Are diamonds a currency? Some investors would have you believe that diamonds are money. Diamonds may be a store of wealth, or they may not be. You may want to read this article and this article and then decide for yourself if diamonds are a safe store of value. This article, however, will discuss diamonds vs. gold as a currency.
Diamonds Vs. Gold : Portability.
Money must be portable. Diamonds are portable. There is no doubt about that. Diamonds are so portable, that they are often worn as jewelry. Diamond jewelry is also often comprised of gold. Gold is portable too. However, ounce for ounce, diamonds are ridiculously more expensive than gold.
Therefore, if you wanted to move, or say “smuggle” a few million dollars, carrying diamonds would be an easy way to go. Carrying millions of dollars in gold bullion, however, would require a Brinks truck if you can still find one.
Extreme portability may not exactly be what you want in a currency, however. When a million dollar diamond heist happens the diamonds can easily be concealed and carried away from the crime scene. For a million dollar gold bullion heist, the thief will probably need a forklift, some friends, and a well-planned escape route.
On the flip side, being that diamonds are very, very expensive, what would a diamond worth twenty dollars look like? Would it look like a minuscule chip of glass? If you dropped it, how could you find it? How could a cashier count and total a box full of diamond chips at the end of their shift? Would you be able to tell a five dollar diamond chip from ten dollar diamond chip? There are reasons that diamonds do not qualify as money or currency.
Diamonds Vs. Gold : Fungibility.
Fungibility is a fancy word. What fungibility basically means is interchangeable and indistinguishable. Gold is fungible. Because gold is an element, gold is pure. An ounce of pure gold is just like any other ounce of pure gold.
Diamonds are not fungible. Each diamond is unique. You can have two diamonds of the same weight and size, but they may vary in value dramatically if one is clear and flawless and the other is yellow and feathered.
Fungibility is key in the world of currencies. Ancient non-fungible currencies have been tried, and they have failed. Imagine trying to conduct business if you had to pay and be paid in sea shells or tulip bulbs or beaver pelts. Money just works better when the currency is fungible, and diamonds are not fungible.
Diamonds Vs. Gold : Divisibility.
Money must be divisible. Money does not work well if you can’t make change in order to complete a sale. If you don’t have the ability to set a price, accept that price in payment, and make change in order to complete the sale, you are not using money, you are trading.
Diamonds can be divided, if you were so intent on making change that you were willing to try to cleave the hardest substance known to man. But, even if you were successful in halving the diamond, the two pieces of stone would be quite diminished in value because a certain part of the value of a diamond is in it’s cut and appearance. Cleaving a diamond in half greatly alters both the cut of the diamond as well as the appearance of the diamond.
Are Dollars Divisible?
Technically, dollars are not divisible either. If you tear a twenty dollar bill in half, it becomes worthless. A store will not accept half of a twenty dollar bill as ten dollars. A bank will not give you ten dollars for a half of a twenty dollar bill, either. They will give you a new twenty dollar bill, but only if you give them two-thirds of the twenty dollar bill you tore in half.
The idea of fungibility goes back to the days of gold coins and silver coins. Even if change was not available, a transaction could still be made between two parties because gold and silver are valued by weight and purity, not form. Therefore, half of a gold coin is worth half of what a whole gold coin is worth. A gold coin does not become useless or worthless just because it’s form has been altered. Gold is fungible. Gold is money. Diamonds are not fungible. Diamonds are not money.
Diamonds Vs. Gold : Buy Gold.
Diamonds are not money and diamonds are not currency. Diamonds may be expensive, but that does not make them money. Gold, on the other hand, is money and has been a currency for thousands of years.
Diversification is key in any financial portfolio. Chances are, if you are married, that you already have some wealth set aside in diamonds. If you do, you may want to consider purchasing some gold and silver coins as a similar diversification out of the dollar.
Gold and diamonds do have one thing in common, however, they both existed before there was a US dollar, and they will exist after the US dollar is a memory.
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Chief Market Analyst, ITM Trading