The Difference Between Money and Currency (Our Monetary System Explained)
Throughout this article I will be referring to what we call “money” in today’s society as currency as this is exactly what it is, not money. The money that we use for exchange for goods and services in today’s society is just a worthless piece of paper (or plastic if you want to include GBP plastic £5 and £10 notes).
Our paper currency we use today is commonly entitled as fiat currency. The word ‘fiat’ is latin for ‘’let it be done’’. Most of you that are reading this will think I’ve lost my mind in saying this, and may find my previous statement absurd. However, I will thoroughly explain the reasoning for my statement throughout this article. Be sure to absorb all information in this article until you have understood it because if enough people can understand this system that we are living in, it can surely change our worlds monetary system.
It all begun in Egypt when the medium of exchange we used for goods and services was GOLD and SILVER. Gold and silver was the predominant form of exchange in Egypt.
Currency is portable + fungible + divisible + durable.
Gold is also portable + fungible + divisible + durable also however it maintains it’s purchase power, this has historically been proven. Gold is limited in quantity, hence why it maintains its purchase power. The government do not like gold, due to the simple fact that it opposes restraint. They cannot print it, meaning they cannot exploit it to control our monetary system; despite their substantial amount of their Gold reserves. Understand this.
Gold was initially used as a medium of exchange and this was how our society made exchanges before the central banks and the government took over. Crude oil was also a medium of exchange, but it wasn’t exactly easy to carry a barrel of crude oil around with you the same way you can carry Gold coins and the paper currency that we use today for exchange.
Paper currency was not always used as a medium of exchange, but as a receipt for REAL money, which is Gold. What this means is for each Gold you reserve into the treasury, they will give you a receipt for your Gold, which was currency. During World War I and World War II we went through the Gold Exchange Standard where currency will be backed only partially by Gold, which means for every $20 worth of Gold that is in the vault, they can put $50 in circulation. This repeated and repeated until the US Treasury printed more receipts for gold than Gold itself. This was called the Gold Exchange Standard.
How did our monetary system modify throughout time and who are the culprits of this change?
The world’s central banks took over many years ago when they initiated currency as our primary medium of exchange. The main and obvious reason why this has happened is because currency can be printed and created via numerous methods from Quantitative Easing, lending, credit and off course the reserve ratio that each bank has which states by law your bank can reserve a specific percentage of the currency you have in your account whilst they invest and loan out the rest (with a profit off course).
GOLD cannot be printed!
Imagine we lived in a society where we used Gold to pay for our goods and services and not currency. You think the central banks could control our monetary system then? No! The more we have QE program’s which leads to inflation within a nation, the more we have a devaluation of currency which ultimately leads to a decrease in the purchase power of the currency we use today, which explains why central banks keeps interest rates at steady levels depending on economic activity.
Most people refer to inflation as the cost of goods and services enhancing. The real definition of inflation is the purchase power of our currency diminishing, hence why this has to be balanced and cannot be too high or too low.
What is Quantitative Easing?
QE was initiated in the beginning of of 2009, which was fuelled by the financial crisis back in 2008. It is a program that pumps currency into any chosen economy with a very straightforward method. Let’s focus on the U.S. for instance. The Quantitative Easing method starts from the US Federal Reserve purchasing fixed income securities such as the U.S T Bonds from the US Treasury department with a cheque of let’s say $1trillion dollars for instance. However when the US Fed writes this cheque, they have a $0 account balance but still receive the yields on the securities that they purchase. This leaves the US Treasury with new currency, and the Federal Reserve with a juicy yield on their bonds that they purchased with a $0 account balance.
YES that is correct, when the US Fed purchases its securities from the Treasury; they have a $0 checking balance, which is one of the major methods of how currency is sprung into existence, amongst many other methods. When you or myself write a cheque, we would off course need to have sufficient funds in our accounts in order for that cheque to be processed, this doesn’t apply to the US Federal Reserve.
I mean, this all sounds pretty complex at first but when you absorb the information accurately and read it over and over again, you will understand our monetary system of today and can potentially use this system in your favour. The system indicates all kinds of corruption, one of them being that the Federal Reserve is privately owned. Yes, there are corporations and perhaps individuals that own a % of the Federal Reserve and receive their hefty annual dividends. Who those owners are? That’s not easy to track down due to mergers and acquisitions from prior years.
Fractional Reserve Ratio’s
Each retail bank, including the one that you bank with has a fractional reserve ratio. It may sound complex, but it is really straightforward.
Let’s keep it very basic in order for you to understand this very easily.
For instance, if your retail bank has a reserve ratio of 20% and you have a balance of $10,000 this means by law they are allowed to only reserve 20% of your overall balance, which in this scenario is only $2,000. You are probably wondering what happens to the $8,000 left over? This money is borrowed to others for a profit, and invested in various instruments for a profit. This method repeats and repeats and is also another impactful method of how currency is created i.e long term savers > loans to others. This explains why a retail bank goes bankrupt if all depositors withdrew their funds from their accounts, the last few withdrawers probably will not receive their funds just as the last withdrawers from Northern Rock did not receive their funds after the 2008 financial crash
Does this make you re-think wether you should continue relying on the banking system for the tiny interest rates they pay you, and relying solely on the banking system for financial gain? It should.
All in all, there is an evident and significant variation between money and currency. Gold has held its purchasing power, even when thousands of currencies in the past have lost their total purchase power.
Think about it yourself. Something that can easily be printed with ease, can this be more valuable than something that is rare and was actually the initial medium of exchange before the worlds central banks took over?