Currency versus Money

currencyCurrency and money are not the same. Money is a store of value and maintains its purchasing power over a long period of time. Currency is a system of money in general use in a particular country.

Money

Also referred to as currency, money is a liquid asset used in the settlement of debts that functions based on the general acceptance of its associated value within an economy. The value of money is not necessarily derived from the materials used to produce the note or coin and, instead, derives based on the amount shown on its face partnered with the public’s willingness to support the value as displayed.

Money is an officially-issued legal tender generally consisting of notes and coin, and is the circulating medium of exchange as defined by a government. Money is often synonymous with cash and includes various negotiable instruments such as checks. Each country has its own money that is used as a medium of exchange within that country.

Not all methods that can be used to settle a debt are considered money. For example, a credit card is not considered money as it serves as a method of transferring a debt owed from one party to another. When a person uses a credit card to purchase items from a retailer, the debt associated with the retailer is paid by assuming a debt that will be owed to the credit card issuer.

Legal Tender

Legal tender is a type of payment that can lawfully be used to meet financial obligations. Money, as legal tender, is a commodity or asset, or an officially-issued currency or coin that can be legally exchanged for something of equal value, such as a good or service, or that can be used in payment of a debt. Currency may include notice of the legal tender status. In the United States, for example, the paper money includes the affirmation that this note is legal tender for all debts, public and private; in Australia, the notes include the affirmation that this Australian note is legal tender throughout Australia and its territories.

While U.S. currency is considered legal tender for the settlement of debts, individuals and business have a right to permit only certain forms of payment by debtors as limited by applicable state and federal law. This allows an establishment to refuse to accept bills larger than $20 or the right to refuse the payment of a substantial debt through the use of only pennies.

Lawful Money

Lawful money is any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves. Fiat money includes legal tender such as paper money, checks, drafts and bank notes.

The dollar bills that we carry around in our wallets are not considered lawful money. The notation on the bottom of a U.S. dollar bill reads “Legal Tender for All Debts, Public and Private”, and is issued by the U.S. Federal Reserve, not the U.S. Treasury. Legal tender can be exchanged for an equivalent amount of lawful money, but effects such as inflation can change the value of fiat money. Lawful money is said to be the most direct form of ownership, but for purposes of practicality it has little use in direct transactions between parties.

Currency

Currency does not have consistent value.

While U.S. currency is considered legal tender for the settlement of debts, individuals and business have a right to permit only certain forms of payment by debtors as limited by applicable state and federal law. This allows an establishment to refuse to accept bills larger than $20 or the right to refuse the payment of a substantial debt through the use of only pennies.

Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.

Generally speaking, each country has its own currency. For example, Switzerland’s official currency is the Swiss franc, and Japan’s official currency is the yen. An exception would be the euro, which is used as the currency for several European countries. While these currencies can be specific to a nation, other countries have declared foreign currency to be legal tender in their own country. For example, El Salvador and Panama allow the use of the U.S. dollar as legal tender, and immediately after the founding of the U.S. mint in 1792, U.S. residents used Spanish coins because they were heavier.

Some currencies, like cryptocurrencies​, bitcoin​, dogecoin​ and other online currencies and branded currencies are not tied to any country. Branded currencies, like airline and credit card points, or in-game credits are valued in relationship to the value of the products or services they’re tied to. Control over digital currencies is entirely decentralized, and the exchange rate of a digital currency can vary widely in a short period of time.

Local currencies are currencies intended for trade over a small area and aren’t nationally backed. There are a wide variety of local currencies within the United States, which itself has a history of local currencies before the establishment of state and national banks. Other instances in which local currencies have been used include a kind of quasi local currency in the form of local government IOUs that have been used as currency.

In most all cases, the central bank of a country has the sole right to issue money for circulation. Along with a main unit of currency, these banks issue fractional units, usually in the form of coins. These usually show up as 1/100th, and 1/4th, but can at times be as small as 1/1000th of the main unit of currency.

Investors often trade currency on the foreign exchange market, which is one of the most heavily traded markets in the world. An exchange rate is the rate at which two currencies can be exchanged against each other. These rates can be floating or fixed; floating being that the value of the currency changes in relationship to foreign exchange market mechanisms, fixed currency is currency tied to another currency like gold or a currency basket.

Most currencies, like the U.S. dollar can be traded (or converted) for another currency in a money market. Individuals, like international tourists, who want to trade hard currency usually do so at an exchange window or at a bank without any restriction or artificially imposed fixed value. These currencies are considered fully convertible. Partially convertible currencies are currencies that a central bank controls. Central banks sometimes do this to control hot money flows and international investment. Non-convertible currencies are currencies that don’t participate in the foreign exchange market and aren’t allowed to be converted.

 


 

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