with guest Robert Kiyosaki #MakingBankS4E23

Over the course of history, humankind has used nearly everything you can think of as a form of currency. From feathers, shells, and beads to cryptocurrency, the evolution of currency is long and varied. We have gone from bartering with finite resources in our environment to complex financial systems based on credit and goodwill. Having a working understanding of how currency works, how it has and continues to evolve, and how to use specific currencies as tools will create much more security and true value in your personal and business finances. 

Today, we generally have access to three types of currency: fiat currency, commodities, and cyber money. Each type of currency has specific benefits and risks that are important to understand if you want to build wealth and make informed investment decisions. We will walk through what exactly each type of currency is, the benefits, the risks, and the best way to leverage each to build wealth and true assets. 

Fiat Currency

When you think of money, you most likely have a picture of a green(ish) piece of paper with a president’s face on it that represents a specific amount if you’re in the United States. This is fiat currency. Robert Kiyosaki, bestselling author of Rich Dad Poor Dad describes fiat currency as “government money.” This money is printed and regulated by the government. This is the type of currency the vast majority of people use both personally and in their businesses. 

The benefit of fiat currency is that it is regulated and easily available. Fiat currency can be really great at creating stability in the economy because the government controls the money supply. Commodity based currency can be volatile since it is based on natural resources whose supply cannot be controlled. 

The risks of fiat currency are inherent in the government controlling the supply. The United States took the dollar off of the gold standard in the early 1970s, which means our fiat currency is based solely on the credit and goodwill of the United States. Since the government is not bound to any commodity-based standard to establish the value and supply of the US dollar, we are at serious risk of hyperinflation. The government can essentially decide to keep printing more money with no gold standard to stabilize the value, which leads to the dollar holding less and less value. 

So how do you use fiat currency as a tool to build your wealth? Fiat currency is the best way to get quick purchasing power. It is an excellent currency for the exchange of goods and services. Using fiat currency for fast exchanges helps your business grow and will allow you to then invest in a currency that holds more stable value such as commodities. 

Commodity Money

This leads us to the next type of currency: commodities. Commodity money’s value comes from a physical resource from which it is made. Commodities have value or use in themselves as well as value in being a currency used to purchase other goods. Kiyosaki describes commodity money as “God’s money.” The most common commodity used as currency is gold. Things like gold, silver, or copper are all considered commodities. 

Commodity money has some really important benefits to consider as a currency for investment. Because the commodity money supply is not regulated or determined by the government, you can think of this type of currency as real money. It is tangible, physical, and will always hold value. Commodity money has intrinsic value in its physical form and what it can be physically used for as well as in its ability to be used as a purchasing tool. So even if there is some volatility in the value of commodities, it will never truly lose its value. 

The risk in commodity currency is that it is not generally accepted as a mainstream purchasing agent. You will need to transfer your commodity into fiat currency for most transactions. You also need to be careful about only buying commodities from trusted sources. There are plenty of people trying to sell fake gold out there. Taking the time to research and find reputable sources is important when investing in commodity money. 

Commodity money is the best tool for longterm investment. Rather than renting money to the government and financial institutions by saving or investing in fiat currency based systems, convert your cash to a commodity once you don’t have an immediate need (for purchasing other assets, goods, or services). You leverage the unreliable fiat currency as a means to then create true wealth in commodities. You are then less reliant on trusting that the government will print fiat currency responsible by building a stock of wealth in a commodity currency that has intrinsic value in the material it is made of. 

Cryptocurrency 

The last type of currency we will cover is cryptocurrency. Cryptocurrencies such as Bitcoin and Ethereum are a response to the continuing devaluing of the US dollar, says Kiyosaki. He has dubbed cyber money as “people’s money.” People intuitively understand that something isn’t working with fiat currency as inflation rises and the cash people have worked hard to place in the bank is not providing the same purchasing power as it has in the past. 

The benefits of cyber money are similar to commodity currency. The value and supply are not determined or regulated by the government. Cryptocurrency is an alternative currency option that has placed more control and purchasing power in the hands of consumers. Cryptocurrency provides an easier and quicker exchange option than commodities and has the obvious benefit of not needing physical storage space. 

The risk of cryptocurrency is that it is still very new. We don’t have the historical data to truly understand the trends in value that we have for commodities and fiat currency. Values have been very volatile at times, but it looks like cryptocurrency might just be here to stay. 

You can leverage cryptocurrency as a sort of middle ground option between fiat currency and commodity currency. You have more purchasing power available than with commodities and more control than fiat currency. 

As with anything, education is key here. The very first investment you should make is in educating yourself about each type of currency and how to make the best investment choices for your particular situation. 

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