Essay on Currencies

Introduction:

The currency can be, defined as money in any form of physical shape consider that in this case, it can be notes issued by banks or coins. Before the use of currency in the old day’s trade was based on the barter system. The barter system has a drawback as it depends on the exchange or storing goods. Therefore calculating wealth was, based, on the number of goods, which was very hard due to which currency was, introduced to make trade easier. The money considers being very important for a country to do, trade or business locally or internationally. Every country’s currency has a different value depending on its growth, domestic product, and security aspects. The currency value also affects the economy of a country, which can affect the lifestyle of its citizens. The currency value can also affect the security of a country by affecting its defence budget. As the world is updating every second, the demand for digital currencies like bitcoin.

Description:

1.      Effects of unstable currency locally:

A unbalance currency-value can affect the country’s economy locally because the exchange rate of currency also depends on the exchange rate. Therefore when the currency value is weak in the foreign exchange market, it will increase the interest rate, mortgage, grocery rates. The weak currency also affects the local industry of a country, which will result in the loss of jobs (Chipeta, Meyer, Muzindutsi, 2017).

2.     Effects of unstable currency on the economy:

Below are the factors that are affected by an unstable currency:

(A)  Trade of Merchandize:

The stable or weak currency of a country can affect the prices of imports and exports of the country, and a stable-currency rate can also make the imports cheaper, which benefits the local industries of a State. Therefore a strong currency can give benefit to a country in import and export (Barbiero, 2020).

(B)  Growth of Economy:

To keep the currency strong and balance the-growth-domestic product plays an important part. The growth of domestic products is the basic and most reliable method to determine a country’s currency value. The growth domestic product base on a formula which is, given below:

Formula:

Growth Domestic Product = C + I + G + (X – M)

Here:

C = Spending or Consumption of consumers.

 I = Initial investment.

G = Money Spend by Government.

(X – M) = Subtraction of imports from exports.

The above equation indicates that the growth domestic product value of a country is directly proportional to the net-value of exports, which means the higher the net-value of exports higher will be the growth domestic product (Hassan, Mertens, Zhang, 2016).

3.     Role of Currency in Modern Warfare:

Today the ways of war have been modernized, and it has shifted from traditional-war to currency war, which proves that a strong currency is necessary for a country’s defence. Nowadays, every country is working hard to have an upper-hand on the trade as compared to its competitor countries because the factor of-trade ultimately affects the currency exchange rate, which is a base to determine a country’s currency. The currency war has been going on since the countries abandoned the trade with gold and started using banknotes known as currency. The first currency war started in the 1930s, changing the strategy of war. After about a century later, another currency-war was noticed in 2010 and was at its peak in the middle of 2011. During this war of currency, many countries started to use multiple tools and began to introduce many reforms to overcome this situation. In this war first, the conflict started between the Chinese Yuan and American US Dollars, and suddenly after this tension, a new conflict between the Japanese Currency and Euro Currency began. But at the end of February, the currency-war finally ended. After, a statement about ignoring the process of devaluation was-issued by the G20 and G7 groups. But suddenly, in the starting year of 2015, the Central Bank of Europe launched new policies to increase the chances of an outbreak of a new currency war (Crespo, 2020).

(A)  Currency war between Turkey and America in 2018:

In the year 2018, as the tension between Turkey and America was at its peak. The American president Donald Trump suddenly started a currency war with Turkey by putting tariffs on some products of Turkey such as steel and aluminium. This currency war affected the economy of Turkey very badly which, results in losses of jobs and also slightly affects the popularity of Endogen, which results in the loss of election (Fouskas, Gokay, 2018).

4.     Digital Currency:

Today almost all countries are using digital currencies, especially after the COVID-19 pandemic the people all over the world have realized the importance of digital currency. Also, some countries are about to launch their digital currencies like China in the form of digital Yuan. The digital currency is used, through wallets of computers, laptops, or mobile phones using the internet. Digital currencies like banknotes can be-used to buy goods items or pay for the services. The best feature of digital-currencies is that in digital-currencies, payments can be made directly to a person without any kind-of intermediaries like banks. Also, the cost of the transaction is low as compared to traditional transactions (Lee Kuo Chuen, 2015).

Conclusion:

After having a depth analysis, it is clear that in the modern world, any country cannot ignore the importance of currency for the sack of its sovereignty and the development of its population. There is no doubt that the banknote or coin system in the replacement of the barter system made the trade easier. But at the same time, it has also introduced new trends of modern war, such as the currency-war. Therefore every country is working hard to get an upper-hand on trade as compared to its rival-countries. And because of this, every country is working hard to maintain its currency value and keep it as strong and stable as possible by doing-big trades. Also, the world has understood the importance of digital currency during the COVID-19 pandemic. Therefore China being a top exporter, decided to launch its own digital Yuan currency worldwide, which is consider being a big step.

References:

  1. Chipeta, C., Meyer, D.F, and Muzindutsi, P.F., 2017. The effect of exchange rate movements and economic growth on job creation. Studia Universitatis Babes-Bolyai Oeconomica, 62(2), pp.20-41.
  2. Barbiero, O., 2020. The valuation effects of trade. Available at SSRN 3513170.
  3. Hassan, T.A, Mertens, T.M., and Zhang, T., 2016. Currency manipulation (No. w22790). National Bureau of Economic Research.
  4. Crespo, R., 2020. Currency Warfare and Just War: The Ethics of Targeting Currencies in War. Journal of Military Ethics, 19(1), pp.2-19.
  5. Fouskas, V.K., and Gokay, B., 2018. The US-Turkey standoff in the context of global capitalism and the crisis of hegemony. Green Left Weekly, (1197), p.1.
  6. Lee Kuo Chuen, D., 2015. Handbook of Digital Currency. Elsevier.

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