This is the 3rd instalment of a 5-part short educational series. The objective is to impart foundational knowledge of the difference between money and currency. Understanding this will lead to a greater appreciation of gold as an investment.
It is critical to comprehend the various types of money and currency that exist today. The different types of money have different characteristics. This affects their usefulness and value.
The traditional form of money that we are all familiar with is physical money. It is usually made up of coins and banknotes that can be exchanged between people. While physical money is still in broad use, it is becoming less prevalent. Digital money though is gaining in popularity.
Digital money is a type of money that only exists in electronic form. It is usually kept in digital wallets. It can be exchanged electronically via various payment systems. Because of its convenience and speed, digital money is becoming increasingly popular. But it is not without risks, such as cyberattacks and fraud.
‘Hard currency’ refers to currency that is generally thought to be stable and reliable. Currency considered ‘hard’ is issued by countries with solid economic fundamentals. It is also widely accepted in international trade. The US Dollar, Euro, and Japanese Yen are examples of ‘hard currencies.’
In contrast, ‘soft currency’ refers to currency that is not stable and reliable. These currencies are issued by countries with weaker economic fundamentals. They are susceptible to high inflation rates and other forms of economic instability. Examples of ‘soft currencies’ are the Brazilian Real, Russian Rouble, and Indian Rupee.
Finally, gold has always been a superior form of money when compared to paper money. For thousands of years, gold has been used as a medium of exchange. Gold, unlike paper money, is a limited resource. It is not possible to create it out of thin air. As a result, gold is a more stable and dependable store of value than paper money.