Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Currency vs Money: What’s the Difference?

  by    0   0

If you look up the words “currency” and “money” in a thesaurus, each word will probably be listed as a suitable linguistic substitution for the other; however, their economic function is almost completely opposite. Understanding the difference between currency and money is critical to making smart decisions about preserving your wealth.

pile of dollar bills

Currency

For the majority of people, currency – more specifically fiat currency – is “cold hard cash.” They are the dollars, pesos, or yen you keep in your wallet or purse. As such, currencies serve the function of being a country’s primary medium of exchange, in the form of coins or paper.

In the premodern era, countries moved from precious metals to currency as a way to facilitate exchange among the economies’ participants. Gold, silver, and other precious materials were typically cumbersome and hard to transport. There was a need for a more portable alternative that served the same function and, most importantly, was backed by precious metals, gems, etc.

Banknotes were once a type of currency backed by gold and silver in the US. As such, banknotes could be exchanged for “legal tender” (i.e. gold and silver) at any time by the owner. US silver certificates, for example, could be exchanged for their face value in silver. The US adopted the gold standard in 1879.

five dollar bill with a native american

Having a currency backed by an actual precious metal helped lend credibility to the governments that issue it. It facilitated the trust these institutions needed to make their currency system work. People accepted currencies because they knew their wealth was secured in (i.e. backed by) precious metals. On top of that, paper and cheaper metal coins were an effective way to conduct business.

Gold Standard Be Gone!

In 1933, President Roosevelt and Congress began taking the US off the gold standard with a resolution nullifying the right of citizens to demand payment in gold for their currencies. People were also required to deliver all gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve for a pre-set price ($20.67) per ounce. The price would later be set to $35 per ounce.

By hoarding all of the gold and controlling its price, the Federal Government could now more effectively control how much money was in circulation. Like today’s monetary policy, the Keynesian economic theory of creating inflation to stimulate the economy was now in full force within the Roosevelt administration. The irony of the situation is that abandoning the gold standard was done to build confidence in the economic system.

In 1971, President Nixon announced the US was no longer in the business of converting dollars to gold at the $35 per ounce fixed value, and the gold standard was abandoned completely. With the absence of a gold-backed dollar, US citizens inherited a fiat currency system backed by nothing but the trust in the government.

Money

Considering that a fiat currency’s value as being backed by nothing tangible, the idea of money can be contrasted against it. Money or “commodity money” can literally be any type of commodity, from seashells to stones, which can serve as a medium of exchange for goods, services, and payment of debts. Unlike government decreed and issued fiat currency, commodities like gold and silver have an intrinsic or “use value.”

The value of precious metals is inherent in their scarcity. Unlike fiat currency, which can be printed at the government’s whim, gold and silver exist in a finite amount. There is only so much to be mined and sold. Also, unlike fiat currencies and their economic systems, gold is immutable. It can’t be created or destroyed, but can only change shape. It was created at the beginning of the universe and will continue to exist forever. Try applying that standard to the paper currency in your wallet.

For thousands of years, gold and silver have served as money because of these unique characteristics. Removing our currencies from their connection to precious metals has detached our faith in their value, and allowed governments and financial institutions to artificially alter their value when they see fit. Fiat currencies come and go with the rise and fall of nations, but gold and silver will always remain.

The difference between currencies and money should now be clear enough to stress the importance of maintaining your wealth by buying gold and silver.

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

The Healing Power of Gold and Silver

Stethoscope sitting on top of a pile of gold bullionThere is healing power in gold and silver. Both precious metals serve as an investment as well as money. Gold and silver also have technological applications. We recently reported that gold is the new green with a growing number of environmental applications. Today, we focus on some of the amazing developments using gold and silver in healthcare applications. Related

READ MORE →

Gold Demand Expected to Increase with Indian Holiday

Indian women in costumes celebratingAn important Hindu holiday will take place on Friday, and Indians are expected to celebrate by rushing to buy gold. Akshay Tritiya ranks as one of the four most important days for Hindus. The word Akshay roughly translates to “the never diminishing”. The day is believed to bring good luck and success. It is also considered […]

READ MORE →

American Middle Class Is Caught in a Vice

100 dollar bill being squeezed in a viceToday the American middle class is caught in a vice: squeezed by debt and facing a devalued currency. Add to that an increasing cost of living, stagnant wages, taxes, and government over-regulation and it’s easy to see why the “bedrock” of the US economy is struggling to keep up. A Pew Research report published in […]

READ MORE →

Student Loan Debt Now Big Problem for Baby Boomers

man signing paper work for a loanWhen we talk about the student loan crisis, we tend to focus on millennials. After all, they are the ones impacted most directly by the ever-increasing burden of student loan payments. Student loan debt is one of the biggest factors driving a growing trend of millennials struggling to transition into adulthood. But increasingly, student loan debt […]

READ MORE →

Investors Rushing for Golden Life Rafts

people laying in raftHedge funds are betting on gold, boosting gold futures and options to the highest level since last November, as investors scramble for golden life rafts. Gold has advanced by 11%  this year, and investors seem to think the gold bulls will continue to run, according to a Bloomberg report. In addition to betting up futures, […]

READ MORE →

Comments are closed.