Currency and money are often used interchangeably, but they have distinct meanings in economics. Currency refers to the physical form of money – the coins and banknotes used to conduct transactions. Money encompasses currency along with other less tangible forms such as bank deposits. While currency has a physical manifestation, money can be any medium that serves as a store of value and means of exchange. The main difference is that currency is only one form of money. Money also exists in broader, more abstract forms in today’s financial systems.
Differences between currency and money:
| Currency | Money |
| Physical coins and banknotes | Includes physical and digital forms |
| Issued by central banks | Broader concept not limited to a single issuer |
| Made out of materials like paper, metal, plastic | Intangible and conceptual medium |
| Portable, easy to exchange | Can be exchanged or stored electronically |
| Prone to wear and tear | Indestructible in digital accounts/records |
| Finite supply | Can adjust supply using monetary policy |
| Visible and tangible | Invisible and theoretical construct |
Currency refers to the tangible, physical form of money – the coins and paper notes that are used to conduct transactions between buyers and sellers. Here are some examples:
- Coins – Coins in denominations like 1 cent, 5 cents, 10 cents, etc. made out of metal alloys are considered currency. Coins are issued by national mints and central banks.
- Banknotes – Paper currency notes in denominations like $1, $5, $10 printed by central banks or governments are currency. They have security features like watermarks and security threads.
- Local Tender – Some local municipalities have issued their own community currencies that can be spent locally and function as a limited form of currency.
- Wear and Tear – Unlike digital money, physical currency suffers wear and tear with use, so damaged or worn out coins/bills get removed from circulation.
- Counterfeiting – Currency also faces threats like counterfeiting where fake currency is produced illegally to defraud merchants and individuals.
- Circulation and Replacement – Central banks monitor currency in circulation and replace damaged/expired notes and coins periodically.
- Physical Storage – Currency requires physical storage and security measures which can be bulky for large amounts. Digital money has advantages in storage.
- Transport Ease – The portability of currency allows it to be easily transported or sent to others with minimal effort compared to digital money transmission.
Money encompasses currency but extends further into broader, more abstract forms like account balances which function as mediums of exchange:
- Bank Deposits – The funds people have stored in bank accounts represent a major form of money even though no physical currency is held. These can be transferred digitally.
- Credit Cards – Networks like Visa and Mastercard allow using credit lines to spend without needing actual currency. Most money today is spent via credit cards.
- Digital Wallets – Services like PayPal and Venmo have digital wallets to enable sending money electronically to others by transferring account balances.
- Mobile Money – Platforms like M-Pesa allow mobile phone-based money transfer and payments where currency is never needed. This expands access to money services.
- Money Supply – Central banks track different measurements of money supply that includes both physical currency and other liquid assets like deposits, treasuries, etc.
- Monetary Policy – By adjusting interest rates and bank reserve requirements, central banks can increase or decrease broad money supply in the economy to align with their monetary policy.
- Bitcoin – Virtual currencies demonstrate that money no longer requires any physical form or central authority as it can rely purely on distributed digital records.
- Money Illusion – People often mistakenly assume currency and money are identical when assessing concepts like inflation, even though money takes many forms beyond currency.
In summary, the three main differences between currency and money are:
- Currency refers specifically to coins and banknotes, while money encompasses currency along with other forms like bank deposits.
- Currency is issued by government mints and central banks, while money’s creation and record-keeping now extends beyond central authorities.
- Currency is tangible and can be exchanged hand-to-hand, while money can be intangible as digital account entries and exchanged electronically.
Currency represents just one form of physical manifestation of the broader theoretical construct of money in modern economies. Money exists in both concrete and abstract forms.