Money vs Currency: Why You Need To Know The Difference
Stuart Zadel discusses the difference between money and currency.
Hi guys and welcome! This is Stuart Zadel, CEO of Zadel Property Education and welcome to this month’s video success tip. It could be one of the most important ones you’ll ever hear because today, we’re going to talk about money. Have I got your attention? Good. I hope I have.
So, what is money? Is it those notes in your wallet? Is it your digits in your bank account? What exactly is money? Well, it might surprise you to know that there is a difference between currency and money. Surprisingly, many people don’t know and I wonder why this stuff are not taught in school. Do you have any ideas about why that is? There’s no financial intelligence or education taught? This is currency. It is not money. To be money, there are at least seven rules over time that have been worked out that determines if something is money. I’m just going to touch on them now.
Number 1 is, it needs to be durable. It needs to last a long period of time. This is why we don’t have paper anymore. Paper deteriorates whereas now we’ve moved to a plastic note in terms of currency and that lasts a little bit longer. But the question is, is that even money?
It needs to be portable. You need to be able to carry it. Go to the shops, go to the market, take it overseas, do that kind of stuff. So, it needs to be portable to be money.
It needs to be divisible. If something is worth a thousand units of something, you know, not everything costs a thousand unit so you need to be able to break it down to 500 units or 10 units or 1 unit or whatever small amount it needed to exchange and do business with.
Now, Number 4, I’m going to skip because it is the big one that distinguishes the difference between these two.
Number 5, it is a medium of exchange. It must be widely recognised and accepted as a means of exchange so you can do business with other fellow human beings, other flesh and blood people and other companies and also internationally as well. So, it needs to be accepted there as a unit of exchange.
Now, it needs to be a unit of account. This means, it needs to be somewhat uniform in its measure. This is why we don’t use shells and stuff anymore because they’re all in different sizes and all that stuff. We need to have it as something that can be measured. Now, traditionally, that was done by a weight. And maybe the day will come where we get back to that. See, right now, the only measure of this is someone printed digits on a bit of plastic and we accepted on that. But we’re going to get to that in a moment. So, that is a unit of account.
7 is, it’s going to be fungible. Fungible means, it needs to be interchangeable. So if I give you this 50, you give me that 50, no one cares, it’s still 50. It might be dirty or clean or whatever, it doesn’t matter. It might be brand new, it’s still 50. Or, I can give you that 50, you can give me back two 20’s and a 10, no one really cares because it’s interchangeable.
But now, I want to get back to number 4 which is the key one. It needs to be a store of value. The question is, is this a store of value? Some would argue that maybe it’s not. Do you know that we are now on our third new financial system in the last 100 years? And chances are, there may be a new one coming soon. 1915, just before the First World War, interesting period of change, we went off the full gold standard there. Post World War II, we had Bretton Woods which moved us again and of course around 1971 to ’74 we had then President Nixon took the US off the gold standard. Now, that’s technically not true. What he did was temporarily suspended the exchange of notes in exchange for gold because what happened is a lot of foreign countries realised what was going on and they wanted all their gold back from the States that were cashing in their notes and that he temporarily suspended the exchange of that. And that just seems, here we are 30, 40, 50 years later that they haven’t repealed it back.
So, the question is the store of value. There is a store of value that has lasts for infinity at least 5000 years and you will know what that is. It is real money and that is gold and silver. In my hand here, I have some silver coins. These, if you hear them, ring beautifully. You’ll know when you see real silver. This is 1 kilo bar of solid silver. A great store of value. This here is a 1 ounce gold Australian Kangaroo coin from the Perth Mint. Now, I’m not here giving you any financial advice… however, there is a new case for gold. Do you know what the single best performing investment has been since the start of 2016? If you said gold and silver, you would be right. It has gone up 20% to 30%. Many of the mining stocks in gold and silver have gone 50% to 100% and no one is talking about it. This is where the world goes when things start looking interesting.
Now, I don’t give any financial advice. This is purely for education. But many of the greatest economists and financial experts that I study and you can get on YouTube and start searching for them… they recommend that you should have between 5% to 10% of your net assets in gold and/or silver. I’m going to leave that to you to investigate but you might want to start thinking about having a real physical store of wealth that is not in digital form, it is not in a bank account and it’s not somewhere else overseas or out of your possession or down somewhere else. It is actually on hand in your house or stored in a vault or safe somewhere.
You might want to think about that and I hope you’ve enjoyed this success tip. Happy researching, and until next time, this is Stuart.