Money vs Currency

Hello everyone,

Today I would like to talk about the difference between money and currency. Sometimes these terms are used interchangeably, they are two related concepts. However, they have distinct meanings and functions in the world of economics and finance.

Let's start with money.

Money is a much wider concept, and it includes any medium of exchange that is commonly accepted in transaction for goods and services. It serves as a general tool for economic activity. It has three main functions: store of value, unit of account and medium of exchange.

Money includes coins and paper notes, that we normally refer to as cash. It also includes electronic forms of payment (bank deposits and electronic money). Fun fact, 98% of all money in the world is digital, only 8% is in the physical form.

Money can take various forms and is not limited to a specific physical representation. For example we have fiat, digital and commodity money, among other forms.

If you want to find out more about money, please check my previous post.

On the other hand, we have currencies.

Currency refers to the system of money that is being used in any given country.
For example in Canada, they use Canadian Dollar, while in the USA they use The United States dollar, in UK they use Pound sterling.

It can also encompass entire regions (that consist of multiple countries), like they have in the EU, where 20 countries use Euro.

Currency is the official medium of exchange that is put in the circulation by a government or an institution like a central bank. The value of a currency can be influenced by factors such as supply and demand, inflation, interest rates, and the overall economic stability of a country. One can trade one currency for another in foreign exchange markets (also known as Forex) or you can do it in your local exchange point. This exchange allows international trade and investments to happen all over the world.

The value of the currency exists because we the people, agree that it does, we also agree how valuable it is (although governments also have they say in deciding the value of currency by printing more of it, or removing it from circulation).

Currency has a physical form that we are all familiar with, just take out your wallet and open it. It also has its digital representation because it's much easier to move large quantities of it via digits on the screen, then it containers.

To conclude...

Currencies are one type of money that represents the official medium of exchange (also known as legal tender) in a specific country or region. Money is much wider concept, including all forms of mediums of exchange, regardless of the particular currency system.

Let's put an example to clarify the difference, in the USA, the US$ is a currency that is approved by the government, however that is not the only medium of exchange in the country.

Imagine one Japanese man comes to visit the USA, he brings with him a lot of Yen (the official currency of Japan). He can't buy anything in the store with it, he can't go to the restaurant and pay for his dinner, because they will not accept it - they will demand their goods and services are paid in US dollars. However, if the same person meets another Japanese living in the USA (or an American) that is planning on going to Japan and needs Yen, he might accept that currency because he will use it in the future. Or the Japanese tourist goes to a small Japanese restaurant in New York, and the owner has family back in Japan and want to send them some cash, he might be willing to accept Yen from a tourist.

Or imagine the same story, just instead of Japanese Yen, the tourist brings gold and silver coins (the same story will repeat), the majority of places will refuse him. That doesn't mean that he can't find an individual or a smaller shop/restaurant who will be willing to accept gold or silver coins. And so, the transaction occurs with another medium of exchange.

Bitcoin is both money and currency (although some might disagree). Put simply, in El Salvador and the Central African Republic, it's legal to use Bitcoin as medium of exchange - that makes it a currency. The rest of the world, for the time being, does not accept Bitcoin as the official legal tender or currency. However, since some people accept it as a medium of exchange it is money.

In everyday language, people often use the terms "money" and "currency" interchangeably, but in economic discussions, the distinction can be relevant when considering different forms and functions of money.

^{This article is expressly written for the purpose of education. Nothing in it should be considered a financial, investment, tax or legal advice. I am not an adviser of any sort. Please do your own research before you decide what to do with your money.}

^{I would like to THANK YOU for taking the time to read this article and I hope you learned something new. If you want to learn more, please follow me for more content like this one: @cryptodom151}