Money and currency are closely connected. They almost seem to be the same. These two terms are used by people in everyday life. Many people use these two terms interchangeably. This article will put forward the concept of money and currency and how they differ from each other.
Money vs Currency
The difference between Money and Currency lies in their functionality. Money serves as a medium of exchange and is used for trading goods and services. It serves as a store of value as opposed to the currency which is used to make day to day payments. When we talk of currency, we mean hard money, such as paper notes and coins. Money is different from physical currency as money is based on mutual trust, and it is intangible.
Money serves as a medium of exchange. It enables its holders to buy and sell goods and services all around the world. The Reserve Bank of India is in charge of printing money in India. Before the introduction of money, the exchange of goods and services was done using barter methods.
Currency is a form of money such as rupee, euro, dollar, accepted as a mode of payment. It is money in circulation or money traded publicly. Every country has its currency. The valuation of the currency of any particular country depends on various factors such as growth, interest, inflation, and others.
Comparison Table Between Money and Currency
|Parameters of Comparison||Money||Currency|
|Uses||Money represents the actual value of goods and services.||Currency is a medium used to make day-to-day payments.|
|Store of value||It serves as a store of value.||It is just used to make transactions.|
|Tangibility||It is intangible, i.e., it cannot be seen or touched.||It is tangible i.e., it can be seen as well as touched like paper notes and coins.|
|Functions||It performs mainly four functions: medium of exchange, store of value, measure of value, and standard of deferred payments.||It performs the function of financing day-to-day transactions.|
|Examples||Some of its examples are money in the bank(saving account, fixed deposit account), plastic money like credit cards, etc.||Its examples are paper notes(soft money) and metal coins(soft money).|
What is Money?
Money, also called Legal tender money, serves as a medium of exchange of goods and services in the economy. It serves as a means of payment. Money has a much broader space apart from paper money. RBI prints and circulates money in the economy. Money performs mainly four functions in the economy. It serves as a
- Medium of exchange: Money serves as a medium of exchange. Medium of exchange means that a buyer can purchase the goods and services, and the seller can sell the prospective goods and services. It makes the trade of goods and services smooth and convenient.
- Store of value: Money has purchasing power which essentially means that it can cater to future needs. It is used as a store of value or wealth.
- The measure of value: The value of a product or service is measured in terms of money. The introduction of money solved the problem of the barter system, where it was difficult to calculate the value of a good based on other goods.
- Standard of deferred payments: Money can be used for making future payments. This function of money led to the foundation of financial institutions.
Money is the basis of survival, freedom, and financial security.
What is Currency?
Currency is used to describe ‘money in circulation. It refers to money held by people in the form of soft money like paper notes and hard money like coins. It exists in multiple denominations to ease the transactions. Currency has no real value in itself. It is in circulation because it is generally accepted by people to finance their transactions.
Currency has been in circulation for more than a thousand years. It facilitates trade across different countries. US Dollars are regarded as the most widely accepted currency in the world. Whenever inflation happens, i.e., prices of goods and services rise in a country. It makes its currency depreciate and thus causes it to lose its value.
Foreign Exchange(FOREX) provides a platform to facilitate the exchange of national currencies. It creates a system of buyers and sellers who wish to trade the currencies and earn profit.
Recently a new kind of currency has been introduced in the economy called virtual currency. The virtual currency has no physical existence or government backing. This form of currency is stored in electronic form and includes bitcoin, ethereum, dogecoin etc.
Main Differences Between Money and Currency
- Money can be transferred through online modes like credit cards, bank accounts, whereas currency can only change hands from one person to another.
- Money can be stored for future use. On the other hand, the currency is traded publicly through physical mode. Currency does not serve as a store of value.
- Money has intrinsic value, whereas currency has no intrinsic value.
- Money cannot lose its buying power. On the other hand, currency may lose its power due to some RBI or government regulations. The recent incident of demonetisation says it all. On 8 November 2016, Rs 500 and Rs 1000 currency notes ceased to be legal tender money. They were ‘currency’ notes. So, money can never lose its value, but currency can.
- Money functions as a store of wealth, whereas currency is used to finance transactions without making the addition of one’s wealth.
Money and currency both serve as a source to satisfy the needs and wants of the people. They have evolved to eliminate the difficulties faced in the barter system. Currency comes in multiple denominations and various forms. The evolution of currency took place from copper and silver coins and now extended to a virtual currency like bitcoins. Currency serves as a representation of money. Money is a broader term serving durability, wealth, divisibility, and currency, a subset of money used to finance daily transactions. The intrinsic value of money offers its holder the maximum benefit of holding money as opposed to currency.