I have defined currency as an agreement.

And this agreement, materialized in the form of a paper bond, used to measure and exchange wealth in a society, is also controlled by its Government.

You may be shocked to know, it hasn't been always this way.

Back in the wild west, bank's deposit notes were exchanged as they were currencies, in an unregulated model known as "free banking". No FED, no QE, no money printer (brrrr).

Jerome Powel printing money at the FED

What's important to note: the cash asset, used in a daily basis by the society, which has intrinsic value the trust the individuals deposit on it, can be seen as a service from the Government.

I think it can be considered a service because you are charged fees whenever you used it. We call them income tax or capital gain tax.

Think about it. Whenever you convert your assets into the monetary rule the country uses, you are buying that paper. The transaction carries a cost, which is the delta of the amount of currency units you exchanged for the asset your are selling, minus the amount you are receiving; Or if you have sold your labor to someone, it is the fee the Government charges to measure the value of your work using this liquid money form.

You do not own the paper. In fact, it is ilegal even to burn this paper the Central Bank issues. It is not yours. You're renting it for the amount of time you need to measure objectively your wealth, until you transact it for another asset.

It is interesting because it got me thinking: what if I exchanged my assets for another asset, without settling in cash? My intuition would be that if no capital gain is registered in cash, I wouldn't need to pay the fee (tax) on it.

In other words, if the way I measure and exchange my wealth is not set in Government I.O.U.'s (I Owe You), in the end, I wouldn't have to pay any of these taxes.

Sitting in Cash

After thinking about it, I got myself wondering what's the purpose then of selling assets and keeping the fiat currency.

And there isn't any.

Aside from mitigating the volatility risk you would be exposed, if you keep your capital in cash you are making a mistake.

Cash is only useful as an ephemeral transitionn of wealth, but should not be consider wealth itself.  It loses value (inflation) and keeping it in the bank may make you feel richer, but it is not making you rich.

I am disregarding the fact that some assets are very volatile, what could cause they to lose monetary value and never recovering, but if you do your own research and don't gamble, you will be ok in the long term.

What I do instead: buy any asset you like, but do not hold big sums of cash. I keep only 5% of my portifolio in fiat currency, the rest is invested in stocks and projects I believe in (not financial advice).

And if you plan to hold for a long time, you can simply borrow against it and still use liquid money when you want to make a trade, with the benefit that when you get a loan, you don't need to pay taxes.