[Financial Essay] What Is Currency?

[Asia Economy Reporter Minyoung Kim] What is money? Money refers to a measure of the exchange value of goods and a means to mediate exchange. In other words, money is used to exchange goods, measures the value of goods during the exchange process, and serves to store value.

The following content refers to the "Basic Requirements of Money" found on the Bank of Korea's website. In the past, there were things that served as money. It was an era of commodity money economy, where rice, salt, and other items were widely used as mediums of exchange.

Then metals such as gold, silver, and copper were used as money. The era of metallic money began. At this time, the volume or weight of the metal became a measure of value that could be used to buy other goods without anyone's value guarantee.

From the era of metallic money, the right to produce money, the "minting right," was monopolized by the state. Power endowed money with authority, and monarchies or rulers, aiming to profit from money production, reduced the precious metal content in coins, issuing coins whose intrinsic metal value was lower than their face value. Money thus moved away from the intrinsic value of precious metals and relied on the authority granted to it, introducing the nominal exchange value known as the face value of money.

This led to the emergence of paper money. Since the monetary economy could not rely solely on state authority, the gold standard was adopted, equating the monetary unit to a certain amount of gold, and by the early 20th century, most countries had introduced the gold standard.

However, in the 1970s, when the United States suspended the "gold convertibility," money unrelated to the value of gold appeared, and among the world's currencies, only the "dollar" was granted value as the world's currency. The era of the dollar began. Countries around the world held both gold and dollars, and foreign exchange reserves came to represent a nation's economic stability. Central banks were granted the exclusive right to issue money and took on the responsibility of stabilizing the value of money (price stability).

This content was produced with the assistance of AI translation services.