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Difference Between Money and Currency

difference between money and currency

Introduction

Money and Currency are the same in purpose which is a (medium of exchange). But very (different in meaning). to most people they always meant the same, used interchangeably, and sometimes perceived as synonymous. If asked :

Question : “what is money?”

Answer : “This is money” (Shows the dollar bills/coins)

Question : “then what is currency?”

Answer : “Well, this is also called currency” (also shows the dollar bills/coins)

The answer is correct. But where is the difference in meaning?

It is understandable if one does not know the difference. Most people, even some bankers and accountants does not also know the difference between these two terms.

So let’s talk about the real meaning and their difference

And why is it important to know them

What is Money?

Gold dollar coin

Money first of all is :

  • Portable
    • Can be carried wherever you go because it comes in small pieces
  • Divisible
    • Can be divided
  • Durable
    • Does not decay and can withstand the test if time. e.g., gold/silver
  • Fungible
    • interchangeable
  • and most importantly Stores Value
    • Can not be reproduced. unlike currency (will be discussed more later) where you can reprint it at will like what the government always does.
  • Medium of exchange

In short it is called Money if it has value, and can be used to exchange for something or a medium of exchange.

What do you exactly mean by value? : Value is anything that is important or valuable. Something that is needed or precious and can not be reproduced. Examples we can cite are :

  • Gold
  • Silver
  • Oil
  • Diamond

To clear things first. Diamonds are very valuable but there has been no real attempts yet in including it as a financial instrument. Same goes for oil, one reason maybe because it’s too heavy to carry around.

The only things that were used as money as medium of exchange were Gold and Silver.

But that was many years ago.

a brief History

The usage of money first began in Egypt roughly 5000 years ago. They used gold and silver.

These metals were perfect as mediums of exchange because they come in small pieces, they are easy to carry and stores a lot of value.

It is money because wherever you are in the globe, an ounce of gold buys the same whether you are in China, United states, Egypt and so on.

from using real gold and silver as medium of exchange or money it transitioned notes, to paper bills (e.g., dollars)

Take note: This dollar we are referring to are the dollars before world war 1; “each note or dollar (paper bill) that a treasury would issue there is a deposit within the United States treasury equivalent number of gold coins to bearer upon demand”

For example: you have a twenty dollar bill. If you may seem like it, you can have your twenty dollar bill exchanged to 20 dollar equivalent in coins made of real gold. That is money. It has a value which is backed up by real gold. It is a fixed value.

That same paper bill (dollar) lost it’s power when Richard Nixon previous president of the United states, removed its association to gold.

What is currency?

Currency are all the paper bills that we have today.  The most recent. It is the paper bill that you have now in your wallet or pocket. We call it currency or fiat currency. 

They are:

  • Portable
    • Can be carried wherever you go because it comes in small pieces
  • Durable
    • Does not decay and can withstand the test if time.
  • Divisible
    • Can be divided
  • Fungible
    • interchangeable
  • Medium of exchange
  • DOES NOT store value

They are the dollar bills that came from a printing press and given a special sign or seal by the government and it can be now used as a medium of exchange or currency. 

Take note: The paper dollar bill that was before the world war 1 is still called money not currency because each paper bill has a gold coin equivalent redeemable by bearer upon demand.

which, after world war 1 is not anymore the case.

So what do we really mean by “does not store value”?

to know this, let’s discuss about first inflation first.

Inflation means the rising of the prices of products and services at the same time, the falling power of currency; which means you need pay more amount of dollars with the same product or services

If that is so, why does the government print out more money?

the government does this in order to alleviate the immediate or current financial or economic problem that its country has. The government spend more than what they have.

Quantitative Easing – also another term for currency creation which adds paper printed dollars to the circulation which can lead to inflation. These are done by central banks.

The $500,000 that you are saving for retirement can by fewer products or purchase fewer services by the time you will be spending them, probably after 7 years, 10 years or so.

Conclusion

Money and currency are very different in meaning. It pays to know them because it can help you a lot in your financial journey. It may help you think that keeping currency or dollar bills in a bank or storing them does not do good since over time their purchasing power decreases. The x number of dollars you have in the bank now will not be the same for years to come.

Money is a tool that stores your economic energy that is Time and Freedom. Whereas currency or plain paper bill leaks them away.

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