An Abstract Concept of Wealth

In retrospect, the currency used in society is worthless. Whether it is digital numbers on a screen, bills of paper or stacks of copper and other common metal coins, the value of the material itself is not worth anything. Yet, we associate certain values to certain bills and coins. Therefore, a piece of paper with the number “100” is worth a lot more than the same piece of paper with the number “1”. Both bills have different values than a sheet of blank paper: same materials, different values. As for the digital currency, we rely on a certain number on a screen to tell us how much money we own. We don’t see the cash; we just know we own it. This form of currency is not only gaining popularity, we have seen it before.

Cryptocurrency is a form of currency that is gaining popularity. We do not physically see the money; it is simply a concept that shows us numbers that belong to us. This concept is similar to a form of currency that was used in ancient times. Known as “rai” or “fei”, these were valuable stones that were used as money. Precious metals such as gold and silver were also used as currency in other regions of the world, as they were not present in the islands of the Yaps. Unlike paper money, however, gold, silver, and rai have value because of the rarity and beauty of such material. The people of the Yaps may not understand the concept of America’s physical currency, as paper is incomparable to a beautiful stone. In the Yaps, the larger stones held more value, but were relatively fragile, so these people relied on a system of ownership. Peter Dockrill compares cryptocurrency with the exchange system on an island of Yap. Dockrill continues to explain that cryptocurrency is exchanged by “an open record of bitcoin ownership and transactions spread across multiple computers on the internet.” This technique looks very familiar: Rai was exchanged the same way- openly passing on the ownership of the stone and the label of ownership was agreed upon and respected by everyone.

At one point, Germany took control of this island and marked the stones with black paint. One would assume that this mark would not affect the ownership of said stone because a transaction was not agreed upon. But this mark resembled Germany’s claim on the rai. Milton Friedman gives an example of how this labeling of property can also be seen in America’s transactions. He explains that the Bank of France and America came to an agreement with gold. Instead of shipping the gold and risking the precious metal, “officials of the Federal Reserve Bank went to their gold vault, put in separate drawers the correct amount of gold ingots, and put a label on those drawers indicating they are a property of the French”. There must be a great amount of trust, respect and responsibility that goes into this system, yet I live by it in a similar way. Not only does this type of transaction have to be gold, a debit/credit card goes by the same system. We do not physically have the money; the cash is in the bank. However, the bank lets us know that we own that money by showing us how much money we have on our screen. Personally, I do not care whether the physical bill is in my hand or not; the bank is FDIC ensured, so the value of the money will stay with me until I spend it. In the same way, the belief of ownership was used with the fei.

One day, a large and beautiful fei was found and was intended to be taken home. But there was a terrible storm that night and the fei was lost at sea. The absence of the fei did not affect the wealthiness of the current owner, since the loss was not the owner’s fault. Everyone in the village still knew that though they could not see or touch the stone, but the owner still had his label on it until it were to be passed on. Personally this seems to be even more abstract than it already does. If a valuable material were to be lost I feel there would be a sense of loss in wealth or value, as there would be no physical reminder of the wealth and future generations would have no proof of the fei even existing other than the beliefs of others. On the other hand, the owner still owned the fei and was wealthy, though the precious stone would have never been seen again.

When Brazil was dealing with inflation, the prices of products increased drastically. The government helpless tried to fix the problem but nothing seemed to work. One small group of graduate students had an idea that saved the country from inflation. Chana Joffe-Walt spoke to Edmar Bacha, one of the individuals who introduced the bold idea that saved Brazil. “The idea was to create a stable, dependable and trustworthy form of currency that was listed in everyone’s wages, called a Unit of Real Value(URV).” Ironically, the currency would be absolutely fake. Every product would be worth a certain amount of URVs and would stay the same price for a period of time, yet the actual value, in cruzeiros, would change. The “conversion” between cruzeiros and URVs would also change to balance out the purchase. It gave the appearance that the prices for products were beginning to stabilize, which it did. This plan amazingly brought Brazil out of its inflation, bringing millions of people out of poverty. Once the actual prices of products were stable, “the URV was extinguished and replaced with the Brazil Real at an exchange rate of 1 URV to 2,750 Cruzeiros(brickendon.com)”. Brazil was able to solve an economic crisis with currency that did not exist. This concept of money is very impressive; the simple belief of value truly does make a difference.

The public’s faith in currency is critical. That is what gives it value. Money can be seen in many different forms: stone, metal, paper and even in a virtual state. The public’s trust in the currency system ultimately sets a merit among these units.

References

Brazilian Real – The power of government intervention. (2018, May 31). Retrieved from https://www.brickendon.com/articles/brazilian-real-the-power-of-government-intervention/

Dockrill, P. (n.d.). The “Original Bitcoin” Was This Giant Stone Money on a Tiny Pacific Island. Retrieved from https://www.sciencealert.com/the-original-bitcoin-still-exists-as-giant-stone-money-on-a-tiny-pacific-island

Friedman, M. (1991, February). The Island of Stone Money. Retrieved January 3, 2020

Joffe-Walt, C. (2010, October 4). How Fake Money Saved Brazil. Retrieved from https://www.npr.org/sections/money/2010/10/04/130329523/how-fake-money-saved-brazil