Why is Sound Money in the Economic Freedom Index?

The Economic Freedom Index is an important reference for economists, policymakers, and investors. Its data highlights connections between economic freedom and broader outcomes such as growth, income levels, and poverty reduction.

One of the elements included in the index is sound money, and there are several reasons for that inclusion. Many economists argue that sound money supports economic stability, protects property rights, and encourages voluntary exchange within a market system. 

Sound Money Hedges Against Inflation

Perhaps the greatest advantage of sound money is its ability to retain value over time. This strength comes from its inherent value. Sound money traditionally refers to precious metals, such as:

• gold
• silver
• copper

In recent years, some experts have included cryptocurrencies as sound money. This classification is, however, intensely debated.

What all of these currencies have in common is that they are neither printed nor controlled by a central government. They have a limited supply, which keeps the demand for them stable. 

Fiat currencies, such as the US dollar, function quite differently. Central banks, such as the Federal Reserve can expand the money supply whenever they deem necessary.

While this can support economic goals like liquidity or crisis response, it can also contribute to losses in purchasing power. As a result, the dollar loses its purchasing power over the years.

That loss of purchasing power is why The Heritage Foundation says sound money is so useful for economic freedom. The idea is that when a currency maintains its value over time, people can save or invest without worrying about inflation affecting their assets.

This retention of value is imperative to economic freedom. It allows buyers to retain their purchasing power and spend their money without government action restraining them.

Proponents of sound money tie this concept to economic freedom. When people have confidence in the value of their assets, they can make financial decisions without concern about policy-driven volatility. 

Facilitates Voluntary Exchange

Assets that are perceived as stable can encourage participation in economic activity. When people trust that the value of what they hold will remain relatively consistent, they are more willing to spend, save, or trade.

In contrast, high inflation often diminishes purchasing power. Prices increase, inclining people to try to hold onto their money. The result is that the economy weakens. 

In the United States, the only federally recognized legal tender is the dollar. Some states have passed laws, or are in the process of passing laws, that recognize precious metals as legal tender. However, these laws primarily aim to cut taxes relating to the sale of precious metals. 

Even so, precious metals still play a role in many households’ financial planning. Some people find reassurance in holding assets that have historically preserved value, particularly during periods of economic uncertainty.

Sound Money and Long-Term Economic Growth

The American economy has experienced notable fluctuations over the past several decades. These cycles shape how individuals and institutions think about long-term financial stability.

For this reason, the Economic Freedom Index includes sound money as a part of its calculations. The Heritage Foundation considers a stable monetary environment essential for a country's ability to plan, invest, and maintain public confidence.

Long-term economic stability makes a country significantly freer with its money. It can help to pay off national debt, invest in growth, and provide much more trust in the economy. 

How to Invest in Sound Money

For individuals, sound money is often seen as part of a broader financial strategy rather than a standalone solution. Precious metals are the most traditional and tangible examples of sound money. Luckily, it's easy to find vendors who sell these metals.

These assets come in multiple forms—such as coins, rounds, or bars—and people who choose to explore them often do so for reasons related to diversification or long-term stability.

Anyone considering such options typically benefits from researching providers and understanding market conditions. From there, they can evaluate how these assets align with their own financial circumstances.