Article I, Section 8 of the United States Constitution describes Congress’ duty to regulate money. Specifically, Congress has the duty to:
“Coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures…”
While the government has maintained the responsibility of minting coin and cash, the regulation of its value as well as that of foreign coin, is left up to the markets. I am curious, though, as to how the law defines, “money”, “coin”, and “currency.”
A quick and dirty Black’s Law Dictionary definition of “currency’ is coined money and such banknotes or other paper money as are authorized by law and circulates as a medium of exchange. 31 CFR § 1010.100 defines currency as:
“The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.”
In the United States, the US Treasury and the Federal Reserve System source the currency. They are the “farmers’ of the commodity we call currency. According to Federal Reserve data, as of October 2021, there is approximately $2202.9 billion of currency in circulation. When you factor in currency held in reserve at the Federal Reserve, the total monetary base of the United States as of October 2021 is approximately $6331 billion.
The banks that the Treasury and the Federal Reserve charter and regulate participate in the interbank market, the market in which foreign exchange rates for currency is set. I like to think of these banks as the wholesale/retail enterprises that are responsible for circulating currency, transmitting the value of the US political economy globally. While I believe the US government could technically set these rates itself, the capitalist economic policy implemented by the US government prefers private institutions carry out this mission.
I would think that wholesale (bank) and retail traders and brokers prefer this model because they determine the share of income (profit) garnered via foreign exchange. Because the Treasury and the Federal Reserve are the “farmers” of the currency and are primarily held responsible by the Congress for the day-to-day valuation of the currency, traders and brokers should stay mindful that the cloud of potential government intervention in the market always looms.
Keeping the dark cloud of potential intervention into the foreign exchange market dispersed can only occur via constant monitoring and initiatives to keep government at bay. That is the trader and broker’s daily call to action.