A Beginners Guide: Is it Money or is it Currency?

Note: This post was inspired by Mike Maloney’s series The Hidden Secrets of Money. We felt strongly about providing a short post about money and currency but felt that there was just no way to do it justice in the way that Mike has. So at the bottom of this post we’ve provided a link to his video series where you can check it out for yourself. It should be recommended watching for all people who want to know what money is, where it came from, and where it’s going.

In the meantime, we’re going to do our best to provide our own short explanation while giving credit where it’s most deservedly due.

This is in two parts. If you’re looking for the second part click here What Money Isn’t: Will the Real Money Please Stand Up?

Paper is not Money

If you looked at the image at the top of the post of those paper dollars and said that’s money…

Then, boy, do I have a surprise for you. They’re not money.

Dollar bills, and all governmental printed paper, are a currency. So what’s the difference? We’ll actually answer later this because it’s important. But before we can know what a currency is, we need to know what money is.

So what is Money?

We’ve all purchased goods and services with the paper in our pockets and we may have a sense about what money can do so its definition may seem almost obvious. But when asked directly, most people don’t really know what money is. So let’s define it.

Firstly, the generally accepted definition of Money refers to its properties.

Let me make it clear, in order to be money, an asset must have every single one of these properties without exception. The reason for this will soon become clear.

In order to be money, an asset must be easy to exchange and a unit of account for people to compare goods against. Along those lines it must be portable and thus durable so as not to lose value in transport. It must be divisible to make change and fungible so the asset can be traded for 1 equal unit with another exactly. Finally, the asset must be able to store that value through time and space with a relatively scarce supply.

Without every one of those properties the asset is not money. Under this standard, gold and silver are money. If you look at the Periodic Table of the elements, you’ll realize almost every other element changes due to reactivity with other elements. Gold and Silver don’t react to much and are thus great stores of value that can be divided, traded 1 for 1, is portable, durable, is a UoA, and is a medium of exchanged.

Throughout history, humans have used other forms of items to exchange value like animals for barter, shells, stones, and metals. Over time humans settled on gold and silver precisely because they last! Animals change over time, shells are brittle and not consistent, stones aren’t fungible, and some metals rust. Using gold and silver is result of thousands of years of human monetary experimentation made through the transaction of materials that could store wealth and be exchanged.

What we’re describing is a monetary battery which allows us to store financial energy across space and time!

What is currency?

Think of currency as the thing you use and money is the thing. A money can be a currency, a currency might be a money.

A currency is the medium of exchange. It’s the thing you use to pay for things. It’s the thing you accept for payment. In the modern day, that’s typically digital or paper dollars. A currency doesn’t need to be a store of value to be a currency. It simply needs to be trusted enough for people to accept.

Currencies don’t need to store wealth, although it’s better if they did. A piece of paper can’t store wealth but it can be used as a currency today. Alternatively, gold and silver used to be a currency and, even though it’s no longer used extensively, is a money.

But if gold is better money, then why are we using paper currency?

Originally, paper was adopted because it was a faster way to transact than using gold and silver (it’s just not true now that Goldbacks exist). The thinking is that gold and silver are too heavy and paper can be a symbolic representation of their physical value. Additionally, paper “should” represent a sum of gold/silver held in a bank some place- meaning the paper was a claim check/certificate that you could transact with AND could be used to claim the physical gold or silver. $5 paper for $5 of gold- and that’s the way it used to be until 1971.

Since 1971, dollars haven’t been backed by gold so the paper represents nothing more than a promise from the government that it has value.

Now, governments have continued to print paper and, they incorrectly, refer to it as money. The result of this is that most people use the words money and currency interchangeably when they couldn’t be more different.

Because currency doesn’t store value, it can only be considered a promise of value. And a promise is only as good as your trust in that promise. Can you trust the value of that currency will keep its value knowing the supply of dollars is increasing every single year?

Currency is NOT money.

If you track the price of 1 oz of gold relative to currency, you see the price of gold continually goes up. The gold ounce hasn’t changed. It hasn’t gained more of itself. Instead, the value of the currency is dropping. This is why we say gold and silver are Stores of Value. They act as a life raft against inflation.

How definitions affects your wallet

As governments inflate the currency supply through printing dollars or through debt spending- you experience the purchasing power diminish over time. Higher prices in food, energy, and services are symptoms of this financial sickness.

However, when you add money, like gold or silver, to your portfolio that money sits there keeping its purchasing power as the dollar inflates. This is means your savings/investments is generally preserved.

If we didn’t know the difference between money and currency, it would be easy to think saving in cash is the way to go but it would actually be doing long term harm to our portfolios and savings.

Wrapping Up

The properties of money weren’t laid out until AFTER we discovered what it was as we needed to transact with one another. Money is the foundation of human activity which allows us to store and use monetary energy. Modern currency is merely a poor government promise of value.

Looking to forward, we see that money is an ongoing experiment where the currently accepted properties are set in stone and any new properties will be explored- what those will be is anyone’s guess but with the rise of cryptocurrencies we see a new discussion underway about what money will look like going into the future. We can be sure though that any cryptocurrency that becomes money, will share every single property of money, like gold and silver, without exception- or it’s not money.

Be sure to check out Part II here: What Money Isn’t: Will the Real Money Please Stand Up?

Also, take a look at our post Monetary Pillars: The Proven Power of Precious Metals to learn more about what precious metals can do for you.

If you’re looking for a deeper dive into this topic, we recommend highly checking out Mike Maloney’s Hidden Secrets of Money series. The episode entitled Money vs Currency is a perfect primer to get you started. That said, we can’t recommend the entire series enough.

Also, Mike’s website can be found at GoldSilver.com. They aren’t sponsoring this post. We just support everything they’re doing to educate people about money and the financial crisis we find ourselves in.

David Black

David Black is the founder of Aquarian Metals, a precious metals education company. He's a passionate advocate for sound money in an uncertain world.

Articles: 26