I find it crazy how our views about money change throughout our lives. When we were five, we thought that one dollar was enough to get us everything we have ever wanted. When we were fifteen, we thought we were rich if we had one hundred dollars. And don’t get me started on our birthdays or other holidays, we felt like we won the lottery. This however, is only a matter of perspective. When we were younger, we didn’t understand the monetary system. We didn’t understand how one dollar could turn into fifty cents after purchasing a piece of candy. We didn’t understand why we had to give other people our money in order to obtain the things we wanted. Once we were older, we learned how there are different currencies throughout the world. We learned that a peso and a dollar are different amounts and so on. I know that my financial exchange views have drastically changed since learning about the island of Yap.

In The Island of Stone Money by Milton Friendman, we learned that the “fei” is what the people of Yap used as currency. This is a stone made out of limestone that can range from one to twelve feet. The larger the stone was, the more valuable it was. The difference between this and our money today, is that when exchanging the fei from person to person, no physical exchange was made. Instead, you would verbally tell someone that the fei was now theirs. They were too large and heavy to actually move from place to place. Milton also wrote how there was a fei under the sea, but that never made it less valuable. I think this is so much different from us Americans, because we might not always trust other people, or the bank, and so on. Just verbally saying “here this money is now yours” is not enough for us. We need to see it with our own eyes to believe it. We might be viewed as crazy by the people of Yap. They would wonder how we have so much money that we don’t even see. Think about it. How does the United States of America have so much online money? This makes you think about how government officials know how much money the whole country has. They don’t. There’s no way that they do and this is because the online banking system passes money from person to person without that physical feature to it. I could have thirty thousand in my savings account but it wouldn’t be usable, therefore that money would go to someone else for loans, etc, until i took it out. It doesn’t make sense. 

Let’s look at cryptocurrency as an example. Cryptocurrency are virtual coins exchanged from person to person ONLINE through a virtual wallet. Transactions with cryptocurrency are recorded publicially on what they call a blockchain. This stops the money from being duplicated or stolen, etc. Bitcoin is a very well known example of crypto. But my question stays the same. How do we know how much money the world has? Bitcoin started becoming something people invest on and just like the fei from the island of Yap, the older it is and the more amount you have, makes it more valuable. Bitcoin on the other hand, has been used to invest. You could have purchased 5,050 bitcoins in 2009 for only five dollars and two cents. Each singular bitcoin being 0.0009 cents. Today, one singular bitcoin costs 26,501 dollars. So from 2009 to 2023, Bitcoin was raised about 26,500 dollars. How did that happen?

Let’s rewind time a little bit more. In 1933,  Americans were told that we had less than a month to hand over all of our gold coins, bullion and gold certificates or we were to face up to ten years in prison or a fine of 10,000 dollars. Or both. This is similar to when the Germans went to the Island of Yap and painted black crosses on their fei. Even if you own a piece of money, there are still higher authorities who own it or, people who think they have the right to it. This is what sent the country through a fiscal cliff and into the 1933 banking crisis. A fiscal cliff is when a particular set of financial factors threatens economic decline. In 1933, thousands of banks throughout the nation failed and millions of Americans lost all of their money. The federal and commercial banks were fearing the potential drain of the US gold stock. During this time, a lot of banks were unable to secure loans from the RFC and started tapping in on the gold reserves. With the slow drain of gold, the Fed raised discount rates which led interest rates to rise across the board. 

This is kind of what happened in Brazil. All online monetary systems are new in Brazil. In 1990, inflation in Brazil was 80 percent a month. With the inflation, and the new online banking system, next month, something could be double the price as it was this month. Brazil was in desperate need to change this. A lot of changes were put into place but none of it worked until four economists were asked for help. They didn’t want to change the cause of inflation, they wanted to change people themselves. To them, people were the problem and had to be tricked into thinking money had value. One of the economists had a plan to use virtual currency. So if they money in our pocket doesn’t have value, how does this virtual currency have value? 

The only answer to this, is that money has no intrinsic value. We can believe that a large stone has value, we can believe that a coin online has value, but in all reality, none of it does. I could send someone 20 dollars through cash app and they would receive it, but does that money even exist? No it doesn’t.

References:

Ashmore, D. (2023, July 5). Bitcoin price history 2009 to 2022. Forbes. https://www.forbes.com/advisor/investing/cryptocurrency/bitcoin-price-history/#:~:text=Bitcoin%20was%20originally%20worth%20next,exchange%20took%20place%20on%20PayPal.

Council on Foreign Relations. (n.d.). Cryptocurrencies, digital dollars, and the future of money. Council on Foreign Relations. https://www.cfr.org/backgrounder/cryptocurrencies-digital-dollars-and-future-money

Engemann, K. M. (n.d.). Banking panics of 1931-33. Federal Reserve History. https://www.federalreservehistory.org/essays/banking-panics-1931-33

Reed, L. W. (2023, April 4). FDR’s other “Day of infamy”: When the US government seized all citizens’ gold: Lawrence W. Reed. FEE Freeman Article. https://fee.org/articles/fdr-s-other-day-of-infamy-when-the-us-government-seized-all-citizens-gold/#:~:text=Suddenly%20on%20April%205%2C%201933,fine%20of%20%2410%2C000%2C%20or%20both.

The invention of money. This American Life. (2018, February 19). https://www.thisamericanlife.org/423/the-invention-of-money