Frequent Flier Cards
Graphic illustration ©2012 Brian Cohen.

Are Miles and Points Truly a Form of Currency?

“T he 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.”

Do you agree with that statement which starts off this article pertaining to why miles and points are referred to as currency as written by Zachary Abel of Monkey Miles?

Are Miles and Points Truly a Form of Currency?

Before attempting to answer that question, we need to understand the definition of currency. Here are the definitions from three random sources:

  • “A system of money in general use in a particular country.” — Oxford Dictionaries
  • “Circulation as a medium of exchange.” — Merriam-Webster
  • “Something that is used as a medium of exchange; money.” —

“Branded Currency”?

If points and miles are thought to be like money, then they could be some form of currency; but perhaps they fall under a special category of currency — as demonstrated by this particular definition by Investopedia:

“Branded currencies, like airline and credit card points, or in-game credits are valued in relationship to the value of the products or services they’re tied to. Control over digital currencies is entirely decentralized, and the exchange rate of a digital currency can vary widely in a short period of time.”

Comparing Miles and Points to Actual Money

“If I have $5 in my pocket I can use that as a medium of exchange for a $5 footlong at subway”, Abel wrote. “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.”

That example may be similar; but it is not the same. I know that I can go to virtually any Subway franchise location and purchase that sandwich for five dollars — no matter what time I buy the sandwich; and no matter when I decide to eat it. The price does not increase to ten dollars during peak times, as frequent flier loyalty program miles tend to do. The price typically does not decrease — unless there is a promotion or a sale.

“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.”

I am not about to dabble into the details and arguments of taxable income as it pertains to earning and using miles and points — that has been the subject of debate for years — but that statement in and of itself is another reason why points and miles are different than money, which is a form of currency.

Abel argues that miles and points are granted based off of work which you perform out of loyalty to a particular brand through such actions as flying as a passenger on an airplane or staying in a hotel; 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.” Abel continues that 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.”

Yes, miles and points are a form of a rebate which you earn through patronizing the entities which issue them — which is one reason why many airlines now base their loyalty programs on revenue instead of distance. Frequent fliers would spend as a little as a couple of thousand dollars, let us say, to take an aspirational international trip in the premium class cabin which is priced in the five figures.

That is no rebate. That is a substantial — and unsustainable — loss leader.

To oversimplify the frequent flier loyalty program based on revenue, you spend ten thousand dollars in order to take a trip worth one thousand dollars — not much different than spending a certain amount of money at a sandwich shop to earn a free sandwich. Using this oversimplified example — yes, there are exceptions to it, I know — miles and points are not a currency. They are more like a rebate or a discount or an incentive or a marketing tool — and a limited one at that.

Why Frequent Travel Programs Were Created in the First Place

The AAdvantage frequent flier loyalty program was designed and launched by American Airlines back on Friday, May 1, 1981 — 35 years ago this year — to create an incentive for business travelers to remain loyal to the airline by giving them miles earned as passengers during flights to use on leisure travel with their families or upgrades to seats in the premium class cabin as a sort of reward.

The creation of AAdvantage was not an attempt by American Airlines to create a new currency; but rather a way to differentiate the airline from an increasing number of competitors as a result of the implementation of the Airline Deregulation Act of 1978 — from which a free market was created and the federal government of the United States no longer had control over such things as airfares, routes and the market entry of new airlines — a way to market to business travelers to increase their loyalty to the airline.

Exchange Rates — If You Are Lucky

“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.”

That is true — you should get the most for your money when you exchange it for a foreign currency. However, at least you know you can exchange it for a foreign currency — unlike miles and points, which are limited in their use. You cannot typically exchange frequent flier loyalty program miles issued by airlines for frequent guest loyalty program points issued by lodging companies; but in some cases, you can use them through a virtual marketplace via the Internet to purchase and reserve hotel room nights at inflated prices.

The issuers of frequent travel loyalty program miles and points purposely place myriad limitations on how and when you can use them; and some are far more difficult to exchange than others.

Award Currency is NOT Exactly the Same Thing as Money

“Instead of the currency exchanges being laid out one after another they are hidden in charts, and transfer partners, and partners of transfer partners.” Abel is assuming with that statement that there actually are award charts — Delta Air Lines being a glaring example of an airline which uses dynamic awards for its SkyMiles and does not want to reveal any specific redemption amount for any specific award.

“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.” This is yet another statement by Abel which proves the point that miles and points are not like money.

Yes, you can delve into economic theories and financial equations — and if you sell goods, you can even discuss the intricacies of what is known as the weighted average cost of capital for your business — and money can be as complex as the theory of relativity…

…but when money is used in its basic form — as a currency — it is rather simple at its basic core: the product or service costs ten dollars; and you must spend ten dollars in order to own, use or enjoy that product or service. Money is accepted virtually everywhere — well…unless you refer to trying to use the lonely and arguably obsolete penny.

Miles and points are not quite that simple: they are limited in scope in most aspects: how to use them; where to use them; when to use them; and if you are really getting value out of them. You cannot walk into a fast food restaurant and offer to pay the cashier on the spot with American Airlines AAdvantage miles. You must use a recognized form of currency — such as money.

Credit Cards: Miles and Points Affiliate Versus Cash Rebate

“I intend to stick with my credit cards which give me a percentage of cash back every time I use them, as I would much rather have cash than frequent travel loyalty program points or miles, which seem to lose value and have more restrictions placed on them every day”, I have stated more than once in past articles such as this one pertaining to credit card affiliate links and how I have never used them here at The Gate. “However, I can use cash any way I want. I like that.”

I may have “left money on the table” — so to speak — by not taking full advantage of credit cards affiliated with frequent travel loyalty programs as other people apparently have done; but I am fine with that decision…

…and apparently, this article written by Erin El Issa of NerdWallet agrees with me — to a point, anyway: “Travel credit cards aren’t necessarily the best option, even for travelers. In many cases, a consumer could get more value by using a cash-back card and then using the cash rewards to pay for travel expenses.”


“That’s what keep Miles and I excited about this whole hobby.” Earning and redeeming frequent travel loyalty program miles and points is not a “hobby”; and I wish people would stop using that word to describe a legitimate method of being able to indulge in a passion — such as travel — at a lower cost.

I had to say that — but I digress, as usual.

For the aforementioned reasons stated in this article, I am not convinced that frequent travel loyalty program miles and points are a legitimate form of currency. In my opinion, there are too many factors and limitations which preclude miles and points from achieving the status of true currency…

…but there is one thing written in that article by Zachary Abel with which I do wholeheartedly agree; and that I hope always happens to you: “Get the highest valuation out of your points and miles.”

Graphic illustration ©2012 Brian Cohen.

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