Currencies

The history of currencies provides a useful approach to understanding how the local and the national have related to the global. In the modern world, money takes the form of currency. It can be exchanged for other things or services because people believe that it provides a reliable medium of trade, store of value, and unit of account. Since the 19th century, money has been an important symbol of national-state sovereignty. Since the 1970s, new arrangements for exchanging currencies have been an enabling force in bringing about the explosion of capital flows and trade around the world associated with globalization.

At one time people insisted on being shown the money, in the form of gold, silver, or something of equivalent value to what was being sold or purchased, for a unit of money to have more than a face value. Historically, however, there have been various types of monies. These include commodity money, an object that is more portable and divisible but that has value equivalent to the object in trade; nominal money, an accounting money for which no equivalent physical money exists; and fiduciary money, a money, typically a currency, that has value not directly related to the value of the material from which it is made. Fiduciary money has been around throughout much of human history, but only during the past century has it come to dominate the world completely relative to other types of monies.

In the modern era, the reputation of a currency relies on popular confidence. In particular, it relies on the confidence of investors and bankers in the backing or support the currency will receive from its issuer (almost invariably a national government), the overall strength of the national economy the currency is issued in, and the currency's utility for a variety of purposes and transactions within and between countries. From the 19th century until the 1970s, it seemed commonsensical for each country to have its own currency representing its own unique monetary sovereignty and to assume that its circulation was exclusive within the given national territory. But before that time and since, foreign currencies have had wide circulation across international borders. Currencies are not necessarily territorially exclusive and are becoming even less so. From this viewpoint, the history of currencies provides a useful perspective on the nature and historical course of globalization.