US dollars are what is known as a currency. A currency represents a number that is directly linked to spendable value. These numbers are known as units of account. A unit of account is a unit that represents our acquired economic energy. We receive these units for participation in the labor force, return on investments, gifts, or maybe an inheritance. You can use your acquired economic energy to purchase goods, commodities, or assets at the current rate of exchange. Most people foolishly call these units of account money. These Federal Reserve notes in circulation are in fact not money. They are a currency. This is because the rules of money changed in 1971.
A currency is a medium of exchange. We as humans have come a long way from the traditional barter system of our ancestors. If prior to units of account I needed a fur pelt to stay warm for winter but I only had a few cows I wouldn’t wanna trade a cow for just a couple furs. I mean I need to stay warm in winter but that cow can feed my family for months. I then have to find someone who is willing to exchange my cow for something of less value. That item of less value also has to be exactly what the person who has the furs wanted or they would not accept it as a means of payment for the good or service.
This creates many obstacles and difficulties in trade. It really slowed economic growth and innovation. That was until the first real medium of exchange surfaced about 2800 years ago. It started with bits, pieces, chunks of gold. Somehow the world collectively started recognizing this precious metal as a means of exchange for goods and services. Gold was the first real form of money used by humans. The same gold those first traders used actually purchase about the same amount of goods and services today as they did then. Mediums of exchanges are a great tool that has surged efficiency in economies and trade.
A currency is known to be durable and portable. Being durable allows it to be exchanged thousands of times. Could you imagine if we used goldfish as currency? What’s gonna happen to your pocket full of goldfish on a rainy day? Value being portable is a must for participation as a role of currency or money. For example oil has purchasing power and could in theory be used as a form of money. It has value anywhere you go on earth. But could you imagine what it would be like going to the grocery store and trying to purchase goods or services with a barrel of oil?
Money and Currency must be divisible. The differences in prices in goods and services in modern day trade creates the need for giving change. Just imagine if all we had in circulation was 1 dollar bills. Purchasing expensive items would become very difficult and time consuming. Larger units of accounts such as the $20, $50, and $100 dollar bill have sped up this the process.
Lastly a currency is Fungible. Fungible means that if I hold the same unit of account that you hold it will purchase the same amount of goods and services as if you held the same unit of account. This means that my $20 bill buys the same amount of stuff and is worth the exact same as your $20 bill.
As you can see a currency possesses some very incredible characteristics. A money is almost the exact same thing. The only difference is the additional trait that money has. Money is a store of value over long periods of time. This is why currency is not a money. Currency was created to acquire commodities or assets. It was not created to be saved. Saving in a currency is financial suicide.
A store of value is any commodity, asset or money that holds value that can be recouped periodically. Very few things throughout history have ever maintained the value placed upon them. For example thousands of fiat currencies have been created into circulation. A fiat currency is a currency printed out of thin air. They have nothing tangible backing them. They are simply put pieces of paper that represent our earned economic energy. This energy can then be exchanged for goods or services. Every single one of these fiat currencies ever created that is currently not in circulation has returned to their intrinsic value of 0.
Intrinsic value is the actual value something is worth. If a currency returns to its intrinsic value it’s basically just worth the paper it’s printed on.
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