The terms "money" and "currency" are often used interchangeably, but they are not the same. Their meanings have evolved over time, leading to confusion. This distinction is important to understand, particularly when examining the concepts of ownership and intrinsic value.

What is Currency?

Currency is traditionally defined by two key properties: ownership and intrinsic value. A good example of this is gold. Historically, gold was used to back paper money, giving the paper its value. When you own gold, it is your asset. Gold has intrinsic value due to its rarity, utility in various industries, and the effort required to extract and refine it.

What is Fiat Money?

Fiat money, on the other hand, is government-issued currency that is not backed by a physical commodity like gold. Its value is derived from the trust and confidence people have in the government that issues it. Unlike gold, fiat money cannot be owned in the same sense. For example, the Naira in your pocket is considered government property. Destroying it is a federal crime because it is not truly yours; it is a promissory note issued by the government.

The abandonment of the gold standard has led to a shift in how we define and perceive money and currency. Originally, currency was seen as a physical representation of money, backed by something of intrinsic value like gold. Today, without this backing, what we commonly refer to as "currency" is essentially just money, as it lacks the intrinsic value that would make it true currency.

Where Does Cryptocurrency Come In?

Cryptocurrency presents a unique case in this discussion. It is termed "currency" because it can be owned and transferred independently of a central authority, akin to how gold functions. Some argue that cryptocurrencies have intrinsic value due to the energy and resources required to produce them, though this is a contentious point.

Research in economics and finance suggests that the value of fiat money is largely psychological and dependent on societal trust in the issuing government. Studies have shown that when this trust erodes, the value of fiat money can plummet, leading to hyperinflation or currency collapse. Conversely, commodities like gold have historically retained value due to their tangible properties and universal acceptance.

In today's economy, what we commonly refer to as currency is actually money, as it lacks intrinsic value and true ownership properties. Understanding this distinction can provide deeper insights into financial systems and the nature of value. While the concept of currency in its traditional sense may be nearly extinct, modern innovations like cryptocurrency continue to challenge and evolve our understanding of these terms.