Sound Money

Sound money is a type of currency that has a stable and reliable value over long periods, meaning it is not prone to sudden or significant depreciation. Its primary characteristic is the preservation of purchasing power, protecting savers and investors from the wealth-eroding effects of inflation. Historically, sound money was often commodity-based—most famously, gold and silver—because its supply was naturally limited and could not be arbitrarily increased by a government or ruler. This contrasts sharply with modern fiat money, which is a government-issued currency not backed by a physical commodity. The “soundness” of money, therefore, hinges on its ability to function as a dependable store of value, a stable unit of account for measuring economic activity, and a trustworthy medium of exchange. It provides a stable foundation for an economy, encouraging saving and long-term investment over short-term speculation.

The Hallmarks of Sound Money

What gives money its “soundness”? While no currency is perfect, sound money systems traditionally share several key features that reinforce their reliability and public trust.