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Wednesday, 20 March, 2013 06:09

Currency or Money?

Currency or Money?

Is Currency the same with  Money?

I was looking over the internet for a definition for Currency. Most of this definitions refer to currency as being a money system that is in circulation at the moment.

However, Mike Maloney a well known economic expert tells a something different that for me has more sense. I always find isolated ideas to be more close to reality than the most popular ideas.

Currency

currency-or-money-currency

Currency

While most of the people treat currency as being money used in circulation, Mike Maloney refers at currency as being the fiat money system.

Fiat money system is a monetary system in which money don’t have an intrinsic value, neither are backed of some valuable good. Fiat money is a system where the value of money is established by the actions of the government and other entities in a specific country.

For instance the value of USD fluctuates according to the actions taken by US government and others economic decisions that may move the value of USD up or down. If the US government takes bad decisions the trust people and other countries have in USD will decrease. This leads to a lower demand for USD and a decrease in value of the USD.

In the fiat money system, the inflation is a method by which wealth is confiscated by the government from general public. Inflation increases when more currency is printed while the demand for goods and services remains the same. In this way the money available in the market increase and this money is chasing the same amount of goods and products, thus the value of money decreases while the prices of products and services increase in compensation.

Most of the important currencies of the world have a certain inflation rate. In 2012 US had an inflation arround 2.1% per year, Euro zone  around 2.4% per year, Russia 5.1%, Australia 2.4%, China 2.7%.

Inflation is actually the lost in value of that currency. The reason inflation confiscates wealth is because if you keep your currency under your pillow for 10 years and the average inflation rate is 3%/year, after 10 years the value of the currency will be decreased by 30%. You will still have the same amount of currency but you will purchase with 30% less using that currency.

Money

currency-or-money-money

Money

Although we think we have money today, it’s not quite so. We have currency and we work with currency, not real money. Money refers to an exchange  medium that has intrinsic value, usually a commodity of some type. Gold, Silver or Bronze coins are money or other types of representative money that are backed by a commodity.

The difference between currency and money is if the government of a country fails, the currency is affected, it’s value drops and so is your wealth. With a currency the value of your wealth is in your government hands. This is not happening with real money. If a government fails and you have your wealth in gold or silver, you will not lose the value of your wealth (actually it will increase, because the demand of gold and silver will increase, as the currency failed).

Despite the fact that most of the people think of currency as being money, it’s important to see the difference between currency and money and not be confused by this two terms.

Currency was created so that government can have a more important influence on your wealth. If you own real money, this empowers you as you own something valuable. But if you own only currency or currency dependent assets, your wealth is in the hands of your government.

P.S. Currency or Money: For those thinking that coming back to a gold standard will be a good thing, keep in mind that a gold standard is not the same as owning real gold. With a gold standard the power on your wealth is also in the hands of government with the slight difference that the value of currency is established based on the value of gold.

Currency or Money related articles

Vivian Vanatu

Vivian has been working in internet marketing for over 3 years. He has developed several websites and online businesses and seeks to educate people about how to use internet to grow their business. My G+ profile

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