Glossary of useful definitions


Any thing that can perform the following functions is money :
  1. unit of account
  2. medium of exchange
  3. store of value

Unit of account

A unit that defines the value/price of any element in a transaction.

Medium of exchange

A publicly acceptable commodity/element that can be used in a transaction for the exchange of good(s) and service(s).

Store of value

An element that has a quality to accumulate the value for future use.

Backed Currency

A currency whose value is guaranteed by a direct correspondence with a commodity (e.g. the gold), the currency is in fact a claim to a given quantity of that commodity (which typically requires having a stock of that commodity on hand to meet such requests).

Fiat currency

A currency without reference to anything else created by FIAT (Latin, "let it be made" or "let it be done") whose value is guaranteed by the authority issuing it rather than by any external reference or backing. Virtually, all national currencies today are fiat.

Valued Currency

Acurrency valued by a commodity, when its value is expressed in terms of the value of that commodity, it may or may not be redeemable in that commodity. The Bretton Woods dollar-gold equivalence standard is an example.

Bretton Woods

Township in New Hampshire where the "Bretton Woods Agreement" was finalized after World War II after negotiations mainly between the British and the U.S. The system agreed upon has also been called the "dollar-gold equivalence standard", because it gave the status of official global reserve currency to the US$, on the condition that the U.S. guarantee the convertibility of dollars into gold on demand of other Central Banks. In August 1971, President Nixon unilaterally reneged on that latter clause by "closing the gold window" when France and the UK requested such redemptions. This also inaugurated the era of "floating" exchanges in which the values of each currency and of gold would be left free to be determined by market forces. This act also converted all backed currencies in to fiat currencies.

Central Bank

The bank of banks authorized to manage a national currency; it is a central transaction place for all commercial bank of the country. In today's system, the central bank is solely responsible for the economic condition of the country. There are some Central Banks owned by private banks (e.g., The U.S. Federal Reserve Bank and the Deutsche Bundesbank of Germany; some owned by the government (e.g., Banque de France, the People's Bank of China, and the Bank of England since its nationalization in the 1950s); some are in mixed ownership (e.g., the Belgian Central Bank and the Bank of Japan.

Its responsibilities include maintaining internal and external stability of the national currency, interest-rate fixing; or fixing reserve requirements for the private banks etc. Central banks of different countries deal through the Bank for International Settlements (BIS).

Bank for International Settlements (BIS)

A private organization located in Basle, Basel is not a part of any country, situated near Switzerland. BIS is owned by the eleven key central banks in the world and it does work in secret. Although, it started to act as a clearing house for transactions among central banks, but now it has also a role in monetary system as well as some research.

The BIS Board of Directors currently comprises the Governors of the central banks of Belgium, France, Germany, Italy and the United Kingdom and the Chairman of the Board of Governors of the US Federal Reserve System. The Governors of the central banks of Canada, Japan, the Netherlands, Sweden and Switzerland are currently elected members of the Board.

At BIS, fifty institutions have rights of voting and representation at General Meetings. These are the central banks or monetary authorities of Argentina, Australia, Austria, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, India, Ireland, Italy, Japan, Korea, Latvia, Lithuania, the Republic of Macedonia, Malaysia, Mexico, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, the United Kingdom, the United States of America and Yugoslavia, as well as the European Central Bank.

International Monetary Fund (IMF)

International organization based in Washington D.C., which administers the Bretton Woods Agreement. The U.S. is the only country with veto power over IMF decisions. The IMF have 184 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment.

Organization for Economic Co-operation and Development

The OECD groups 30 member countries sharing a commitment to democratic government and the market economy. With active relationships with some 70 other countries, NGOs and civil society, it has a global reach. Its member countries include Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.