The terms money and currency are often used interchangeably by even the most learned and professional individuals who work in the financial sector.

Both are made up of almost identical ingredients however differ in one distinct but important element.


Currency is defined by the major dictionaries as the system of money that is used in a particular country. This often includes paper notes and coins and is the medium of exchange that is used to conduct business in a particular country.

Examples of this are the US dollar, Australian Dollar, Canadian Dollar, New Zealand Dollar, Great British Pound, Chinese Yuan, Japanese Yen and the Euro.

It is not entirely accurate to describe currency as the system of money used in a particular country. It is more accurate to describe it as the medium of exchange.

This is because of the elements that combine to create a currency.

All currencies share a unique set of characteristics that make it suitable for engaging in trade, either domestically or internationally.

Currencies are not only exchanged for goods and services they are also exchanged for other currencies on the foreign exchange markets.

The unique characteristics that combine to create a currency are:

  • It is widely accepted as a medium of exchange
  • It can be used as a unit of account
  • It is portable, meaning that it can be moved with relative ease from one location to another.
  • It is durable which means that it will not be damaged to a point where it is unusable with too much ease.
  • Currency is divisible making it possible to break it down into smaller amounts.
  • It is fungible which means that it is interchangeable. If you have $1 US it will purchase the same at McDonalds regardless of who presents it at the counter.

One great explanation I heard years ago was that it is called currency because it needs to keep moving. If it sits for too long doing nothing then it actually loses value.

An example of this is through inflation. In order for currency to maintain its value on average it needs to increase its buying power by at least 3% every year just to stay ahead of inflation.

Currency can be created or destroyed at will by governments as a means of controlling or manipulating the economic system.

This leads us on to money.


Strictly speaking money contains all of the same unique characteristics that currency has with one additional characteristic.

Money is:

  • A medium of exchange
  • A unit of account
  • Portable
  • Fungible 
  • Divisible

However it is also;

  • A store of value.

When we speak of money being a store of value we mean that on its own it has its own unique value. Over the centuries countless items have been used as money, from livestock to grain, flowers and metals. The most commonly known and accepted form of money was in the form of gold and silver coins.

Gold and silver have their own value because they are rare and difficult to obtain. They are also often used in a variety of processes and for a variety of purposes.

There is a finite supply of them and as the supplies of these metals are slowly used up they become even rarer and more valuable.

Gold is used in computer chips and high end electronics while silver is used in a number of industrial processes such as in the manufacture of mirrors. They both have high electrical conductivity and as we all know are popular in the manufacture of jewellery.

FIAT Currency and Increasing Living Costs

There is a third term we should also be familiar with and that is the term FIAT. This is taken from the Latin for ‘Let it be done’, ‘to become, be made, take place, created or instituted.’

FIAT currency is currency that is spoken into existence through the will of a governing authority. It is something that has value because the government says it does and stands behind it.

The US dollar has been the backbone of international trade since the end of the Second World War. Until 1971 the US dollar was backed by gold. The Gold Standard as it was called meant that every $1 of US currency in circulation was actually a receipt for an equivalent amount of Gold that was held in trust by the US government.

In 1971 US President Richard Nixon severed the US dollars relationship with the rare metal causing the price of gold to skyrocket. This made the US dollar a free floating currency backed only by the goodwill of the US Government. Meaning that the US government would honour any dollar as a medium of exchange within its borders and for international trade

In the decades that the currency supply was backed by Gold there was very little inflation. However when the relationship was severed by Nixon in 1971 the Price of Gold went from $35 per ounce to being a free floating investment  asset of its own.

At the time of writing in September 2021 the price of Gold is sitting at $1,812.40 US per ounce. This is an increase of 5078.29% in fifty years. It has been priced both higher and lower than this throughout the same time frame. However between 1932 and 1971 the price of Gold was set at $35 per ounce.

What this means is that the US dollar had a higher value and could buy more when it was backed by Gold.

The reason that it is important to understand this is because we start to understand that currency and money have a distinct differentiating feature.

Currency does not store value.

Since the inception of the Federal Reserve System of the United States in 1913 the US dollar has lost more than 97% of its value.

Inflation Erodes Currency

According to an article, by Abelson & Chung, printed in the Australian Economic Review in 2005 the median house price in Sydney, Australia in 1970 was $18,700. 

(Abelson & Chung 2005) Table 1 Page 8

At the same time the Australian Bureau of Statistics reported the average weekly earnings for a male in 1970 in Sydney as $73.50 in March, $80.40 in June and $81.60 in September.

(Australian Bureau of Statistics 1970)

This was a period of rapid wage hikes so if we take the average of the three records ($78.50) across 1 year this is an average annual salary of approximately $4,000 per year in 1970.

Using the Reserve Bank of Australia’s inflation calculator a $50 basket of goods in 1970 would cost $593.86 in December 2020. This is a 1087.7% increase over 50 years.

(Reserve Bank of Australia 2021)

The median property price in Sydney, according to  in the Domain House Price Report for December 2020, was $1,211,488.

( 2021)

The Australian Bureau of Statistics reported for the December 2020 quarter that the average private household income was $2,086. This was an average annual household income of approximately $100,000.

(Australian Bureau of Statistics 2021)

This may seem like a significant increase in income but when observed in context against historical figures we see some patterns emerging.

In 1970 a $50 bag of Groceries was approximately 16% of the average monthly salary of $314. The standard variable mortgage interest rate was at 5.88% meaning that a mortgage on an average house of $18,700 over 25 years would have been approximately $129 per month.

This mortgage calculation is approximately 41% of the average monthly income for a male in 1970.

Contrasting that with 2020 we see that the household income was an average of $2,086 per month. This is household income not the income of an individual. The same equivalent basket of goods from 1970 was $593.86 which is 28.5% of the monthly household income.

The median house price in Sydney was $1,211,488 in December 2020 and the standard variable rate was approximately 3%. This means that a mortgage in Sydney on an average priced house over 25 years would cost $5,755 per month.

We immediately see a problem where the CPI or consumer price index saw a cost of living increase of 1087.7%. The median house price increased over the same time frame by 6,378.55%.

In 1970 fewer households had dual incomes. This is why we have used the average male income as a reference point. In 1970 it was possible to buy an average priced home in Sydney on the income of an average male.

From 1970 to 2020 the increase in wages for the same 50 year period was only 564.3%. The cost of the median house in Sydney in 2020 is 175.89% more than the average household income. This means that it is no longer possible for the average household to afford to buy an average house.

What we can see from this is that FIAT currency historically loses its value. In Australia this has been by approximately 5.7% per year over a 50 year period. However this does not take into consideration the extraordinary increases in property prices that have lead to increases in mortgage and rent repayments.

This is why it is important to understand that information needs to be placed in context. Comparisons are important as way to understand and build our knowledge.

FIAT currency will very quickly be eroded over time and it is essential to understand this in order to understand the differences between money and currency.

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About the Author: SR Smedley
SR Smedley holds a Bachelors Degree in Business Management with a particular focus on communications. He has also completed studies in financial planning as well as previously studying human health and nutrition. He is the Director of Operations of Franklin Media Australia, a self taught programmer and web developer and former SCUBA Diving Instructor. He also previously worked as a journalist for an award winning business journalist and former News Corp editor.

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