Money is way different than you think

Money is a crucial factor that keeps the world spinning. It is something that everyone wishes to have, but based on different regions of the world, the definition of the word “money” is different. Across the globe, there are hundreds of types of currency, but the real question is, why would anyone ever trust currency?

It seems like a pretty simple question to ask how much money is out there in US dollars, but after listening to NPR Podcast, “The Invention of Money,” it may not be that straightforward. An example depicted by Dave Kestebuam, one of the speakers on the podcast, explains that if you asked everyone how much money they have, they would probably think you are crazy at first but then proceed to count the cash and check their banking accounts. However, banks nationwide do not operate like this. Once the money is deposited into your checking/ savings account, the bank takes that money and distributes it out. Some of it may go to your friend, and some will be given to the small business down the street that is requesting a loan. This creates the issue of “double counting” the money since once it hits your bank account, it gets dispersed. However, we should be forgiven for not knowing the true worth of money since we can’t even count all of it accurately.

Currency has many different looks, and in no way, shape, or form does it look like a USD everywhere. In 1910, a book called: The Island of Stone Money, where the author William Henry Furness III spent many months on an island documenting their way of life. One thing that impressed William was the island’s monetary system. In Milton Friedman’s essay on The Island of Stone Money, he quotes William, who states, “Their medium of exchange they call fei, and it consists of large, solid, thick, stone wheels, ranging in diameter from a foot to twelve feet, having in the centre a hole varying in size with the diameter of the stone….” Jacob Goldstein, another contributor to the NPR broadcast, is fascinated by the idea of large stone coins, which could sometimes be 12 feet in diameter and weigh more than a car. Friedman and Goldstein both discuss the story on the island of Yap, where a boat carrying a large stone made 250 miles away from the island of Yap hit a large storm causing the stone to sink to the ocean. When the crew returned safely, it was determined that the stone still had value since everyone knew to whom it belonged.  

According to Goldstein, it is not much different from what we do now. Americans typically do not carry all their wealth around. We just know how much we have by reading a number on our phones. It is a bit demoralizing that the only chance you get to hold all of your wealth is when the teller returns a deposit slip to you, indicating how much money is in your account. Back then, people used to carry around gold, and one day we decided this was absurd. We decided to leave the gold in banks and have a piece of paper proving that gold was ours.

Similarly, the Islanders of Yap did not require you to carry the coin around, just like how we rely on our banks to provide us a number with our wealth instead of carrying our wealth. Once you purchased something with the stone, it was noted that the coin’s owners switched. There was never a thought of stealing the stone in front of your house since everyone around you knew it didn’t belong in your possession.

Friedman draws a good comparison between the islanders of Yap and the federal reserve. In 1933, the Bank of France was worried that the US would not adhere to the gold standard. The Bank of France asked the Federal Reserve to convert all assets held within the US to gold. To eliminate the hassle of shipping the gold across the ocean, they asked the Federal Reserve to put their gold into separate drawers and put an indicator on the drawers that the Bank of France owned. Word soon got out, and there was a considerable threat to America’s currency system. Headline titles were streamlined everywhere, stating that US gold reserves were down and French gold reserves were up. This was similar to when the Germans bought the Island of Yap, insisting that the islanders must build roads across their newly acquired territory. The Germans decided to paint black crosses across the giant stones as leverage. Frantically, the islanders believed their currency had disappeared and happily built the Germans new roads.

Bitcoin is similar in ways as it does not exist. In the article, “What is Bitcoin And How Does it Work, author Kate Ashford describes bitcoin as a “decentralized digital currency.” Bitcoins creator, Satoshi Nakamoto, notes that it allows its users to use an electronic payment system that is proved by cryptography instead of the trust that used to be used. Bitcoin is different from other currencies we use because the government does not back it. Every bitcoin transaction that has been made exists on a ledger that is publicly made for everyone to see. There is nothing guaranteeing bitcoin’s value besides this public ledger. It is important to note that bitcoin is only worth as much as something is willing to pay. For example, USD 100,000 in your bitcoin wallet means nothing if no one is willing to accept that form of payment. In Anne Renaut’s article, ” The bubble bursts on e-currency Bitcoin,” the European Central banks warn that bitcoin can become a disaster if it becomes a “monetary alternative for drug dealing and money laundering.” This new virtual currency is vulnerable to cyber attacks as local government agencies do not insure it. However, users worldwide love the idea of using cryptocurrency as a new form of payment. Many large retailers accepted bitcoin payments as the years passed since Bitcoin formed.

Money is quickly transforming into a makeshift reality. It is no different from a stone coin or a digital number represented in your bitcoin wallet. The value of your money is only worth what someone is willing to exchange for it. 

References

Ashford, K. (2022, September 15). What is bitcoin and how does it work? Forbes. Retrieved September 22, 2022, from https://www.forbes.com/advisor/investing/cryptocurrency/what-is-bitcoin/

Friedman, M. (1991). 1991 island stone money – hoover institution. Retrieved September 21, 2022, from https://miltonfriedman.hoover.org/internal/media/dispatcher/215061/full

Planet Money. (2018, February 19). The invention of money. This American Life. Retrieved September 21, 2022, from https://www.thisamericanlife.org/423/the-invention-of-money

Renaut, A. (2013, April 13). The bubble bursts on e-currency bitcoin. Yahoo! News. Retrieved September 22, 2022, from https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html?guccounter=1