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Sunday, December 01, 2013

Metallic Money (Gold/Silver) vs. Credit Money: Know The Difference

Zero Hedge:
You've probably read many articles about money--what it is (store of value and means of exchange) and its many variations (metal, paper, etc.). But perhaps the most important distinction to be made in our era is between metallic money and credit money.

Longtime correspondent Jeff W. succinctly explains the difference between metallic money (gold and silver) and credit money:
We use credit money every day. It’s the only kind of money we have. But because people in Europe and America have historically used metallic money for over 2,500 years, we still have cultural habits that come from the gold money era.

When the U.S. removed gold and silver coins from circulation in the 1930’s and 1960’s and replaced paper gold certificates and silver certificates with Federal Reserve notes, the paper money looked very much the same. But the thing that the paper money represented changed dramatically. The paper money now represents units of credit money that have no guaranteed relationship with the prices of gold or silve r or anything else.

Because the nature of credit money and metallic money are not well understood, and because money is so important in our lives, it is worthwhile to examine and discuss how these two kinds of money are different.
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