Is Currency Really Money?

In a recent tweet, Falkner (@Mrsflknr) raised an interesting point about currency and its relation to money. She argues that currency is not actually money, but rather a form of currency that is not backed by anything, making it more like an asset. She goes on to explain that banks have the power to create this currency out of thin air, further distancing it from the concept of money.

The Removal of Precious Metal from USA Coins

Falkner also mentions an intriguing historical event – the passing of the Coinage Act in 1965 during the Lyndon Johnson Administration. According to her, this act resulted in the removal of every last bit of precious metal from USA coins. This significant change in the composition of coins raises questions about the true value and nature of the currency we use today.

Unpacking the Relationship Between Currency and Money

While Falkner’s tweet provides a thought-provoking perspective, it is essential to examine the relationship between currency and money more deeply. Currency is a medium of exchange that is widely accepted within a specific region or country. It facilitates transactions and serves as a store of value.

On the other hand, money represents a broader concept encompassing various forms of currency, including physical cash, digital money, and even assets like precious metals. Money serves as a unit of account, a medium of exchange, and a store of value across different economies.

The Creation of Currency by Banks

Falkner’s claim that banks create currency out of thin air raises concerns about the legitimacy and stability of our financial systems. It is true that banks have the authority to create new money through a process called fractional reserve banking. This process allows banks to lend out more money than they actually hold in reserves, effectively creating new currency.

However, it is important to note that this creation of currency is regulated and controlled by central banks and governments. The aim is to manage the money supply and maintain stability in the economy. While the process may seem intangible, it is not as arbitrary as Falkner suggests.

The Value of Currency in a Modern Economy

Despite the absence of precious metal backing, currency still holds value in a modern economy. Its value is primarily based on the trust and confidence that individuals and institutions place in the issuing authority, such as a central bank or government. This trust is reinforced by legal tender laws that require the acceptance of currency as a means of payment.

Additionally, currency’s value is supported by the stability and strength of the underlying economy. Factors such as economic growth, inflation rates, and fiscal policies impact the perception of currency’s value. Therefore, while currency may not have physical assets backing it, its value is derived from the overall economic health of a nation.

Conclusion

Falkner’s tweet raises important questions about the nature of currency and its relationship to money. While currency may lack physical backing and is created by banks, it still serves as a medium of exchange and a store of value in our modern economy. Understanding the complexities of currency and money is crucial in navigating the financial landscape and making informed decisions.

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Source : @Mrsflknr

Yes. Plus it’s not even money — it’s currency not backed by anything so not an asset. Banks create it out of thin air. Every last bit of precious metal removed from USA coins with the passing of the Coinage Act in 1965 — Lyndon Johnson Administration. https://t.co/beHtnIBqjG

— Falkner (@Mrsflknr) December 2, 2023

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