Hi everyone and welcome to Finance and Fury! Today we’re going to look at our current monetary system; what is considered money, and also the future of our monetary system.

Today’s episode will be a fairly quick episode, and will be an introduction to a series of Furious Friday episodes that we’ll be doing over the coming weeks.

Our current monetary system is actually debt-based fiat currency. This means that every dollar that you have is a debt obligation by a central bank to eventually repay.

This is pretty important to look at, because unfortunately this won’t last forever. It’s only been around for 40 years, and we can already see the signs of this system struggling to keep up with the never-ending ability to create ‘money’ out of thin air.  

Money is created with 1s and 0s – for every $1 there is a debt obligation to the central bank to repay this. Every dollar that you have is backed by some form of debt, whether it be debt created from a commercial bank (fractal banking reserve) or when it is issued and bonds are created and traded in exchange.

The three functions of money

  1. Store of value – can I hold on to the money and spend it at a later date knowing that it will hold its value until tomorrow, next week, or even next year?
  2. Unit of account – You can think of money as a yardstick; the device we use to measure value in economic transactions.
  3. Medium of exchange – Is widely accepted as a method of payment

Major characteristics of money

These vary between options and are why some forms of currency are adopted preferably over others.

  1. Durability – Will it last? Can it be stored easily?
    • Technically cash durability isn’t as good as gold – Pablo Escobar and his money eating rats
  2. Portability – can you carry it around easily? Gold bars are pretty heavy.
  3. Divisibility – Similar to unit of account where you can break the units down into smaller levels
  4. Uniformity – is every unit the same?
    • Can it be debased/devalued?
    • Coins are not immune
  5. Limited Supply
    • Counterfeiting
    • Who is creating it? Gold is better than fiat currency from this perspective
  6. Acceptability
    • Barter is hard
    • Fiat became easier and became a legal tender by decree

The combination of all of these characteristics + how we value it = what we adopt as money. This comes back to a thing called ‘subjective value’. Do we think we will be able to use it in the future? (Money riots of the past)

Money may take a physical form, as in coins and notes, or may exist as a written or electronic account. It may have intrinsic value (commodity money), be legally exchangeable for something with intrinsic value (representative money), or only have nominal value (fiat money).

The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded c. 3000 BC, referring to a specific weight of barley, and equivalent amounts of silver, bronze, copper etc. The Babylonians and their neighbouring city states later developed the earliest system of economics as we think of it today, in terms of rules on debt, legal contracts and law codes relating to business practices and private property. Money was not only an emergence; it was a necessity.

 

Money can be a number of things

  1. Cows, sheep, grain – used in barter economy
  2. Shells – Ancient China, Africa, and India
  3. Golden coins – Goldsmith bankers
  4. Paper with gold/silk backing it
  5. Debt based Fiat 

Some of the things we’ll be looking at in the upcoming episodes;

  1. The way we currently do it (debt-based fiat) and inflationary targets
  2. Bitcoin, and also crypto currency in general
  3. Gold – the old school way
  4. What will happen once the debt bubble breaks, and the rise of SDRs (Special Drawing Rights) which I believe will be a form of global reserve currency in the future. They have been around since 1969, and are used as a global currency reserve, but you can’t own them – only the IMF can! This is going to be a VERY interesting topic so stay tuned!

Banks and cryptoassets – the first introduction of a regulatory framework.

Welcome to Finance and Fury. This episode we will continue looking at the crypto markets. In particular, we focus on the regulatory frameworks that have been released by the Bank for international settlements, BIS for short. One division of the BIS - the Basel...

Can shares be leveraged as part of a property purchase?

Welcome to Finance and Fury, The Say What Wednesday Edition I would like to start by saying a big thank you for the knowledge you have passed onto myself and the community. My question lies around equity, if you have a considerable amount of money in shares, say 200k,...

What is green energy and what is the future of the energy market in Australia and around the world?

Welcome to Finance and Fury, the Say what Wednesday edition. This week is another great Question from Phuong. “What do you think about the future energy plans for Australia and the world in general? I heard about the Government’s plan to build some gas station? do you...

Say What Wednesday: Paying your home loan off with debt

Say What Wednesday Paying your home loan off with debt How can you pay off a mortgage with debt? Velocity banking and Offset accounts This question comes from Tom a podcast listener. He asks “Just wondering if you have ever used Velocity banking at all to pay down...

The economics of the Olympics – A golden opportunity or a bronze bust?

Welcome to Finance and Fury. As you might have seen, Brisbane has won the bid for the 2032 Olympics – but is this a good thing for the SEQ economy and the people living in it? in this episode we will have a look at the economics of the Olympics – we will Look at the...

What creates a lack of resilience in financial markets and how a loss of resilience makes them prone for a collapse?

Welcome to Finance and Fury,  For the past few Monday episodes been talking about complexity theory and markets – check out Last two eps – went through phase transition, feedback loops and how markets become fragile and some signs this is happening Most recent...

What Central Bankers may do in the next financial collapse, if there is ever going to be one!

Welcome to Finance and Fury Today – going to cover the Central banking playbook in the next crisis – If there is ever going to be one! Today – was doing some reading so will have a look at some comments from key central banking figures over the past few years – and...

Revoking legislation on banks as they gain access to billions in newly created government guaranteed loans, what could go wrong?

Welcome to Finance and Fury, the Furious Friday edition. In the last two Furious Friday episodes, I’ve talked about the regulation and de-regulations on the monetary and fiscal sides. Covered the Banking Act of 1933 and the Glass-Stegall section of this – then the...

How would Universal Basic Income work in Australia?

Say What Wednesday How would Universal Basic Income work in Australia? Let’s take a look at a recent Press Club speech from the Australian Greens leader, Dr Richard Di Natale, “With the radical way that the nature of work is changing, along with increasing inequality,...

How to avoid financial distractions and hack spending habits.

Welcome to Finance and Fury, I hope you are all going well. Today we will be going through how to avoid financial distractions. This episode is a little bit of a follow up from the previous - as one of the comments I made was a little oversimplified – that was that if...

Pin It on Pinterest

Share This