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Home » Blog Updates, Monetary Literacy 101

What are the main characteristics of modern national currencies?

Submitted by on September 17, 2010 – 5:05 amOne Comment

National currencies

  1. are geographically attached to a nation-state
  2. are chosen by a central authority when it declares that something is the only medium of exchange acceptable in payment of taxes (the only valid “legal tender” for all private and public debts)
  3. are “fiat currencies,” created by bank debt, and issued in scarce supply as “debt money derives its value from its scarcity relative to its usefulness” (Jackson & McConnell Economics.  Sydney: McGraw-Hill, 1988.)
  4. and bear interest, a feature which in turns:
    • creates structural competition between participants (see the story of The Eleventh Round) and
    • encourages short-term planning via “discounted cash flow”

Effects of national currencies:

  • they bolster national consciousness by facilitating economic interactions with fellow citizens rather than with foreigners;
  • they encourage competition and facilitate concentration of wealth (which was key to catalyzing the industrial revolution)
  • they have proven flexible enough to be adopted by all countries (including “communist” ones), independently of political context;
  • they have attracted sophisticated financial services and institutions; and
  • they are legal tender for all debts public and private.

Shortcomings: here is an overview explanation of the problem with modern national currencies.

One Comment »

  • KRISHNASRI says:

    you can also give a answer for the question “what are the differences between modern money and past money ?” in a table form as per kids project

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