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!

Furious Friday: Is cheaper better, or do you get what you pay for?

Furious Friday Is cheaper better, or do you get what you pay for? Welcome to Finance & Fury’s ‘Furious Friday’! Today’s misconception – Is cheaper better, or do you get what you pay for? Met with a client this week for an initial appointment – He had been reading...

How do I make an Investment Philosophy?

Welcome to Finance and Fury Today we are going to talk about how to implement an investment philosophy. It is a coherent way of thinking how you fit into your investment plan. It is a mission statement to follow when investing. It can help with understanding the types...

Has the first domino in the next banking crisis fallen?

Welcome to Finance and Fury Snuck this episode in ahead of time – only reading about news yesterday – need to do some further digging – but is it Time to sell shares in anticipation of a crash? Today – run through some news that you might not have seen – financial...

We’re back

Start here We're back! We're back! Sorry to keep you waiting for quite some time, but our absence hasn’t been wasted. As you can probably tell the podcast looks a little different, but don’t worry, you’re not lost. To help avoid any further confusion this is a quick...

Should I switch my investments from High Growth to Conservative and why store gold personally instead of a vault?

Welcome to Finance and Fury, the Say What Wednesday Edition Back to answering individual questions - Two questions this week – follow up to recent episodes on gold and economy First from Mario – just a quick one - I listened to a recent podcast you made about gold and...

Buying Property & Financial-Crash proofing your investments: how to get yourself into a position to survive any market correction

Episode 10 Buying Property & Financial-Crash proofing your investments: how to get yourself into a position to survive any market correction Financial-Crash proof your investments This is a flow on from the last Say What Wednesday, this episode talks about how to...

Cash rates decline – but will your mortgage repayments? As your savings rates certainly will!

Welcome to FF – RBA cash Rates are lower now – talk about flow on effects Today – Will you get mortgage cuts, how your savings will be affected, effects on the job market and wages.   Mortgage cuts Don’t expect the banks to pass on the Reserve Bank’s rate cuts in...

How much is the economy of regional Australia worth?

Say What Wednesdays How much is the economy of regional Australia worth? Australia's regional workers and their contribution to the economy: Welcome to this week’s ‘Say What Wednesday’ episode! Our question today comes from Anna …who was actually listening to our...

The number of homes being put up for auction across Australia has plummeted as falling property prices and fewer cashed-up buyers shake the confidence of owners looking for the right time to sell

Episode 25 The number of homes being put up for auction across Australia has plummeted as falling property prices and fewer cashed-up buyers shake the confidence of owners looking for the right time to sell The decline of auction rates and confidence in the market...

Say What Wednesday: Welcome to the Wild West

Say What Wednesdays Welcome to the Wild West Welcome to Say What Wednesday This week we’re going to answer some of the burning questions that have been on a lot of peoples’ minds around the banking royal commission…and rather than repeat everything you’ve been hearing...

Pin It on Pinterest

Share This