The International Use of Currencies: The U.S. Dollar and the Euro by George S. Tavlas June 1998, Volume 35, Number 2
There is, however, one fundamental difference between the use of money in a single economy and the use of an international currency in a multieconomy setting.
In the former context, governments typically declare (by fiat) the currency that is used as legal tender within their jurisdictions. For example, when receiving tax receipts, the Swiss government demands to be paid in Swiss francs and not in, say, Mexican pesos. money's functions as a medium of exchange and a unit of account, investors will typically choose to hold a wide range of international currencies as assets, use of currencies depended exclusively on asset motives, Yet the dollar"? (statutory definition of a "dollar"? ) is the dominant international currency, among the Group of Seven industrial countries, inflation (as measured by consumer prices > aka "goods and services term) has been higher on average in the United States than in Germany or Japan, but lower than in Canada, France, Italy, or the United Kingdom Moreover &c............ Source http://www.imf.org/external/pubs/ft/.../06/tavlas.htm
Money not federal reserve notes functions as a medium of exchange and a unit of account.
In the IMF’s own words What is money?
But precious metals seemed to serve all three needs: a stable unit of account, a durable store of value, and a convenient medium of exchange.
They are hard to obtain.
There is a finite supply of them in the world.
They stand up to time well.
They are easily divisible into standardized coins and do not lose value when made into smaller units.
In short, their durability, limited supply, high replacement cost, and portability made precious metals more attractive as money than other goods. Source: http://www.imf.org/external/pubs/ft/.../09/basics.htm
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