Currency is:
- A medium of exchange - it can be freely traded for goods and services
- A unit of account - Bills have numbers on them to indicate how many dollars that particular piece of paper represents. Accounting systems are based on this unit.
- Portable - it is easy to transport
- Durable - it doesn't wear out
- Fungible - every one's money has the same value (the dollar in my pocket is the same as the dollar in your your pocket).
- Divisible - it can be divided into smaller units
This is clearly not the case for dollars, euros or any other currency in common use. The dollar lost half its purchasing power since 1988 and 95% it value since 1913 (the year the Federal Reserve came into existence).
People make many, many decisions based on this declining purchasing power. As a retailer in the 1990s, I agonized over a supplier price increase that forced me to raise my candy price above 50 cents for a standard-sized bag of M&Ms. Recently, I put a quarter in a machine and got 6 M&Ms. This is inflation in action.
There are hundreds of examples of fiat currencies (those not backed by a durable asset) in the last 5000 years. All of them have gone to a value of 0. Mike Maloney covers this important Money vs Currency distinction in a lot more depth.
Key take-aways:
- True wealth is your time and freedom - not money and even less so any currency.
- Start freeing yourself from economic voodoo! Stop calling those Federal Reserve Notes in you pocket and bank account money. Call it currency.
- Words can bind you. Choose them carefully if you want to make changes!
