A currency is a unit of exchange, facilitating the transfer of goods and services. It is a form of money, where money is defined as a medium of exchange rather than e.g. a store of value. A currency zone is a country or region in which a specific currency is the dominant medium of exchange. To facilitate trade between currency zones, there are exchange rates i.e. prices at which currencies (and the goods and services of individual currency zones) can be exchanged against each other.
Typically, each country has given monopoly to a single currency, controlled by a state owned central bank, although exceptions to this rule exist. Several countries can use the same name, each for their own currency (e.g. Canadian dollars and US dollars), several countries can use the same currency (e.g. the euro), or a country can declare the currency of another country to be legal tender (e.g. Panama and El Salvador have declared US currency to be legal tender).
Each currency typically has one fraction currency, often valued at 1/100 of the main currency: 100 centss = 1 dollar, 100 centimes = 1 franc. Units of 1/10 or 1/1000 are also common, but some currencies do not have any smaller units. Mauritania is the only remaining country that does not use the decimal system; the only smaller currency unit is the khoum, which equals 1/5 of a ouguiya (UM).
Prior to the introduction of standard coinage, calculating the value of a metal-based money required several steps. First, the metal was tested on a touchstone to calculate the quality, then it was weighed, and then the two values were multiplied. Thus, if someone alloyed gold and lead (which was a common cheating process) the metal's weight was multiplied by the percentage of gold to get the weight of the gold alone.
Coinage was introduced to simplify this process. Coins were created of a set weight and gold quality, and then stamped to prove their worth. No measurement was needed, as long as the original values were known. Of course, one could use an alloy with the same stamp as the coin to cheat, but the stamps were complex and thus difficult to duplicate (at the time).
More modern currency systems developed from the introduction of coins. The process started with the replacement of the original metal, with a coin representing it. The gold itself was kept safe in government vaults. Failure to maintain these stores results in a fiat currency. Examples of this system in the past was the gold standard, where the US Dollar was backed with gold stored at Fort Knox, and the British Pound Sterling, which was backed by one pound of sterling silver at its inception in 1158 in the hands of King Henry II. After WWII, the gold standard was abolished by the Bretton Woods system and many currencies were pegged to the USD.
The evolution continued, first to paper representations of the same standard, and finally to removing the metal altogether - the paper itself is considered to be valuable.
In order to prevent forged currency, various technologies such as watermarks are inserted into most paper currencies. In the early 21st century, the use of RFID tags has been proposed to track bank notes which were illegally obtained. Such efforts have been criticized by privacy advocates.
Nowadays ISO have introduced a system, ISO 4217, using three-letter codes to define currency, in order to remove the confusion that there are dozens of currencies called the dollar and many called the franc. Even the pound is used in nearly a dozen different countries, all, of course, with wildly differing values. In general, the three-letter code uses the ISO 3166-1 country code for the first two letters and the first letter of the name of the currency (D for dollar, for instance) as the third letter.