The value of a currency in a country is determined on the basis of daily trade. The region in which a particular currency is used as a unit of exchange becomes the currency zone of that currency. Any currency issued by a country located outside this currency zone will be categorized as foreign currency in this region.
Based on exchange rate guidelines, currencies fall under two categories:
In order to facilitate multilateral trade, countries regulate their exchange rates vis-à-vis other currencies. Often, countriesuse the prerogative of producing and circulating their official currency to alter its exchange value. Such decisions are taken by the Ministry of Finance or the central bank of a country.
The member countries of the Economic and Monetary Union of the European Union do not have the authority to produce or distribute currency. These decisions are taken by the European Central Bank (ECB) on behalf of the member nations. The Euro, whichis commonly used by the 16 of the member nations of the European Union, is called a common currency.
Various countries use a common name for their currency, such as the dollars, pounds, pesos and dinars. These will normally havelocal variant names, such as the US Dollar, Canadian Dollar and Australian Dollar.
The term e-currency or online currency refers to currency or scrip that is exchanged electronically. In other words, it is the unit of exchange that is widely used on the Internet. Transactions in online currencies have become increasingly popular owing to their simple and instantaneous nature. E-currencies have created a borderless world, where people can carry out commercial transactions in a matter of a few clicks.
The evolution of the application of currency from punch marked coins to this contemporary stage of e-currency illustrates the need for sophistication of the systems of exchange.