Each private central bank has got the monopoly control over the supply and production of the country’s own currency, in most of the cases. There are exchange rates in order to facilitate trade between these currency zones, which are those prices at which the currencies (and the goods and services of individual currency zones) can be exchanged against each other. On the basis of their exchange rate regime currencies can be classified as either floating currencies or fixed currencies.
Control of a currency is exercised either by a central bank or by a Ministry of Finance in such cases where a country does have control of its own currency. In either case, the monetary authority is the name given to that particular institution that has control of monetary policy. The government provides varying degrees of autonomy to the monetary authorities. In the United States, the Federal Reserve System is operated without direct oversight by the legislative or executive branches. Here it is important to note that the government creates a monetary authority and the government also provides support to it, so its independence can be reduced or revoked by the legislative or executive authority by which it is created. However, in practical terms, the revocation of authority is not likely. The monetary authority is largely independent from the government, in almost all Western countries.
The same name can be used by several countries for their own distinct currencies (e.g., dollar in Canada and the United States). By contrast, the same currency can also be used by several countries (e.g., the euro), or the currency of one country can be declared as a legal tender by another country. For example, U.S. currency has been declared to be the legal tender of Panama and El Salvador, and from 1791–1857, Spanish silver coins were considered to be the legal tender in the United States. At various times this has happened that countries have either re-stamped foreign coins, or they may have used currency board issuing one note of currency for each note of a foreign government held, as Ecuador currently does.
Typically, each currency has a main currency unit (the U.S. dollar, for example, or the euro) and a fractional currency, which is usually valued at 1⁄100 of the main currency: 100 cents = 1 dollar, 100 centimes = 1 franc, 100 pence = 1 pound, although units of 1⁄10 or 1⁄1000 are also commonly used. There are no small units in some currencies, such as the Icelandic króna.
The only remaining countries that do not use the decimal system are Mauritania and Madagascar; instead of that, the Mauritanian ouguiya is divided into 5 khoums, while the Malagasy ariary is divided into 5 iraimbilanja. In these countries, words like dollar or pound were just the names that they have given to weights of gold. Due to inflation khoums and iraimbilanja have in practice fallen into disuse.
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Posted by R. MAK. in Currency Trade, Forex Basics, Forex Facts, Forex Market · 0 Comment
