What is a currency domain?
Currency domain is a federation of entities such as people and companies, who accepts to some extent a specific currency as a medium of exchange, or in other words, as a payment for goods and services.
Each currency has its bits: satoshi for bitcoin, cent for dollar or euro, paise for rupee, agora for shekel, penny for pound, kopeika for rouble, and many more... It is interesting to note that, while most of the currencies names emerged from weight of precious metals such as gold and silver. Their bits usually issued and enforced by governments.
The value of sharing one currency with as much productive population as possible is obvious. But why sharing a specific one? Where does the value of that currency come from?
I see two mutually exclusive sources of that value: coercion and free choice.
Coercive currencies, some also known as fiat currencies, derive their value from coercion. Some people are forced to use that currency as their medium of exchange. Enforcement performed by many ways, such as: restrictions to use other currencies in contracts, restrictions to own other currencies, enforcement to pay taxes with specific currency, enforcement to accept specific currency as a payment with government defined conversion rates, and many more. Those who must use the currency create a demand, this demand creates the value. The value is universal and spreads to other people, who are not enforced to use that currency, but merely take advantage of the existing coercion.
Voluntary, free choice currencies, among which are gold, silver, bitcoin, steem and other metal and digital currencies, derive their value from people's choice. People all over the world have chosen them for centuries and keep choosing them in the modern digital world.
Each currency domain is under an obligation to currency owners, since being in the domain, means to be ready to provide goods and services in exchange for that currency. There is a certain amount of value in actual and potential circulation in the domain. Lets call it the capital. Currency domain capitalization have nothing to do with the amount of currency units in the domain.
Capital can be produced in the domain, increasing the value of currency unit. It also can be destroyed and decrease the value of currency unit. Currency units can also be produced or destroyed. It will not directly change the domain capitalization, but only change the value of currency unit. Capital can also be moved from domain to domain. If it moves permanently as if stolen, or donated, it has a similar affect as production and destruction for involved domains. But if it is temporary borrowed as it usually happens in the international trade. It puts one currency domain in debt to the other. This affects the exchange rate between involved currencies.
Understanding currency domains is important. Inflation, international trade, new currencies rising, production, moral standpoint of money - all these processes can be described in terms of currency domains.
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