Topic covered by article:
Total Currency Needed by a Country
Currency, also commonly referred to as money is defined as the purchasing power of an individual. It is of great importance and especially in the general convenience it creates for anyone who seeks the commodity or service.
In the discussion below, we attempt to elaborate on the various factors that drive the demand for currency in a normal condition.
When it comes to the economy of an entire region or territory, an increase in currency causes a decrease in its credit and in extreme cases it may even cease to be a current. The purchasing power within a territory must also bear a close relation to its purchasing power in other countries. This ensures that neither the importers nor the exporters are at an advantage over the other.
The value of some metals such as gold and silver has also been seen to be superficially high over others. In fact, during the ancient times, the values of gold and silver were said to be artificial, A Marshall (1907), Principles of economics, 5th Edition, Macmillan. This is however proven otherwise by observations made by indicating that the high value of gold and silver that rose above all other metals is as a result of the high cost of attainment. This constitutes the total expenses incurred when acquiring it through the mining activities.
The rate at which currency circulates or changes hands for business purposes in a given duration of time dictates and is directly proportional to the amount of business transacted in that country through direct payment. A greater circulation of the currency in turn creates more demand, indicating a fast rate of transacting in businesses.
The nature of occupation and social status of an individual in an economy also influences circulation. This simply means that a low income earner is much more likely to use up all the high currencies retaining the very low and negligible ones. On the other hand, a high income earner is able to retain the high currencies even after catering for their necessary amenities. This fact gives rise to the very common analogy whereby a poor man earning only a few gold coins is not able to save or retain a gold coin after all his necessities have been catered for, instead, he is only able to save a bronze coin. On the other hand, a rich man will easily cater for all necessities and still be left in a comfortable position to save several gold coins.
Inconvertible paper currency is another factor that may lower the credit of a currency since it reduces the amount of ready purchasing power which is held by individuals. Its effect is created by the credit of a currency on the willingness of a population to retain their resources which may either be in cash, stock-exchange or debentures. A poorly considered increase in inconvertible currency would in turn lower the currency’s credit; forcing everyone to possess a reduced share of their resources.
Currency also possesses an exceptional character in that; an increase in its quantity exerts no proportional influence on the amount of service it caters for. This therefore means that despite an increase in currency of a given country, there is no increase or improvement of the services offered.
References
A. Marshall (1924), Money, credit and commerce, Macmillan, ch 4, pg 38-50
