You Need To Know How Currency Is Created And How It Dies

Store your long term financial energy in hard assets, but never even consider storing it in the government currencies.

Money makes the world go around, but most people have no clue what money is. Even most so-called economists have no clear definition of money.

Investopedia defines money as a medium of exchange, but that completely misses the point.

So here’s a simple way to describe money.

Money is financial energy.

It’s an energy that people exchange for property, products, or services.

And to define how much energy we need for a particular purchase, we use a currency. In other words, the currency is a tool to measure and distribute financial energy. For example, you may purchase an apartment for euros in Europe, but in the US, the euros are useless unless you convert them to the American measure of economic energy, the US dollar.

How is a currency created?

Currencies are created by governments.

And the governments enforce the usage of their currencies by law and special tax status as they can be transferred and held tax-free as opposed to property, products, or services.

For instance, if you transfer 50,000 dollars to a car dealer, you may purchase a car without the capital gains tax. Such a transaction would not be possible with stocks or bitcoin. Besides, you wouldn’t be able to legally purchase a car with anything other than the legal tender. Every reputable accountant would reject a currency other than legal tender.

If money is electricity, the currency is a battery

Here’s one useful analogy between money and currency.

If money is like electricity, then the currency is the battery, transmission, and distribution. You cannot create electricity with a battery, you can only store it. By the same token, central and commercial banks may store and transmit the currency, but they can never create more money. They merely provide methods to move and disperse currency in the system. In other words, if today 10 dollars replaced every dollar, the system wouldn’t have ten times more financial energy.

10% of your currency dies every year

But here is the main issue with currencies.

They’re losing financial energy.

Just like the batteries or the transmission systems don’t retain 100% of all the power produced, currencies waste some of your financial energy too. It is called inflation. In the US and Europe, it’s about 10% a year, but in other countries, it’s much higher. In short, the government currencies are highly inefficient stores of value.

Solution?

There are two possible solutions to the problem.

First, we can use a currency that doesn’t lose financial energy.

And second, we can exchange our currencies for better stores of value.

The first solution is addressed by bitcoin, but it will take time before all countries realise the potential.

Until then, we must resort to the temporary solutions and invest in various store of value assets like stock, gold, or bitcoin.

To summarise, store your long term financial energy in hard assets, but never even consider storing it in the government currencies.

Let’s stay connected. Join over 15K subscribers who receive Virtuse News, weekly report covering free curated tools for wealth, investing and smarted living.

Subscribe to DDIntel Here.

Join our network here: https://datadriveninvestor.com/collaborate