Money and coin, people often confuse two terms that, although they may seem the same, are totally different, these terms are money and currency. In today’s post we will give you a little information about both so that you can differentiate them and no longer confuse them.
To begin we will explain the differences between money and coin.
What is money?
Money is normally defined as an asset or a good commonly approved as a payment instrument by economic agents, which tends to meet certain characteristics in society, these functions are:
Reserve of value:
This manages to maintain the value of a property or property over the years and in an unalterable way. That is, if we have a property and we sell it charging in silver, this metal will maintain the value achieved over the years.
Medium of exchange:
It achieves a direct exchange for different types of services or necessary goods, for this reason it is very useful. For example, if we have a gold reserve, in the future we will have the possibility of exchanging it for some good that we need, such as land, utensils, cars, clothes, whatever you need at that time.
Unit of account:
This has the function of determining in a single unit the price of different varieties of merchandise in the economy. Continuing with the example, we can estimate a price in the weight of gold for a variety of products, getting totally different goods to estimate in the same unit, as in this case, which is in the weight of gold.
Among some examples of money or the best known are, bills, debit cards, credit cards, currencies, electronic payments, checks and many more, in turn this money, as it is known today, must have a certificate or must be accredited by its issuers. To achieve this approval, you must meet certain parameters to achieve full trust and full legitimacy.
We refer to money when a heritage appears in an economy that:
Be fit to play the role of store of value.
Be able to be used by the population as a means of exchange.
It can spread the use of it, to the point of becoming the general unit of account to establish the cost of the different types of goods in said economy.
There is no possible way to accept a product as a means of exchange, if it does not first go through a process to determine its quality of fulfilling the function as a store of value.
In the same way, it will only achieve the function of unit of account, when the total approval in the economy of that product has been achieved in advance.
For this reason, the main foundation for a product to achieve its function of being money is its ability to operate as a store of value.
How to determine if a unit fulfills its function as a store of value?
For the selected product to achieve this, certain aspects must necessarily prevail:
The main thing is that the product or merchandise has a high degree of liquidity, so that it can be changed with a certain level of ease over the years.
And the second thing is that it can endure its value in a stable way over the years.
Today the money that circulates is determined by the laws imposed by government entities. But on the other hand, the central banks and the mints are in charge of designing the security and veracity of the money, as well as manufacturing both the coins and the banknotes.
Knowing all this, let’s delve into the concept of currency.
What is the coin?
When we talk about currency, we refer to the instrument that is used as money, which is endorsed and certified by a specific law. Now we see an example of the difference between Money and coin
In effect, government entities order by the power that their mandate grants them that, in a territory, a decided type of monetary instrument fulfills the legal role of money.
Because to this, this instrument usually takes the appearance of bills and coins, it should be noted that it is generically called currency.
In short, here is the difference between currency and money.
While money is a product or merchandise that tends to fulfill certain primary functions for this, on the contrary, currency is an instrument that can be transformed into money through a law that is imposed by the government.
To understand the difference a little more clearly, let’s see an example:
Dollar coins or dollar bills, by themselves, would never be money, that is, they would not fulfill this function, since they would only be metals and paper. Each and every one of them, materials that alone cannot fulfill the function as a store of value or as a medium of exchange, without being legally supported.
On the contrary, gold does not require a law that places its profit as money. It comes from its genuine nature.
That said, to have a better understanding between the relationship between money and currency over the years, you should know a little about its history since both have gone through different historical events.
Conventionally, coins were pieces of a commodity considered to be money. In turn, this matter was divided into smaller portions so that this would be more helpful for better commercial traffic. A clear and very real example of this are the gold and silver coins of ancient times.
After this, the bills symbolized a deposit slip of the product or merchandise known as money. And they facilitated its usefulness as an instrument of change.
To exemplify this, 1kg of gold was deposited in a bank and a banknote was the exact proof of its receipt.
This served as a certification to the user so that if he wanted to exchange the kg of gold there was no need to physically carry the merchandise.
We hope that this post has been very helpful for you and that you have managed to clarify your doubts.