As individuals, most of us struggle to perceive the true intricacies of the world, not because we are careless, but because our minds are not built for complexity. Human cognition evolved to simplify, to recognize patterns, and to compress reality into manageable models that allow us to function. This tendency is not a flaw. It is a survival mechanism. We reduce, generalize, and categorize so we can move through the world efficiently.
But this cognitive shortcut comes at a cost. The world we inhabit, especially the world shaped by human interaction, is far more complex than our mental models allow for. Social systems, power structures, and economic relationships do not behave like neat diagrams or linear cause and effect chains. They are layered, recursive, and often opaque. Currency is a particularly revealing example. It is widely treated as a neutral tool, a simple medium of exchange, yet in reality it is embedded with political choices, power dynamics, and incentives that most people never see, let alone question.
For any currency to genuinely function as money, it must satisfy three core criteria. First, it must act as a unit of account. Prices, wages, debts, and contracts must be expressed in it in a consistent and meaningful way. Without this, economic calculation itself becomes unreliable.
Second, it must function as a medium of exchange. People must be willing to accept it in transactions, confident that others will accept it in turn. This acceptance is not automatic. It depends on trust, enforcement, and expectation.
Third, and most critically, it must serve as a store of value. A currency must preserve purchasing power over time, at least within a reasonable horizon. If holding it guarantees loss, rational actors will minimize exposure to it, regardless of legal tender laws or official narratives.
A currency that fails at any one of these functions is not merely weakened. It is fundamentally compromised. It may continue to circulate out of habit, coercion, or lack of alternatives, but it no longer fulfills the economic role it claims to serve. At that point, it becomes an inferior currency in practice, even if it remains dominant on paper.
Many people assume that a currency has some form of intrinsic value, that its worth is inherent to the paper, the number printed on it, or even the issuing nation itself. This is a comforting but incorrect assumption. A currency’s value is not intrinsic. It is relational. It exists only in reference to other currencies, other economies, and other power structures.
In practice, a currency’s value is expressed through its exchange rate, how it floats against other national and international currencies. This floating is not merely a technical or financial process. It is a continuous comparison between systems such as economic credibility, institutional strength, fiscal discipline, and political stability. When one currency weakens relative to another, it is not just markets speaking. It is a judgment.
Exchange rates, then, are not neutral numbers. They are signals. They reflect how seriously a country is taken by the rest of the world. And a country is taken seriously only insofar as it can enforce rules internally, honor obligations externally, and project continuity over time. All of this ultimately traces back to political power. Not brute force alone, but the ability to govern, tax, regulate, and maintain legitimacy.
A currency cannot escape the political system that issues it. If that system is weak, incoherent, or untrusted, the currency will reflect it, no matter how aggressively its value is defended in rhetoric or law.
In my view, currencies fall into two broad categories, local currencies and international currencies. Most currencies in circulation today are local. They function, sometimes imperfectly, within the borders of the country that issues them. They are accepted as a medium of exchange domestically, occasionally used in nearby regions, and are largely dependent on local enforcement and necessity rather than global confidence.
International currencies are something else entirely. They are not merely national currencies used abroad. They are reserve currencies. They are used internationally as a medium of exchange, a unit of account, and crucially, a store of value across borders. They are held by foreign governments, central banks, corporations, and individuals not because they are legally required to do so, but because they are trusted to endure.
These currencies are extremely rare. To qualify, a currency must be backed by deep and liquid financial markets, political continuity, credible institutions, and the ability to absorb global demand without destabilizing itself. By this definition, only a handful even come close. At present, only two truly fulfill all three monetary functions on a global scale, the U.S. dollar and the euro. Everything else, regardless of how large the issuing economy may be, is fundamentally a national currency. Some are stronger than others, but they are not global monetary anchors. They are tolerated internationally. They are not relied upon.
Some may argue that gold and silver should be considered international currencies. Historically, this is not an unreasonable claim. Precious metals have functioned across civilizations and borders long before modern nation states existed. Even today, they excel at one monetary function better than almost anything else. They are exceptional stores of value. Over long periods of time, they preserve purchasing power and act as a hedge against monetary disorder.
However, this is precisely where their usefulness largely ends. Gold and silver fail, often miserably, as media of exchange in modern economies. They are impractical for everyday transactions, costly to transport and secure, and incompatible with the speed and scale at which contemporary economies operate. At times, they may serve loosely as units of account, but this role is derivative and inconsistent.
By contrast, the U.S. dollar and the euro are decisively superior when it comes to functioning as units of account and media of exchange. Prices, contracts, commodities, debt, and trade flows are denominated in them at scale. This comparison highlights a critical distinction. Being a good store of value does not automatically make something a functional currency. Gold preserves value well, but it does not run economies.
What about blockchain and cryptocurrencies? Many argue that they represent the future of money and that they will eventually replace state issued currencies altogether. This belief is widespread, confident, and premature.
At present, cryptocurrencies fail to meet the core requirements of a functional currency at scale. They are not issued by nation states. This is often framed as a strength, but in practice it is a weakness. Without a sovereign authority capable of taxation, enforcement, and macroeconomic stabilization, cryptocurrencies depend almost entirely on market sentiment, network effects, and the behavior of large holders. The result is extreme volatility and a system prone to speculation and manipulation.
While cryptocurrencies can function as media of exchange, their use is largely confined to niche environments, often gray or black markets, or speculative ecosystems built around the assets themselves. Where they fail most decisively is as units of account. Prices, wages, debts, and contracts are not meaningfully denominated in cryptocurrencies. Instead, they are almost always quoted against an actual currency, most commonly the U.S. dollar. Their value is not expressed independently. It is referenced through existing monetary systems.
As stores of value, cryptocurrencies also fall short. Short term appreciation does not equal monetary reliability. A store of value must offer predictability, not just upside. Until volatility is structurally constrained, cryptocurrencies remain speculative assets, not money. They do not replace sovereign currencies. They orbit them.
Taking all of this into account, my aim is to illustrate two central ideas.
First, currencies are not merely economic tools. They are lenses through which power structures become visible. How a currency behaves, where it is accepted, what it is trusted to do, and where it fails, reveals how governments actually function, not how they claim to function. If you want to understand political behavior, institutional strength, and global credibility, follow the currency.
Second, understanding how currencies truly function is not an academic exercise. It is a practical necessity. In a world where most people earn, save, and plan their future in money, ignorance is expensive. Those who fail to grasp monetary mechanics often pay for that failure through the slow erosion of their savings. Those who understand them are better equipped to navigate economic systems, manage risk, and preserve value over time.
Currency literacy is ultimately a form of self defense. Not against markets, but against false assumptions.
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