Money Is What You Make It
In the NPR broadcast “The Invention Of Money” reported by the Planet Money team and in Milton Friedman’s essay “The Island Of Stone Money”, they go on to explain the story of the island of Yap and their currency. On this island in the south pacific, people used literal stone ‘coins’ as their currency called fei. The large chunks of limestone were cut into wheel shapes on an island however many miles away and brought to Yap on small wooden boats. They used stone because there was no metal on the island that they could use as a form of currency. These stones weighed thousands of pounds and were hard to move, so if you did a job for me, I would tell you that the stone is yours without actually handing it to you. The bigger the stone was, the more it was worth. Owning a large amount of these stones was also seen as having wealth. While shipping one of the large stone wheels to the island of Yap during a storm, an islander dropped it into the ocean. Since it wasn’t the owner of the wheels fault, the people of the island decided to let him keep the value of the stone without having to actually obtain it due to the fact that it was at the bottom of the ocean. This is very similar to the French exchanging their dollar assets in the U.S. for gold and telling them to keep it but store it on the Bank of France’s account. Even though they did’t physically possess the currency, they still were granted the value of it. This raises the question, what exactly IS money? My initial view of money while growing up was that it’s something that someone possesses and ultimately represents their worth, in an economical sense anyways. But as I grow older and learn more about how currency works, money isn’t really worth anything. It’s the value behind it that we provide that gives it it’s worth. Essentially, the value of a dollar is how much we believe it’s worth. The system all works the same in that if people give a bar of gold value, they can give a wheel of stone value as well.
This same principle applies to Brazil and the stunt that the government pulled on their own 150 million people. Chana Joffe-Walt tells us in “The Lie That Saved Brazil” that the Brazilian government tricked their country into thinking their currency had some sort of value when there wasn’t really anything to back it up. In the 90’s Brazil had been facing high inflation rates and didn’t know what to do about this problem. Prices for just about everything had been increasing by the day. This problem roots back to the 1950’s, when the president at the time wanted to build a brand new capital of the country in the middle of the jungle. Obviously building an entire new city in what seemed to be practically unsettled land would be very expensive, so the government decided to print the money in order to afford the costs. This drove inflation through the roof for the following 5 decades, causing a plethora of problems. Joffe-Walt describes a story about a man she met that had a stack of money on top of his dresser and that money would lose value just sitting there because of inflation rates. A number of presidents tried to find a solution to the inflation situation but many of them failed. Then came four economists called upon the Brazilian government to help with this crisis. Their idea was not to print more physical money, but to get people to BELIEVE that the money had value. A new currency that didn’t exist was created called “URV” (Unit of Real Value) and it was made to gain peoples trust. Everything from prices of products to taxes to salaries were written out in URV. People still paid in the old physical currency, but it would all be converted to the URV. Every week a URV conversion table was released to compare, let’s say 1 URV to however much the old currency was in that specific week. This idea actually worked due to the fact that people only paid attention to URV and not the old currency they used to use. Inflation eventually dropped and Brazil got rid of their old currency all together. They decided to turn URV into a physical currency called “reals” that matched the value of the URV and ultimately solved the inflation crisis simply by tricking the country. This whole situation fits perfectly into the conversation of “do we need money?”. An entire economy was fixed thanks to something that doesn’t even exist, and the thing that did exist ruined it in the first place! Now it’s not like this ‘fake’ currency came out of no where and saved the day, it was the perception that it gave to people that helped pull the economy out of the gutter. The people are the part of the process that led to Brazil getting out of the inflation deficit because they gave the URV a value. The people are a part of the process that led to Brazil getting into the inflation deficit because they printed money and drove down their currency’s value.
Another situation that ties into the currency conversation is the ordeal taking place in Japan, more specifically the Japanese government. Hiroko Tabuchi explains in his article “Japan Approves $116 Billion for Urgent Economic Stimulus” that the Japanese government approved spending over $100 billion dollars to kick start the slow growth of their economy. This stunt is headed by Japan’s Prime Minister Shinzo Abe who told the countries central bank to start putting money into the economy in order to stop deflation. By doing this consumers will begin to spend and businesses will invest. The problem with all of this spending is that it can lead to an increase in Japan’s already large debt. Spending all this money has also already driven down the value of their currency, the yen. This ties into the currency conversation because it has to do with peoples perception of the amount of money their country is spending.
Joffe-Walt, Chana . “How Fake Money Saved Brazil.” NPR.org. 4 Oct. 2010. 30 Jan. 2015. http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil/
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.
“The Invention of Stone Money.” 423: The Invention of Stone Money. This Is American Life, WBEZ. Chicago . 7 Jan. 2011.
Tabuchi, Hiroko. “Japan Approves $116 Billion for Urgent Economic Stimulus.” nytimes.com. 10. Jan. 2013. https://www.nytimes.com/2013/01/11/business/global/japan-approves-116-billion-in-emergency-economic-stimulus.html