What's the Difference Between Currency and Money?

Burst of Private Crypto-currencies Globally

Bitcoin, the most popular private crypto-currency, is worth more than Rs. 5 lakh rupees per coin currently in India. The Reserve Bank of India (RBI), India's Central Bank, does not allow Bitcoins to be used in India as a payment method. The RBI also prohibits the use of Indian payment systems in trading and dealing in crypto-currencies. The RBI prohibits bitcoins from being officially purchased and sold in the country. It is unknown how many crypto-currencies are currently available in the world. According to some publications, there are around three thousand crypto-currencies that are traded with a market capitalization of more than $200 billion. These crypto-currencies cannot be used to make payments in India, like bitcoins.Gate.io Exchange.

Private entrepreneurs/ speculators created all the crypto-currencies currently in existence using block-chain technology in a decentralised, non-permissioned manner. These private crypto-currencies do not have a pre-assigned denomination or value. The majority of crypt-currencies are more plentiful than they are in demand. They are therefore very expensive. They have few buyers, so they are quickly lost. Only a few, such as bitcoins, have managed supply and can still command a price. However, the demand for these currencies is driven more by speculation than actual gains. Although crypto-currencies have been used in some payments, such as international transfers, they are not gaining much traction because there is no fixed/stable price, which is the most important condition for any currency being a currency.Gate.io Customer Support helpline number.

Although there is not yet an official cryptocurrency currency, a few countries have taken steps to launch it. They might not be using block-chain technology and may use permissioned mode. Permissioned mode is where an entity, such as a Central Bank, controls the system. Participants need permission to make certain transactions. The Facebook-designed Libra is a permissioned cryptocurrency-currency.

Private crypto-entrepreneurs only a small number are driven by noble causes like reducing the cost of payments, particularly international transfers and remittances. The current international payment, transfer and remittance channels that involve conversion in foreign sovereign currencies and the use of non-banking and international banking channels are quite expensive.

Private crypto-entrepreneurs almost all have a desire to make a personal fortune. They create an "asset class" which can spiral into higher valuations depending on the speculative demand. As an aside, since there is no standard price for any crypto-currency it means that all gains are relative to the official currency's conversion price. Even bitcoin's "value" has been subject to wide swings. One bitcoin's value fluctuated between Rs. 2.5 lakh rupees to R. 12.5 lakh rupees Other values have fluctuated between 10 and 20 times over this time. Some simply vanished. Many people who invested lost their money. Investors who have not yet invested will most likely suffer the same fate. Private crypto-currencies will not survive.

Currency is a common or accepted value. It can be divided into a number nominal units and used to express the nominal and relative values or prices of all economic goods or services that are purchased or exchanged in the country where such a currency circulates.

The most common form of currency in the world today is paper currency or banknotes, which are issued or permitted by the Central Banks of the country. Inflation control is another responsibility that the Central Banks have to maintain currency's value.

Money is an expanded form of currency. Some currency enters the system without ever being issued in physical notes. It is the "money supply", which makes payments and transfers. The monetary base is "Reserve Money", which is money issued by Central Banks. It primarily consists of currency notes and money created from deposits with the Central Banks. The "value" of a country's currency is directly affected by how a Central Bank manages its monetary base.

Banks also have other types of "deposits", which can acquire the money character depending on their "liquidity". Different moneys are based on the inclusion of "deposits" based upon their liquidity. These can be classified as M1, M2, M3, and M4. The broadest definition of money is M3. This includes currency with the public and demand deposits (current or savings bank deposits), deposits with RBI, post office savings bank deposits, and time deposits with banks. It is basically paper currency plus all deposits with the Bank system, RBI, and the Saving Deposits of the Post Offices.

Although it can vary from time to time there is a relationship between the aggregate value of goods or services produced in an economic system, or its Gross Domestic Product, (GDP), and the total money issued and currently existing in that economy. This ratio, GDP divided by Money, shows the speed of money in an economy.

At the beginning of December 2019, India's public had Rs. 21.85 crore. Reserve Money was Rs. 28.86 lakh crore M1 was Rs. 36.85 lakh crore. The broad money M3 was Rs. 161.65 crore. India's GDP will be approximately 200 lakh crore by 2019-20.

Like all countries around the world, currency issued in India is paper currency. RBI prints currency notes in different denominations. 1, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 200, Rs. 500 and Rs. 2000. The RBI issues the currency to the public through Banks, while purchasing other assets such as Government Bonds and Foreign Currency assets.

Evolution of Currencies

Many "things worth value" have served as money or currency in the past. Before the universalization of paper currency, silver/gold had been performing this function for decades/ centuries. These things of value were valued relative to their own value. For example, one gram of silver equals one gram gold.

As the paper currency itself has no intrinsic value, the paper used to print it is not of any real value. The aggregate value of money (including paper currency notes) must be maintained in relation to the economic output. Inflation is when more money is created or issued in paper currency relative to GDP growth. This is nothing but the decline in currency's value. Contrary to gold and silver, which were fixed in value due to limited supply, inflation is not. This belief was also disturbed by the discovery of gold and other precious metals. The Central Banks must maintain the value of paper currency by controlling the creation and issuance of currency.

As the base Reserve Money increases and people save more, the bank deposits, including demand deposits, have increased faster. The development of digital technology allows for efficient use of deposits to make transfers and payments. The relative growth in paper currency is slower as deposits grow and payments become digital.

After demonetization in 2016, which left currency in India at a very low level, the notes were remonetized within two years. In the eight months to date, the currency with public has only grown by 5% in 2019, 20 and 20.

It is possible to see that digital payments will become more common. In India, less than 15% of all payment transactions are done digitally. In China, more than 85%. This will cause currency growth to slow down, first in relation growth of paper currency relative growth of GDP, and then in absolute numbers.

Many currency functions are now digitally performed. Using UPI (United Payment Interface), or other digital payment methods like Debit Card or RTGS, IIMPS or NEFT, one can pay or transfer money.

Virtual currency is quickly becoming a reality.

Problems With Private Cryptocurrencies

Block-chain technology is used to create crypto currencies. Block-chain technology allows everyone who holds a crypto-currency piece to be part in a decentralised ledger. The "miners", or computer programmers who locate transactions in crypto currencies, get paid in the same crypto currency.

The Central Bank of a country issues paper currency. In this sense, it is a central currency. Any individual can only own or be part of the currency to the extent that currency notes or other money are actually hers. Since time immemorial, currency technology has changed over the years. The currency bases of gold and silver were the precious metals that ruled for a long time. The paper currency has been around since the beginning. With more digital payments and transfers, the currency is becoming increasingly digital.

The creation of crypto-currencies, which are based on decentralised blockchain technology, is another possible evolution in the issuance and management of currency. This would mean that no paper currency is required. Only the necessary number of small denomination notes could be issued in paper for small transactions. The bulk of money/currency will be issued and managed by block chain technology. This currency, called crypto-currency would be decentralised. Each participant would own a portion of the crypto currency stock and keep the whole decentralised ledger. Participants could then transact-make and receive payments using the decentralised leadger.

The currency and monetary systems are both very large. It is difficult to maintain the currency and money's value. Although block-chain technology can keep a decentralised record of currency and money, it does not have any algorithms or programs that can manage, maintain, or convert the currency with the real economy or stable conversion with official currencies.

Although it is unknown at this time, there are potential technological weaknesses that could be corrected in the future. The fact that currency issuance has been taken over mostly by private entrepreneurs in a secretive, manipulative, and cryptic fashion is what has made the world go crazy.

The private crypto-currencies have three main problems:

1. Is it a currency or a commodity The primary purpose of a currency is to make payments for goods or services. A commodity is a good that has value to the consumer. Certain commodities, such as gold and silver, have served as currency. This required a stable price for such a commodity. The value of silver and gold fluctuated at times, and the economy grew faster than gold and silver. This led to the abandonment of valuable metals as well as their currency. Crypto-currency does not have any intrinsic value or are generally accepted as a commodity. It might be considered a work of art or a commodity with no intrinsic value. Additionally, because crypto-currencies are easily created in virtually unlimited numbers, they have no economic value as long as there is a sufficient supply. There are no currency attributes due to the nature of private cryptocurrency-currencies. These appear to be declining in value as commodities.

2. How can you preserve the value of a freely available crypto-currency currency? A currency's most fundamental feature is that it acts as a standard unit for value in order to allow payments to be made for goods or services within the economy. The production and exchange of goods, and services in the economy cannot be separated from this standard unit of currency. The value of currency and money is maintained by the Central Banks using their monetary policies tools and instruments.

Private crypto-currency entrepreneurs lack the ability to preserve currency's value. They mainly destroy the currency's value by increasing supply, which can become limitless. These crypto-currencies have failed to survive as payment media, except for a few. They can also be used for international remittances or payments. This is why many crypto-currencies have been demolished or nearly lost.

Facebook, the social media giant, has attempted to create a decentralised, block-chain based currency called Libra. This will allow for easier payments. Libra is not designed to make quick money for Facebook like other crypto-currency entrepreneurs. Libra's design relies on the standard value of its currency relative to a basket. It's more of an attempt to use Special Drawing Rights, or SDRs, created by IMF.

Facebook may be able to socialize the idea of SDRs for payments, but no new cryptocurrency currency will be created. It will be a digital cryptocurrency based on the values of the underlying basket of official currency.

A common language is essential for today's integrated world. English is becoming more useful for this purpose. A common currency is essential for today's integrated financial system. The US dollar serves this purpose. The United States of America is the owner and controller of the English language. A global currency is needed that no one nation controls. Libra may be able to fulfill this need.

Facebook would have a hard time implementing Libra's ideas.

The first thing the Facebook must do is create enough Libra by purchasing and retaining all the underlying currency in the same ratio as Libra fixes to determine Libra's nominal/standard value. It will be expensive. Facebook would take a lot of risks if it tried to retain only a small fraction of the underlying aggregate value.

Second, because Libra will not be used as its own currency by any of the payment receivers or makers, Libra would be converted in the currencies of its users. The movement relative to their currencies could make it different for people whose currency is part of the pool. It would be difficult for Facebook to build confidence in Libra's value.

Libra, which will manage this system, would not make any money as it either won't charge for the payments (as it does with messages) or it might not charge enough. The incentive to use Libra would be lost relative to paying in their currencies via normal banking channels, if the charges are high.

3. A private entity can issue a currency. The value denominated on currency notes is often more than the intrinsic paper value. Can a private entity or person issue such paper currency?

Let's first look at it in the context paper currency. Why would anyone not print paper currency if they can issue paper currency? It would lead to chaos if such a thing happened. This paper currency would not be in demand. Even if it were allowed, such a paper currency would not be created.

This logic also applies to private crypto-currency. A crypto-currency is free to issue, with the exception of burning power units, which is similar to running a printing presses. In the current situation of complete information symmetry, everyone can issue crypto-currency. This means that no buyer or user will be able to purchase such crypto-currencies. Crypto-currencies might have some supporters because of the high degree of information asymmetry. Crypto-currencies will lose value and become useless if others adopt the technology. It will quickly lose its value. Remember the dot.com mania and its eventual disappearance?

Private crypto-currencies will have a short life expectancy, for the reasons I mentioned above. But, there will be some who make big profits and many others who are gullible. The small people are usually the ones who suffer. Crypto-currency magic has made billionaires. However, this is at the expense of many people who bought these essentially useless codes.

Money is rapidly becoming digital

Digital economy means that currency and money are no longer physical. The importance of paper currency is increasing.

Printing paper currency is expensive. The system of paper currencies also requires management. It is much easier to make counterfeit paper currency so the Central Banks must constantly improve the security features in currency notes. It takes time for thieves to catch up. These attempts can be made more serious if an enemy country is interested. To upgrade security features, new paper notes must be printed. It is expensive. The life span of paper notes is limited. It is more expensive to replace paper notes with plastic or another material. Moving paper currency notes is also expensive. It is also expensive to store, stuff and deliver notes at ATMs. Digital transactions are relatively inexpensive. Yes, digital systems can be hacked. The Central Banks must have appropriate security systems. The cost of managing digital currency systems is still relatively lower than that of managing paper currencies.

Despite the high costs, Central Banks/Governments still make a lot of money in the paper currency business. The cost of managing and printing paper currency systems is only a fraction of the total currency notes issued. Some governments/central banks treat the difference in nominal currency value and its cost as profit. The difference between the returns on financial assets and the cost of printing currency notes is considered profit by most. It is the former in India. The profit is shared between the RBI and the Government, causing tension and conflict between them.

The Central Banks create digital money. The M3, the most broad measure of money supply, is often several times greater than the amount of paper currency that is held by the public. The differences between currency and broad money are largely due to the different types of deposits held in banks. Digital payments are becoming more common with the help of bank deposits.

Digital payments are growing rapidly.

India is a great innovator in many aspects of the payment system, even though it has been cautious about liberalizing payment systems. One such innovation is the Unified Payment Interface, or UPI. National Payments Council of India allows account holders to make and receive payments through their bank accounts by digitally combining all bank account balances under one digital system. It is simple and well-designed. UPI transactions have exceeded 100 crores per month. UPI transactions were used to make 122 crore payments in November. It has generated 1.89 lakh crore. It is increasing at a rapid pace.

UPI, digital transactions and other methods are growing rapidly. They have already crossed 2100 crore transactions within the first 8 months of 2019.

The UPI-led digital payment system in India was almost as cheap as the paper currency-based system. Integrating all bank account balances into one digital system has made it possible to make payments easy and reduce transaction costs.

International payments and transfers cost more. According to a World Bank study, this cost was estimated at $30 billion (or Rs. 2.11 lakh crore. The small-ticket transactions cost the Indian diaspora approximately 2.5% to cover. Transfer of funds to their homelands can cost workers in certain countries 15-20% of their earnings.

This is because bank accounts and their balances are not interconnected internationally. In fact, many developing countries, as well as advanced countries, are unable to integrate their bank accounts and balances internationally.

One way to do this is to spread the UPI technology and concept all around the world. You can start from Middle-East countries. After integration is complete, the Central Banks will need to set a reference rate. This will reduce the cost of international payments and transfers almost entirely.

This will allow you to digitally exchange money and currency domestically and internationally. To do this, you don't have to use crypto-currencies.

Final transition to digital money

It is possible to conceptualize the final makeover using the paper currency system.

The physical securities system has been replaced by dematerialised record-keeping. Holders of bond or share certificates no longer have to issue or keep them in physical form. All shares and bonds are kept in the ledger of a depository. The only thing that holders have is a statement that shows their beneficial ownership of the shares and bonds they own in different countries and companies. They can now sell, buy and transfer securities with complete ease, and much less than what was required for physical transfers.

India is now releasing more dematerialized stamps that are required to be attached to registration documents. This makes it easier to use, and allows the Governments to collect their revenue more efficiently. Recent agreements have been reached between the Government of India (Govt) and the State Governments to digitally collect stamp duty on securities. This will be done using a centralised collection method.

Dematerializing currency notes is also possible. The Central Bank is able to issue currency in dematerialized form. When they purchase bonds, foreign currencies, or other instruments from banks, the Central Banks can issue currency. The Central Banks may pay in digital currency dematerialized. Dematerialized currency can be held in a virtual currency card or on a physical currency card. Only very small notes can be physically issued until everyone is ready to go fully digital.

The Central Banks would be more benefited as they would continue to receive the same seigniorage that they currently get. This would actually be slightly higher because of the savings in printing physical notes.

Real beneficiaries would be people as payments would be easier, quicker and more affordable.

It's time to move towards digital money or currency.

To summarise,

Only a few people are motivated by the noble intent to make international payments and transfer fast and inexpensive, while most of them are contraception to make quick cash for some at the expense of millions. Crypto-currencies are totally unnecessary to digitalize the world of money and currency.

The decentralised ledger technology may prove to be a valuable innovation that can be used in many areas, including financial services organization and delivery. Even though the currency is issued by an official authority, it appears that this technology can be wasteful in terms of currency management and issuance. Private individuals cannot use this technology to create crypto-currencies.

Digitalization of money and currency is moving at a rapid pace. It will accelerate and get deeper. It is possible to visualize that by 2020, paper currencies will be in decline all around the world. In many countries, their prevalence would drop to almost zero.

International payments and transfers will be made more cost-effectively and instantly if there is greater collaboration to integrate bank accounts and balances around the globe using UPI and other technologies such as UPI.

It is possible to finally conceptualize dematerialization of money and currency, and to make the final move to move on to digital money.

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