What Is Money Made Of?
Updated: Sep 19
You’ve heard of and seen money before, but what exactly is it made of?
Most of us have an idea that it comes from banks and the government, but that isn’t entirely accurate.
In fact, every penny you own was once created by somebody like you out there, trying to make their way in the world.
This article breaks down what money is made of, where it comes from, and why it’s important to know that information. Let’s dive right in!
Paper money is now made from polymer which allows for enhanced security features, like a see-through space and even holograms. This makes them very difficult to counterfeit, and they are also stronger and longer lasting than paper notes.
What is Money, Anyway?
In short, money is a social construct we use to facilitate transactions. It doesn’t have to be made of paper or coins; it can also be made of credit.
The thing about money is that it facilitates transactions, but it isn’t itself something you can buy or sell.
To put it another way: money doesn’t really exist—it’s simply a placeholder for what you want to purchase and what you want others to give you in exchange for your own products or services.
You’ll notice that I used others above instead of people; in a sense, your company is also making purchases with its own product—that product being pounds or dollars exchanged for goods and services.
The History of Currency
Currency and money are both related but different things. Currency is what we know as money in modern times; it's something that's legal tender in a country.
It can be used to pay for goods and services, or held on to as an investment.
In some cases, currency is made up of coins made from a certain metal, like gold or silver; but more often today, currency is bank notes printed by banks, usually backed by government promise to pay back whatever amount you're holding.
The word currency comes from current, as in a flow of water or electricity; and that refers to how quickly your savings will turn into wealth—or lose value through inflation. But what about real cash?
How it Works in Your Wallet
You’ve probably heard about money in school, but what is money made of exactly? The money/currency is a system used to exchange goods and services as noted above.
In our society, we primarily use a system called fiat currency. This means that our monetary value isn’t based on anything tangible like gold or other metals. The U.S. dollar and UK pound is considered legal tender, meaning that it’s accepted in all transactions as payment for debt.
The Federal Reserve and Bank of England were created to regulate how much currency there is in circulation at any given time and how much banks can lend out under certain rules; they also set interest rates so that business owners don’t make too much profit or go bankrupt because of their loans.
What Can Cryptocurrency Do for You?
Cryptocurrency is a form of digital money that can be traded online. It’s similar to ordinary cash (like dollars, pounds, and euros) in many ways but different in some important ones.
It’s rapidly taking off as a new way to pay for things. The advent of cryptocurrencies is largely due to two advantages they have over paper money:
First, cryptocurrencies are highly secure, which makes them appealing as both a store of value and an exchange medium.
Second, they allow you to transact business directly with another party without an intermediary like PayPal or Western Union—which takes time and costs money.
Why Should I Care about Bitcoin and Cryptocurrency in General?
For those of you who don’t know, Bitcoin is a form of digital currency that is designed to be self-sustaining, decentralized and safe.
Bitcoins are mined by miners who solve difficult computational problems using specialized hardware. There will only ever be 21 million bitcoins released into circulation and there's already over 16 million in existence today.
One reason to care about Bitcoin is because it has intrinsic value (unlike fiat currencies), but it also allows for highly secure transactions at a much lower cost than traditional financial institutions.
What Is Money Made Of - The Bottom Line
Just about everything in our world is for sale, and money makes that possible.
We exchange money for cars, entertainment, legal services, clothes, food...you name it.
Paper and ink don't have much value on their own. So why do we use them to trade for goods and services (or pay our bills, as we say)?
It turns out that paper money, or more recently polymer money plays a vital role in facilitating trade--and isn't so different from other financial instruments you might use every day.