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!

Will the proposed Stamp Duty reforms make property more affordable?

Welcome to Finance and Fury. A few weeks ago we went through the NZ government tasking the RBNZ with looking at property prices with monetary policy. in that episode, we went through why it probably isn’t going to really work well – politically the perception is that...

Options for reversing the “big bang” deregulations and the economic reliance on central banks.

Welcome to Finance and Fury, the Furious Friday edition. Does the Government need to solve economic problems? Do central banks solve economic problems? If so – how? These are honest question that do need to be thought about - there seems to be this growing thought...

Say What Wednesday: First Home Super Saver Scheme

Say What Wednesdays First Home Super Saver Scheme: Using superannuation to buy your first home Today’s Say What Wednesday question comes from Emma, and relates to saving for a house deposit: “Hi, thanks so much for the podcasts - I have learnt so much. My question is...

Furious Fridays: Is progressivism the destroyer of equal opportunity?

Welcome everyone to Finance and Fury, the Furious Friday edition. Today’s episode is part 5 of the miniseries. The last part looked at the ‘fair go’, what is fair for some, isn’t for others. Nearing the end of the series, I want to put forward a case. The constant...

Can following insider’s trades lead to better investment returns?

Welcome to Finance and Fury. In this episode be looking at one piece of information in the share market – insider trading There is a lot of information in the markets that can be looked at – can look at the fundamentals of an individual company – can also look at...

Furious Fridays: Evil Capitalism!!! Efficiencies, incentives, equal opportunities and reducing poverty

Furious Friday Evil Capitalism!!! Efficiencies, incentives, equal opportunities and reducing poverty Welcome to Furious Fridays Imagine you are a child in Korea.... North Korea - After school (which is mostly propaganda to solidify your ruler), 10 years mandatory...

What allocation has the most consistent returns?

Welcome to Finance and Fury. Sorry for the sporadic episodes – flat out with EOFY - In this episode we look at different asset allocations and how they have performed over time in relation to their returns as well as their risk – with a final focus on their risk...

Global Infrastructure plans in the name of climate change – Why then are the recommendations focused on changing Government accounting practices and risk-measures, along with opening the floodgates for redistribution spending?

Welcome to Finance and Fury, The Furious Friday Edition   Today – SDG9 - How infrastructure spending helps an economy - Anyone who knows basic economic and GDP has learnt that Infrastructure spending leads to GDP growth – so the theory says – Very hard to measure...

Should I invest in large, mid or small cap shares?

Welcome to Finance and Fury. Where to invest within the share market? Large, mid or small cap? What is best? The answer to this is highly dependant on what types of returns you need – and your timeframes The content of this episode is general information only – Not...

Furious Fridays: When $1 could buy you a pair of patent leather shoes – Is it true that all fiat currencies eventually become worthless?

Furious Fridays When $1 could buy you a pair of patent leather shoes: Is it true that all fiat currencies eventually become worthless? In today’s Furious Friday episode, we’ll be running through the historical life cycle of fiat currencies. This episode is thanks to...

Pin It on Pinterest

Share This