonial special coins and history.
The circulation of representative money formerly differed from that of standard metallic money in that it only circulated within the district or country where it was legally or habitually current. In the payment of debts to foreign merchants the only money which could formerly be exported was standard metallic money. Hence Gresham's law held with regard to paper-money, which is, like light and debased coins, capable of driving out standard money. Examples of this are to be found in the suspension of specie payments by the Bank of England between 1797 and 1819, and in the history of the French assignats at the time of the revolution. The various methods on which the issue of paper-money may be conducted are exceedingly numerous and a matter of interminable debate. The state may either constitute itself the sole issuer of representative money on the same lines as it constitutes itself sole issuer of metallic money, or it may allow corporations, companies, or private individuals to issue representative money under legislative control.
The question as to the duty of a government in this respect has been much obscured by the want of a clear apprehension of the distinction between a real and a nominal currency. The doctrine of orthodox English writers on the currency of the absolute convertibility of the bank-note, by which is intended a convertibility provided for by the action of government, is held by some writers to proceed on an altogether exaggerated and inaccurate notion of the functions of a government. Another idea, that the issue of paper-money ought to be wholly controlled by government, or ought to rest entirely upon government credit, places a high degree of faith in the trustworthiness of governments, and was held by many in time past to misconceive the nature and objects of a paper currency. The tendency in England has been to regard the issue of notes not so much as allied to the commercial operation of drawing bills, but as analogous to the royal function of coinage. In Scotland, on the other hand, a perfectly sound currency was furnished by banks acting until 1845 on their own unrestricted discretion, and the prevailing tendency was until the start of the 20th century still towards a maximum of freedom in the issue of representative paper-money. However, since the 20th century the issue of all money has been restricted to state governments.
The Currency and Bank Notes Act of 1928 passed in England had the principal purpose of the transfer of the currency note issue of the British government to the Bank of England, but still provided provision for the exchange of bank notes for their value in gold bullion. Research Currency
Abbreviations
Money
Research Currency