What’s the difference between money and currency? You probably know that money is what we use to purchase goods and currency is the system of money used in a country. However, did you know that the difference between them goes deeper than that? In this article, we will explore the difference between the two.
|Refers to any item (stones, seashells, gold, silver) that functions as a medium of exchange, a unit of account, a store of value, or a payment of debt||Refers to the medium of exchange currently in circulation (such as bills and coins); also refers to the official medium of exchange used by a nation for trade|
|Has an intrinsic value||Value depends on the government’s official declaration|
|The free market or the public decides what item they want to use as money||The government declares currency as its legal tender|
Money is a generic term that refers to any item that meets the following functions:
- A medium of exchange – It is used for trading or exchange, especially when dealing with dissimilar objects.
- A unit of account or a measure of value – It is used to represent the actual value of a real item. In exchange, it is the basis for declaring and bargaining the price of the items being traded.
- A store of value – It can be saved, stored, or retrieved at a later time.
- A payment of debt – It can be used to settle debts.
On the other hand, the word currency comes from the Middle English word curraunt, meaning “in circulation” or “being circulated.” It refers to any kind of money that is being used in circulation such as bills and coins (or literally the cash you carry in your pocket). However, it more commonly refers to the principal unit of money used by a nation for trade and exchange within its territory and across other nations, such as U.S Dollars, British Pounds, Thai Baht, Mexican Peso, Malaysian Ringgit, etc.
Money vs Currency
The difference between money and currency can be tricky to grasp, so here is a more in-depth look. Money is any item that can function as a medium of exchange, a unit of account, a store of value, and a payment for debts. To be considered money, an item should also bear the following properties:
- Durability – Money should be able to perform its functions over a long period of time without excessive need for repair or maintenance under normal conditions.
- Fungibility – This means that the individual units of money can be easily interchanged regardless of its form. For instance, 10 kilograms of gold in its natural form is equal to 10 kilograms of gold coins or gold bars.
- Portability – Money can be easily carried and transported from one place to another.
- Cognizability – It should be easily identified.
- Divisibility – As evidenced by smaller coins, money should be easily divided into smaller amounts.
- Stability of value – Its value should be stable over time.
Many years ago, people used stones and seashells as money. However, gold and silver have been considered the ideal economic goods for thousands of years as they are durable and immutable. This means that they cannot be created or destroyed but can be formed into different shapes and can be used to create different items.
Money has an intrinsic or use value, which means its value is dependent on its scarcity. Its value does not rely on the official declaration of the government. Additionally, it is the free market or the public that decides what they want to use as money. There is no need for a government agency, a central bank, or a law to establish what is to be used as money.
Conversely, currency refers to the cash that we have in our pockets (the bills and coins). It can also refer to the monetary system used by a nation (such as U.S. Dollars, Hong Kong Dollars, Thai Baht, Mexican Peso, etc.)
Unlike money, currency needs to be officially established by the government or its agency to have value. Without the declaration of the government, currency is just a piece of paper or metal. The central bank or a dedicated government agency also controls currency by deciding when to mint more coins or print more bills. Additionally, currency can be accepted as a medium of exchange or trade within the country only when the government declares it as the country’s legal tender.