What is Money?

Once upon it was easy. We all knew what money was. We could see it and feel it.

But what is the money in your pocket today?

If there’s any money at all, or if you have pockets, that is.

Are you one of the growing number that use their smartphones, digital wallets or plastic cards as money?

Or maybe you’re still the traditional but increasingly scarce type that still likes a ‘fat’ wad of notes?

Money – In History

We evolved from our ‘hunter/gatherer forefathers’ bartering with ‘things’ and eventually ended up with gold (because of its nice shiny qualities).

This was the first time a ‘medium of exchange’ that was standardised entered our ‘psyche’.

Gold gave us something that we perceived as something with stored value, an intrinsic worth.

Gold coins were first minted around 500 to 600 B.C. by King Croesus of Lydia. Gold prevailed right up until the 1930s when the last of the ‘golden coins’ were withdrawn from circulation. Gold ruled for many, many centuries..

This explains why our relationship with gold prevails to this day and why many people in the world are still attached to gold and the value it holds.

Gold

In times of upheaval, turbulence and instability investors flock to gold as a ‘safe haven’ just like they have traditionally flocked to other ‘safe havens’ such as Swiss Francs!

If you think of instability and wild currency swings it’s understandable why gold has such solid appeal.

Eventually, an International Gold Standard evolved but this only lasted a very short period of time.

When you think about one country hoarding gold and another getting robbed of their gold or using for war it’s easy to understand why gold lost it’s appeal.

When the gold standard was withdrawn central banks tied a redeemable amount to ‘paper’ notes that were issued in its place.

After the Gold Standard was kicked into the long-grass a new ‘fiat’ money standard was introduced. ‘Pay the bearer on demand’ is an instruction issued in a fiat monetary system and acts as an instruction that payments must be made and accepted using the fiat currency.

Yes, it sounds crazy but the banks pulled it off ! Gold was replaced with pieces of paper!

Unlike a monetary system based on the gold standard ‘fiat’ currency is not redeemable. However, a major advantage of using ‘fiat’ is that governments are then able to ‘print’ money, manipulate interest rates and create credit/boom/bust cycles.

Sound familiar?

An inherent danger of a fiat system is there is nothing whatsoever backing it. Apart from the ‘word’ of the government of the day, that is.

And trust in government is high, isn’t it?

Cryptocurrencies

Increasingly, cryptocurrencies have been making the headlines as an alternative to the fiat money system that’s been in place since taking over from gold.

After the banking crisis in 2008/2009 too much credibility was lost as more people became aware of the fragility of the global money system. As a decentralised alternative that offers ‘scarcity’ and an ‘easy mode of exchange (all you need it a digital wallet) cryptocurrencies appear to be a beacon of the future.

But the exact shape of how the future digital landscape will be is uncertain. Banks and governments are busy establishing their own forms of digital currency and may, in time, replace the digital cryptocurreny Bitcoin.