Rock, Paper, Crypto
What is money and is it actually worth anything? When we think of money we tend to think of paper bills, or coins. What if the money actually doesn’t have any value, is it still money, and what determines if something is money? The only reason something is considered as money is because if you give it to someone then that person will recognize its worth and let you buy an object that is worth the set price. If you go to a foreign country that does not recognize the US dollar bill and try to spend your money it will most likely not be accepted and therefore be worthless. Money seems to be a concrete idea, but when we actually think about the worth of money we only really look at its worth to everyone who uses it.
What if instead of paper money we would use rocks, actually how about a one to twelve foot tall, rounded, flat boulders in the shape of coins. You would probably say that they are completely worthless. The people of Yap would not agree with your statement. Milton Friedman wrote an article named The Island of Stone Money. In this article he talks about an American anthropologist named Willian Henry Furness III and his exploration of the island Yap and how the people who lived there used these large rocks as currency. While this currency does not make sense to us it is because of our outside perspective. Friedman says in his article “Our own money, the money we grew up with, the system under which it is controlled, these appear “real” and “rational” to us” in which he explains how to these people this is seen as money just as we see our paper bills as money. The large rocks would be extremely heavy and many of them were unmovable once they reached a location. This would lead to rocks staying where they were and when someone was paid with this money the ownership would transfer and it would be known that it was that person’s money. The idea seems so primal to us, but this money is extremely similar to our own because it is the same exact concept. When we put our money in the bank we know that we own it and it can be seen nowadays through an app. This money is just known through the bank to be ours even though it is not in our possession. This can even be seen when we buy something online or on card as we never physically hand cash over, rather numbers are just changed in accounts and it is just understood that the money is theirs. The value of money also changes depending on the time and what these people believe the money is worth.
In the NPR podcast The Invention of Money host Jacob Goldstein ties these ideas together and talks about money’s worth and its similarities to the Yaps large coins. A topic that Goldstein brings up is Brazil’s hyperinflation issues in the 90s. The problem was that too much money was being made and the value of the money changed. The value did not change because the number on each bill changed, but rather that the people as a whole believed that their currency was worth less to them. The influx in cash made this money less rare and therefore less valuable to the people who used it. Something worth ten would be worth ten thousand a year later. The currency was extremely unstable and this problem needed to be resolved. The way in which the market was stabilized was by offering a completely new set of currency called URV. This was a stable type of currency and it would be worth a different amount of dollars depending on the day. The idea is simple but odd because you are buying something with a whole new type of currency, and some people even called it fake money. Goldstein even said that the newspaper would print the value equivalence each day so people knew. This helped as something at a store was worth one UAV it would still be worth one UAV a couple of days later. The market then stabilized over time because of these changes put in place and people became confident in their currency again. This confidence is the reason why Brazil’s currency is so stable today.
The only reason money has value is because people believe in it, but if people are unsure of this money then it becomes unstable. An alternative to cash is crypto currency. Cryptocurrency, such as the most popular Bitcoin, was first made in 2009 after our 2008 stock market crash. This currency does not use paper, metal, or stone. Crypto is made using codes on computers and are made by being mined. A computer mines them by solving very complex puzzles of code and once it is complete you have a Bitcoin. Crypto is different depending on the coin, in bitcoins code only twenty one million coins can be made, but in XRP’s coin it’s not exactly a limited number so the worth of each coin in American dollars is much lower now. Many people are unsure in this coin though because you are not able to physically hold it and it is hard to understand. When we look at the Yap people and their coins, our current online banking system, or even the UAV in Brazil we see that we don’t need to physically hold something for it to have value. Many banks also warned against crypto currency when it first came out, but only because it hurts their own business. In the article by Anne Renaut named The Bubble Burst on e-currency Bitcoin she writes about its fluctuation of the currency and how many people really have put their trust into this form of currency. In her article she cites an economics professor named Steve Hanke who says “If private money starts to become a threat for governments, they come up with many reasons why this is a bad idea,”. Crypto currencies could be the new way to pay for items. The only way for this to happen is for us to all have trust in it.
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.
Glass, I. (2018, February 19). The Invention of Money. Retrieved September 21, 2020, from https://www.thisamericanlife.org/423/the-invention-of-money
Renaut, A. (2013, April 13). The bubble bursts on e-currency Bitcoin. Retrieved September 21, 2020, from https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html