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The island of Yap is a very curious place. Located deep in the Pacific, it is a very isolated place on Earth. As a means of exchange, the people of Yap use huge stone tablets as their primary currency. These boulders weigh as much as a car and are as tall as a man. They are extremely difficult to move, and most remain in the same spot forever. You might question: How can these tablets be used as currency? On This American Life, a 1-hour podcast titled “The Invention of Money” went into detail on the island of Yap’s strange currency and how it works. The answer is simple. Everyone on the island mutually agrees that these chunks of rock have monetary value, much in the same way that everyone trades worthless pieces of paper for houses and cars everywhere else. When there is some sort of exchange, everyone acknowledges that that specific boulder is now someone else’s property. If everyone suddenly decided to take these rocks for what they are, which are giant worthless hunks of stone, then whoever is stuck with it would be out of luck. This will not happen, because in modern-day society a placeholder for wealth is necessary to create a simple method to exchange goods and services, either by boulder or dollar bill. However, public perception and faith in this placeholder are absolutely necessary for this system to succeed.

As the legend goes, the creators of the giant stone tablets would have to travel to another island over 250 miles away in order to obtain the proper materials, or limestone, to carve them out. On their return voyage to bring the stone back, they had the misfortune of being stuck in a heavy storm. In order to survive, the voyagers had to cut the stone loose where it sunk to the bottom of the ocean. They did survive, and when they returned and told everyone what had happened, they all still agreed that the stone still indeed had its value. The voyagers easily could have lied, but it did not really matter if the stone even existed. As long as everyone believed that it did. Perception, in this case, is of utmost importance.

Money in our society is, for the most part, held in banks. It can also be put away in assets such as houses, cars, and stocks. While our bank accounts and capital hold monetary value, there is no physical currency. While it is true you can look online to see a number pertaining to how much money is in your savings account or your stock portfolio, you are not holding physical money in your hand. The boulders on the island of Yap work much in the same way. A changing of hands could take place without the new owner ever seeing the giant stone. Our banks work the same way. For example, when you deposit a check into your bank account, your wealth increases. You never actually see the physical cash, it just goes straight to your account. In this case, it is the belief by everyone that the check you have gone to deposit has monetary value. Buying things also work in this way, as you would transfer money to whomever you purchase your good or service from without ever seeing the physical money in your hand.  The stone at Yap that fell to the bottom of the ocean was never even seen or confirmed to exist, and is still valid as currency and is exchanged, much in the same way as transferring money that you do not even see throughout accounts using bank transactions.

In Michelle Carmody’s article posted on TheConversation, “What caused hyperinflation in Venezuela: a rare blend of public ineptitude and private enterprise,” she goes into detail on the causes and effects of the financial crisis in Venezuela. Throughout the 2010s, the country of Venezuela in South America experienced extremely high rates of hyperinflation. In order to get ahead of a financial recession, Venezuela began printing a lot of money to pay its debts. The downside of this is that the monetary value of the currency plummets. In August of 2018, the value of the Venezuelan Bolivar was so low that loose bills were completely worthless. You would need millions of Bolivars just to purchase something as simple as a loaf of bread. As a result, the people lost their faith in Venezuelan currency and began trying to exchange it for the US dollar or other more secure currencies in any way that they could. In order to remedy this situation, Venezuelan president Nicholas Maduro took drastic measures in order to regain the people’s faith in the Venezuelan currency, by devaluing the currency and tying its value to a stable natural resource that the country has in abundance, oil. This had very little success. The Venezuelan population still did not trust Maduro’s changes because of his past failures, and still continued using other currencies. If people do not start using Bolivars again, the currency cannot regain its value nor succeed.

As can be ascertained by this very recent example, public faith, and positive perception of the currency is an absolute necessity for any form of money or bank to succeed. As seen in Venezuela, loss of positive perception and eventually use of a currency will lead to economic disaster. Realistically, it does not matter whether the money is slips of paper or huge stone tablets at the bottom of the ocean. All that is necessary is some sort of placeholder to represent wealth, and a mutual agreement between everyone that that placeholder is stable, valuable, and valid. If the public faith is lost in the currency, it will lose any ability to succeed in the world market. 

Sources:

NOT Sources flush left and with a colon following. Just References, centered, with no punctuation.

References

“The Invention of Money.” This American Life, 19 Feb. 2018, https://www.thisamericanlife.org/423/the-invention-of-money. 

Michelle Carmody Academic Specialist. “What Caused Hyperinflation in Venezuela: A Rare Blend of Public Ineptitude and Private Enterprise.” The Conversation, 6 Mar. 2021, https://theconversation.com/what-caused-hyperinflation-in-venezuela-a-rare-blend-of-public-ineptitude-and-private-enterprise-102483.