The Distinctions Between Currency vs Money vs Cash
Executive Summary
- The terms currency, money, and cash are used in ways that defy specific definitions that one would ordinarily assume.
- We explain the usage of these terms.
Introduction
The terms currency and money are often used interchangeably. Many of the definitions that can be found are contradictory. It is true that the official money of a country, say the US dollar is the currency and the money of the country. There should be a better terminology to differentiate between a physical unit of exchange and when that unit of exchange is digital. Today the vast majority of money is digital.
Digital Versus Non-Digital Money?
When people try to draw a distinction between Bitcoin but calling it digital, the problem is that almost all money, as measured by total units is also digital. Dollars are a physical representation of digital money. Bitcoin, while most of the discussion around the topic is digital, there are physical bitcoin tokens.
Think right now, how much cash do you have on your person and at home, and now divide that by your total assets. How high is that percentage? Generally, the percentage is around 3% of the total money is held in physical form.
Credit cards and debit cards have driven down the size of the physical currency due to their ease of transactional use. Furthermore, as more purchases have moved online credit and debit (and Paypal or Stripe) have pushed down the need for physical money.
What About the Term Cash?
The term cash, which one would think is the line between physical and non-physical, is also used in such a way that it often means the difference between a check and bank financing. When a person offers to pay “cash” often they often don’t mean physical currency. Cash now has morphed into immediate money. So the term is used in a way that is different from what might be considered its “official” definition.
Treasury Bonds
Some terms to reflect money are needlessly differentiated. One example of this is a Treasury Bond. This sounds like something very specific and different, but it is just a interest-bearing savings account with the Treasury. Yet one does not say “I am opening a risk-free savings account with the Federal government” Instead one says, “I am buying Treasury Bonds.”
Equities: How the Term Changes Its Meaning Depending Upon Percentage of Ownership
Equity means you supposedly own a part of a company. Stocks are called equities. Equities are consistent with their definition when one has a substantial percentage of the shares of a company. However, most investors in equities, don’t own anything. They have the right to sell the stock to someone else or to keep that stock. That is the extent of their rights. Stocks do have voting rights, however, at small percentages of ownership the voting rights are irrelevant, and at even higher percentages of ownership, voting is rigged by the company so that the voting is more of a formality for approving what they want to be approved.
Controlling Interest and Private Equity
However, when a private equity firm buys a company, they now have equity and control over that company. For most equity purchases, the equity is just a speculative vehicle that is bid up or down in price. After its initial sale, which raises money for the company, the stock is just a speculative asset. As the vast majority of “equities” or stocks pay no dividends, it is in a way strange that investors still want to hold them.
Conclusion
Terms used to describe money are used in a way that they often overlap, which removes their distinctions between one another.