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Currency, in its most basic sense, is a standardized form of money that is used as a medium of exchange for goods and services. It allows for transactions to occur smoothly without the need for bartering, where goods and services are directly exchanged for other goods and services.

    • Form: Traditionally, currency comes in the form of physical money like banknotes and coins, issued by a government and generally accepted at its face value. However, in the digital age, electronic currencies like cryptocurrencies are also gaining traction.
    • Functions: Currency serves several important functions:
        • Medium of exchange: It facilitates the exchange of goods and services by providing a common unit of value.

        • Store of value: It allows people to hold onto purchasing power over time.

        • Unit of account: It provides a standardized way to measure the value of goods and services.

  • Types: Currencies can be classified into different types based on their backing:
      • Fiat currency: The most common type, backed by the government’s promise to accept it for payment of taxes and other obligations. Its value is primarily based on supply and demand and public trust.

      • Commodity currency: Backed by a physical commodity like gold or silver. Less common today.

    • Representative currency: Backed by another asset, such as another currency or a basket of commodities.

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