Which is better? Money or Currency

People often use these 2 words in their daily lives and most of them think MONEY and CURRENCY have the same meanings or they fail to understand the difference between money and currency. These two words share some common characteristics, but they are different terms.

I asked a 10-year-old boy, what do think Money is? He showed me a Rupees 100 paper note which was co-incidentally in his pocket and said, this is money. I couldn’t wait to ask immediately, how do you think, this is money? He then said this Rupees 100 note will help me buy ice cream.

It is difficult for a 10-year-old boy to understand right now that Rupees 100 paper note is one of the mediums to buy ice cream. And its value will depreciate with time. He may not be able to buy the same ice cream with just one paper note or he may need two such papers written 100 over it. So, this paper claims to be worth Rs. 100 as it has the signature of the Governor of Reserve Bank of India is a currency. If Rs 100 note is a currency, then what is Money?

Every country has its own currency. Currency value depends on different factors- inflation, worth of country’s gold {not anymore}, Interest Rates, etc. That’s another whole topic to discuss. Let’s not get into that for now and take a trip down the road to figure out what is money now? But if you want to improve your understanding of inflation Read This Article

Money

Money is everything that is widely accepted as a medium of exchange and doesn’t lose its value over space and time. Let’s try understanding the basic difference between Money & Currency based on its characteristics. It will give you a better picture of Money.

Characteristics of Money & Currency:

Paper notes and digits in our bank accounts are perfect examples of Currencies issued by central authorities.
Gold and Silver served the definition of Money over history.

Paper money and gold both will help you buy goods and services for yourself. They can be transferred easily and can be further divided into small amounts. Also, both are in the existence over human history.

Picture credit: Dallas Fed Economic Education

So, one of the major differences between Currency and Money is Money store its value over space and time. However, currency erodes over time. As, Currency can be printed and minted, on the other hand, Gold and Silver can not be printed and minted. It has a limited supply. Valuable metals don’t lose their spending power as their supply does not depend on banks.

A world without Money

Let’s return to our 10-year-old friend and silently remove the Rs 100 from his pocket before he meets his ice cream vendor. This new interaction between two parties would be very interesting to observe as we have removed the most common and most popular form of money from the equation. I was curious what other goods or services our little champ will be offering to the ice cream vendor to make up for the missing Rs 100 note to get his scoop of happiness.

Barter

Surprisingly the little guy has a big list of goods and services under his sleeves, the first one on his list was to barter his toy. The vendor could have got this toy for his kids’ birthday present but unfortunately, the vendor couldn’t see the value in getting the toy equal over the ice cream scoop. Both parties do not have the same desire to let that trade happen. The second thing on his list to offer is a liter of milk but still, the vendor doesn’t agree as it is perishable so, won’t sustain its value over time. lastly, the boy proposed to assist the vendor for an hour at the ice cream store. However, the vendor rejects this idea also because of a lack of confidence or trust in the boy for now.

Will the boy be able to enjoy ice-cream today?

The idea that strikes in the vendor’s mind this time is to collateralize the watch on the boy’s hand for a day. In this way, a boy can enjoy the ice cream today and must come back the next day with Rs 100 and take his watch back.

And this process of trading goods and services in absence of a common medium(money aka Rs100) of exchange with the benefit involved is known as a Barter system, humans have utilized this system when they didn’t have a common medium of exchange. This is the basic form of economic transaction. Also, if you observed in the above situation, bartering has some limitations.

Desire – parties should have desire to exchange
Availability – exchange should be immediate between parties or on trust to pay later
Valuation – close the deal on one price to happen now or in future

Unfortunately, it was very hard for people to stick to the bartering system for long because of its limitations. So, to make trading easier for people, money came into existence. So, what do you think? Which is better, Money or Currency OR CRYPTOCURRENCY? ????