gjaldmiðills

Gjaldmiðill, or monetary unit, is the medium of exchange used within an economy. It includes both physical money—coins and banknotes—and digital representations of value, such as balances in bank accounts and electronic payment records. In most countries there is an official gjaldmiðill issued and regulated by a central monetary authority. For example, Iceland uses the Icelandic króna (ISK) as its gjaldmiðill.

Functions of a gjaldmiðill include serving as a medium of exchange, a common unit of account, and a store of value over time. It also acts as a standard of deferred payment for future transactions. In modern economies, currencies are predominantly fiat, meaning their value rests on government decree and public trust rather than a fixed commodity. Historically some currencies were tied to gold or other resources or pegged to other currencies, but today many systems use floating or managed exchange rates.

Forms and issuance: Physical currency is produced by the state or central bank as banknotes (seðlar) and coins (mynt). Digital money consists of bank deposits and electronic payment instruments. The central bank or monetary authority controls the supply of the gjaldmiðill to influence inflation and economic activity, often through policy rates and open market operations. Payment systems enable rapid settlement among banks and merchants.

International considerations: Exchange rates connect gjaldmiðlar across borders and influence trade and capital flows. A country’s monetary policy aims to maintain price stability and financial stability, and regimes for exchange rates may be fixed, pegged, or floating.

See also: monetary policy, central bank, fiat currency, exchange rate, inflation.