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Beginner’s Guide: Why are points and miles referred to as currency?
The biggest mistake that I encounter with people who don’t understand why I go bananas over points is that they don’t understand the most fundamentally intrinsic aspect of points: they’re currency like what’s in your bank account. So simply put…Why are points and miles referred to as currency? Because they are.
To answer this with a little more depth let’s look at the definition per wikipedia:
A currency (from Middle English: curraunt, “in circulation”, from Latin: currens, -entis) in the most specific use of the word refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins.
Medium of Exchange
If I have $5 in my pocket I can use that as a medium of exchange for a $5 footlong at subway. In the same way if you have 57,500 American Miles you can use that as a medium of exchange for a business class ticket to Europe
Points are exactly a medium of exchange. You can redeem your points for flights, hotels, toasters, car rentals, etc. If you have enough of that currency, you can exchange them for the item you’d like.
Points are fiat just like banknotes and coins
Fiat basically means they are backed by the producer of it.
- Dollars are backed by the U.S. government.
- Pounds by British Government.
- Euro by the
Chinese GovernmentEuropean Central Bank
- Points are backed by the issuer
They’re created by a central bank: the points issuer. Whether you are amassing Amex, American Airlines, Delta ( especially Delta 😉 ) Ultimate Rewards, etc – they make the currency, and they grant them. They also technically own them which is one reason why you don’t pay income taxes on them. You can’t get taxed on something that isn’t yours. This is also why the issuer can rake back points if they are unhappy with you.
Points are granted
They’re granted based off of work. Either work that you perform out of loyalty to a brand through flying, staying, etc OR out of work by expressing loyalty towards spending with a credit card. Per the IRS this isn’t income, per se, but it is a means of rebate.
This is more explicitly true when the rebate you are earning is cash back. Since this is a very straight forward fixed rebate it’s easy to see how you’re purely getting a discount on your goods reimbursed to you through a “rebate.” I think people get most confused when the value of the currency isn’t as straight forward.
Exchange them how you would a foreign currency
If you got off a plane and saw 5 different currency exchanges you would probably check each and every one out. You would make a point to see what is going to be the very best rate of exchange for your currency. It’s easy in that scenario because they are laid out in front of you and all you have to do is look. The point is you wouldn’t just mindlessly walk up to one and exchange all of your money.
Award currency is exactly the same thing.
Instead of the currency exchanges being laid out one after another they are hidden in charts, and transfer partners, and partners of transfer partners. That’s what keep Miles and I excited about this whole hobby. Someone always makes their currency exchange rate more valuable and accessible through some obtuse means. It’s the complexity that turns people off, but it’s also the complexity that creates opportunity, and opportunity rewards the prepared.
Get the highest valuation out of your points and Miles.
We encourage you to be most prepared and goal oriented. Optimize your spend to achieve your goals. It’s why you should do a little bit of research either here at MonkeyMiles, BoardingArea, or the other blogs out there. If you can’t be bothered with that time commitment, use a service like Miles has here for award booking. For a couple hundred bucks a person you could be saving thousands of points and dollars.
Make sure you are getting the highest valuation out of your award currency.
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