by David Thill

Created on: January 27, 2009

In today's world, most nations choose to produce and support a currency of their own, rather than join a multi-nation currency such as the
Euro, or adopt the currency of another nation (as Ecuador has done with the American dollar). There are good reasons for this, and except in a few instances, it makes more sense to retain the power, flexibility and sovereignty of a national currency than to tie your people and your nation to a currency controlled entirely by outside forces.

A useful way to think of any currency is that its value is a rough measure of the value of the nation, both to the people who use the currency daily (the citizens) and those outside the nation who want to either buy something from or sell something to a person or corporation in the country. Although there are many other factors that impact the value of a currency, roughly speaking if you divide the value of a country by the amount of that
country's currency floating around in and outside the borders, that is the value of the currency.

This matters most when some shock hits the international economy, and the relative value of one country to another changes suddenly. When oil rocketed up above $US100 per barrel, the oil sands of northern Alberta in Canada
were suddenly worth more to the United States, which is Canada's
largest trading partner. The Canadian dollar duly rose to represent this value. An American corporation wanting to buy a piece of Canada (a tonne of Canadian wheat, 2 hours of a Canadian programmer's time, or a barrel of Canadian oil) had to pay more American dollars to make that purchase. Inside the nation, however, none of those became any more expensive for a Canadian to buy. Having your own national currency can help protect you from shocks outside both your control and your borders.

A national currency is also a powerful tool for helping people when times get hard. The Federal Reserve, the American institution which bears primary responsibility for managing the $US, is widely respected around the world. When the economy heats up, or slows down, the newspapers follow the actions of the "Fed" closely; people expect that the Federal reserve will do something to make sure the economy keeps operating in the best possible way. The main power the Federal Reserve uses to stabilize the economy would not exist without a national currency. To slow the economy down, the Fed raises the "federal funds rate," an interest rate that, through a variety of laws, policies and customs, controls

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