Some part of Federal Reserve Chairman Ben Bernanke must be a little disappointed that Rep. Ron Paul (R-TX) will retire after his current term. No other congressperson may ever challenge him the way Paul, who currently chairs the House subcommittee on monetary policy, has over the past several years. In a hearing today, yet another amusing exchange occurred between the two. The topic was one of Paul's favorite: gold. The discussion got heated when Paul asked Bernanke whether gold is money.

Here's the exchange (video below, for those who prefer to watch instead of read):

Paul: Do you think gold is money?

Bernanke: (pregnant pause) No.

It's not money?

It's a precious metal.

Even if it has been money for 6,000 years, somebody reversed that and eliminated that economic law?

Well, it's an asset. Would you say Treasury bills are money? I don't think they're money either, but they're a financial asset.

Why do central banks hold it?

Well, it's a form of reserves.

Why don't they hold diamonds?

Well it's tradition -- long-term tradition.

Well, some people still think it's money.

In the U.S. anyway, those people are wrong. Here are a couple reasons why.

The Difference Between Money and an Asset

Bernanke's response actually couldn't have been much clearer. Just because something has value -- even great value -- that doesn't make it money. Paul attempts to retort, asking Bernanke why the central banks don't hold diamonds then. But Bernanke's initial response actually anticipates this question when he mentions Treasury bills. Central banks do hold other sorts of financial assets besides gold and currency, such as Treasury bills. Even if something is a financial asset, held by central banks, it isn't necessarily money.