Definition
Specie is physical money that has intrinsic value. This term is most commonly associated with coins made from precious metals such as gold and silver. Unlike fiat money, which has value mainly because a government decrees it as legal tender, specie has value because of the metal content itself. Specie used to be the standard medium of exchange before the adoption of fiat currency systems.
Examples
- Gold Coins: Historically, gold coins like the American Gold Eagle and the South African Krugerrand have been used as a form of specie.
- Silver Coins: Examples include the Morgan Silver Dollar and the Silver Britannia.
- Historical Specie: Coins such as the ancient Greek Drachma and the Roman Denarius were made of precious metals and served as the primary form of money in their respective eras.
Frequently Asked Questions
What is the primary difference between specie and fiat money?
Specie has intrinsic value due to its metal content, while fiat money has value because a government declares it to be legal tender.
Why did societies move away from specie to fiat currency?
Fiat currency is easier to produce, more flexible for monetary policy, and does not rely on the availability of precious metals.
Can specie still be used in modern transactions?
While not common, specie can still be used in transactions, especially in niche markets such as collectibles and bullion trading.
How is the value of specie determined?
The value of specie is determined primarily by the market value of the metal from which it is made (e.g., the current market price of gold or silver).
What are the advantages of using specie?
The main advantages are intrinsic value, durability, and resistance to inflation.
Related Terms
- Fiat Money: Currency that has value because a government has ordered that it is an acceptable means to pay debts.
- Bullion: Precious metals in bulk form, typically gold or silver, which can be cast into bars or ingots.
- Legal Tender: Money that must be accepted if offered in payment of a debt.
- Intrinsic Value: The actual value of an asset based on its physical components rather than external factors like market demand.
- Medium of Exchange: An intermediary instrument used to facilitate the sale, purchase, or trade of goods between parties.
Online References
Suggested Books for Further Studies
- Money: The Unauthorized Biography by Felix Martin
- The Ascent of Money: A Financial History of the World by Niall Ferguson
- Gold: The Once and Future Money by Nathan Lewis
- The History of Money by Jack Weatherford
- Precious Metals Investing for Dummies by Paul Mladjenovic
Fundamentals of Specie: Finance Basics Quiz
### What primarily differentiates specie from fiat money?
- [ ] Specie is digital, while fiat money is physical.
- [ ] Specie is government-backed, while fiat money is not.
- [x] Specie has intrinsic value, while fiat money does not.
- [ ] Specie is made from base metals, while fiat money is made from precious metals.
> **Explanation:** Specie has intrinsic value due to the precious metal content, whereas fiat money's value is derived from government decrees.
### Which metal is most commonly associated with specie?
- [ ] Copper
- [ ] Iron
- [ ] Aluminum
- [x] Gold
> **Explanation:** Gold is the most commonly associated metal with specie due to its historical use as a medium of exchange and store of value.
### What is an example of a historical specie coin?
- [x] Greek Drachma
- [ ] U.S. Dollar bill
- [ ] Bitcoin
- [ ] Euro
> **Explanation:** The Greek Drachma, made of precious metals, serves as an example of historical specie.
### Why might a society prefer fiat money over specie?
- [ ] Fiat money is more durable.
- [ ] Specie is reliant on technological advancements.
- [x] Fiat money is easier to produce and manage.
- [ ] Specie can only be used in electronic transactions.
> **Explanation:** Societies prefer fiat money over specie because it is easier to produce and allows for more flexible monetary policy.
### What is the intrinsic value of specie based on?
- [ ] Its face value as printed on the coin.
- [x] The metal content it contains.
- [ ] Government guarantees.
- [ ] Market demand for its design.
> **Explanation:** The intrinsic value of specie is based on the market value of the metal it contains.
### How did the value of specie coins historically affect international trade?
- [x] It facilitated trade by providing a universally accepted value.
- [ ] It discouraged international trade due to the bulkiness.
- [ ] It required government intervention to determine value.
- [ ] It had no impact on international trade.
> **Explanation:** Specie coins facilitated international trade by providing a universally accepted value based on their precious metal content.
### Are bullion and specie the same thing?
- [x] No, but they are related; bullion is precious metal in bulk form, while specie is coined money made from bullion.
- [ ] Yes, they are identical in every way.
- [ ] No, bullion is used for industrial purposes, not money.
- [ ] Yes, both are used exclusively in modern digital transactions.
> **Explanation:** While related, bullion is precious metal in bulk form, whereas specie is coined money made from precious metals.
### What is one characteristic that specie and fiat money share?
- [x] Both can be used as a medium of exchange.
- [ ] Both are made from precious metals.
- [ ] Both are immune to inflation.
- [ ] Both have intrinsic value.
> **Explanation:** Both specie and fiat money can be used as a medium of exchange; however, only specie has intrinsic value.
### How is the value of a silver coin as specie generally determined?
- [ ] By its historical significance.
- [x] By the current market price of silver.
- [ ] By how new the coin is.
- [ ] By the government decree.
> **Explanation:** The value of a silver coin as specie is generally determined by the current market price of silver.
### Which term describes money that must legally be accepted for the payment of debts?
- [x] Legal Tender
- [ ] Bullion
- [ ] Intrinsic Value
- [ ] Fiat Money
> **Explanation:** Legal tender describes money that must be accepted if offered in payment of debts, which can include both fiat money and specie.
Thank you for embarking on this journey through our detailed exploration of specie and tackling our challenging quiz questions. Keep striving for excellence in your financial knowledge!
