Currency reserves are also required to offset external debts and fund diverse sectors of the economy. Thus the European euro is used in 35 independent states and overseas territories, the United States dollar is used in 10 foreign countries and in the USA, the West African CFA franc - in 8 and the Central African CFA franc - in 6 African states. Nations use their foreign currency reserves to fix exchange rates to become competitive in the export market, improve investor confidence, and remain liquid during a crisis. The matter is, that some of them dont have their own money and officially use the foreign currency. The most common solution to this problem is currency exchange.Ĭurrency is important to a country because of the exchange rate. Therefore, they cannot buy goods from another country using the local currencies. However, countries have different types of currencies or money with different units of account. In most cases, barter trade is not practical, so money is used in such circumstances. Other powerful currencies include the Japanese Yen (¥) and the Indian Rupee (₹) Why Countries Need CurrenciesĪlmost every country trades with other countries either within their regions or overseas. Pound sterling (£) is the oldest currency still in use and the UK’s official currency. The Euro currency (€) is used by 19 of the 27 EU member states, making it one of the currencies used by most countries. Besides the US, 22 other countries use different forms of the dollar currency, including Australia and Canada. It is considered the world’s chief reserve currency held by most commercial and central banks globally. The US dollar (US$) is the most used and trade currency. It is also the world’s most valuable currency, with its strength and value attributed to Kuwait’s oil resources. The Kuwaiti dinar is the world’s strongest and highest valued currency. However, not all the currencies have equal strength or value some are stronger and trade frequently in the foreign exchange markets. Currently, about 180 currencies are used across the globe and recognized by the United Nations. Numerous factors influence exchange rates, including a country's economic. Popular CurrenciesĪlmost every country has a unique currency, although some countries share common currencies. Currency fluctuations are a natural outcome of floating exchange rates, which is the norm for most major economies. Another form of currency gaining popularity is virtual currency, a digital, unregulated currency issued and controlled by the developer. Fiat money is a currency issued by the government and not pegged on any commodity. Commodity money is money in the form of other items such as gold or silk, which can be used in buying other goods. For instance, a gold certificate representing the value of gold one has. Representative money is money printed on paper representing the value of an item or commodity. Currencies can be classified into three monetary systems representative, commodity, and fiat money.
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