We must note that the words money and currency, although used interchangeably and often synonymously, do in fact mean different things. "Money" is a means of communicating value, while "currency" is the physical manifestation of money. Currency gives money visible form.

Like speech, money is a mental tool that we use to communicate with others. For instance, using the mental process of speech we manipulate language to communicate our thoughts and feelings. With money we communicate our subjective judgments of value on a multitude of goods and services, and we use currency to provide the physical means to enable us to act upon these judgments. Currencies, as with languages, vary from country to country.

On a deeper level, money fulfills two important requirements. First, money must be easily exchangeable for other assets. For this reason, money is generally referred to as the most marketable — i.e., liquid — good or service in the marketplace. To meet this liquidity test, money must be readily acceptable in exchange for all other goods and services.

Second, money must have substance, or in other words, it must be an asset so that in an exchange of money for a good or service, substance is exchanged for substance. Only in this way can the exchange be extinguished, which means that it ends at the moment of the transaction without any ongoing and lingering obligation. Transactions are only extinguished when goods or services are exchanged for other assets.

National currencies (also called fiat currencies) fail to meet this second requirement for money because they are void of substance — they are nothing but book-entry numbers created by banks "out of thin air". National currencies are essentially not money. They used to be claims to money (substance) because currencies at one time could be redeemed for an asset of value - historically Gold or Silver fulfilled this redemption role which enabled anyone to turn the currency— they held back into substance. But today national currencies are no longer convertible into specie and have little, if any, precious metal foundation. For example, less than two cents of every US Dollar in circulation is backed by Gold.

One may ask, if these currencies are essentially worthless then how did they come into use? And why use them? Fiat currencies are generally brought into circulation by government decree through legal tender laws. These laws are, in effect, a government sanctioned monopoly on the power to create and issue currency. The payee in a monetary exchange is compelled by law to accept the legal tender currency even if it has no substance.

Anyone today who accepts a national currency in payment of goods or services does not receive "substance". Instead he receives the payment obligation of the financial institution issuing the currency used in the transaction. Because national currencies can no longer be redeemed for Gold and/or Silver, substance can only be received in one way. The original exchange is not extinguished until the national currency is eventually passed on in a new exchange for goods or services. But until this national currency is subsequently exchanged in this way, the holder of that currency — whether wittingly or not — has given up the substance represented by his marketable good or service in return for just a promise to pay, and a promise is not "substance". A promise to pay something is very different from having the thing promised actually in hand.

When national currencies could be redeemed for Gold and/or Silver, they were claims to money (substance) — the claims enabled the currency to be redeemed for something of value. The issuer of that currency promised to deliver Gold or Silver for redemption by the holder of the currency upon demand. But today, national currencies are not even claims to money; they have been moved even further away from substance. For example, a US Dollar is a claim on a promise to repay a debt, and there is no direct claim to Gold or Silver or any other asset of substance. A Dollar note (cash currency) or the book entry generated in a bank's financial statement (deposit currency) itself is void of substance. Anyone who receives payment in Dollars knows only that he has a bank's promise to maintain the value of that currency until it can be exchanged for another good or service.

Therefore national currencies are inherently inferior to an asset currency like a Gold or Silver coin, because the holder of asset currency knows with certainty that his currency has value because of what it is, not what it promises. Nevertheless, national currencies are readily accepted in the marketplace. They meet the liquidity test because they are forced into general circulation by government decree through the enactment of legal tender laws. Only in unusual circumstances — for example, during a monetary crisis — are these legal tender laws widely ignored, which then threatens the ongoing circulation of the currency that caused the crisis.

The monetary crisis now occurring in Asia, which is undermining economic activity by threatening the viability of many Asian currencies, clearly illustrates the inherent weakness of currencies without substance. Therefore, when considering how money and electronic currency may evolve into the 21st century, the restoration of currency with substance would be an important and beneficial advancement.