A currency is the means by which transactions are made within a particular economy. This term often refers to actual printed or minted money, the physical representations of an economy’s money supply. In some countries, the currency of another country may be accepted as legal tender, which means that it can be used as a legal instrument for the exchange of products and services. For instance, some territories which have their own currency also accept the U.S. Dollar for the completion of transactions.
While it may be easier to visualize money supply in terms of actual bills and coins, it is also important to consider its other aspect, which comes in the form of deposit money. This is transacted through the use of checks, check or debit cards, and credit cards.
The central bank of a country is in charge of regulating and producing its currency. In many countries, this entity is independent from the government, and monetary policy is overseen by the country’s monetary authority.
Since different countries make use of different currencies, the setting of exchange rates is necessary for international trade. Foreign exchange, which is also called currency trading, generates profit based on the relative values of the currencies involved in the trade. If a country’s exchange rate fluctuates, it is said to have a floating currency. This is the opposite of fixed currency.