- There is a difference between currency and money. Many think they are one and the same, but they are not.
- Currency is for commerce transactions.
- Currency is what you have in your purse or wallet, bank account, line of credit and debt. It is what you use to buy the ‘stuff’ to live your life: Food, fuel, shelter, fun.
- Currency is also what you receive for your labor.
- Historically, most Government currencies were backed by Government owned physical commodities, such as gold or silver. This backing by a physical asset provides a baseline value of the currency derived from the value of the underlying physical asset.
- Currency backed by a physical asset also restricts the Government from printing additional currency without having the physical asset to back it.
- Money is for wealth accumulation and preservation.
- Aristotle defined the characteristics of a good form of money – which must be:
- Durable: Money must stand the test of time and the elements. It must not fade, corrode, or change through time;
- Portable: Good money needs to hold a high amount of ‘worth’ relative to its weight and size;
- Divisible: Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics.
- Intrinsically Valuable: This value of money should be independent of any other object and contained in the money itself.
- Fiat Currency is a declared & established Government currency:
- Fiat is Latin for “it shall be”.
- Investopedia defines Fiat Currency as- Currency that a government has declared to be legal tender but is not backed by a physical commodity. The value of fiat currency is derived from the relationship between supply and demand, rather than the value of the material that the currency is made of or a physical commodity backing it.
- Government fiat currency is based solely on faith of the government’s existence, comprehensive asset possessions and asset wealth.
- The first fiat currency is believed to have originated in China in the 11th Since then, history is littered with declared and established currencies which have become worthless.
- US Government Currency Moves Toward Fiat Currency:
- December 1913 The Federal Reserve Bank legislation was signed into law. The Federal Reserve Bank (U.S. Central Bank) is a private banking institution owned by other banks, not the US government.
- Backing of the US dollar with gold began to diminish with Executive Order 6102 signed on April 5, 1933, by U.S. President Franklin D. Roosevelt “forbidding the Hoarding of gold coin, gold bullion, and gold certificates within the continental United States”. The order criminalized the possession of monetary gold by any individual, partnership, association or corporation. Executive Order 6102 required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve.
- All backing was removed from the US dollar when President Richard M. Nixon announced on August 15, 1971, that the U.S. would no longer officially trade dollars for gold.
- Physical precious metal should be considered a ‘good form of money’; part of everyone’s wealth management process; insurance against the weakening value of a central bank’s fiat currency in which it is priced.
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