Faith in Money
From economics to international affairs, money powers our world and has the ability to make or break a person’s quality of life. The same piece of paper that buys one family a ticket to Disney World can later be used to put food on another family’s table. The power of money has led many, including NPR broadcaster Jacob Goldstein, to question where exactly money originated, how it evolved, and how it gained the inherent value that it seems to have today. In his studies, Goldstein cites a peculiar story of the people of Yap. In their village, the currency was a block of the rare metal limestone. The citizen that held ownership of the stone, even if it was not in his or her direct possession, could make purchases with the stone. If Jack was the current owner of the stone and he bought Sally’s house with it, the stone could stay with Jack but the village would be informed that the stone was now Sally’s. The citizens of Yap had to have faith that the other citizens would recognize the true owner of the stone, even if it wasn’t present. Since money runs on human faith, as long as that faith persisted, the system could continue.
The story of the Yaps, although seemingly bizarre at first, sounds very familiar. America started its currency evolution in an almost identical way. Gold, a metal that is considered rare and beautiful, was used as a means of currency. When gold became a hassle to transport, paper money was created. Each paper dollar represented an amount of gold. As the Yaps exchanged their stone through word of mouth, Americans exchanged their gold through paper money. The gold never moved, only the ownership changed. As time moved forward, American money was no longer backed by gold. A dollar bill was just a dollar bill. Its value was not an amount of gold, but now just valued at whatever it can be exchanged for. In present day America, even cash is starting to go out of style. Now, the average American’s finances are based on electronics. Salaries are awarded, bills are paid, and purchases are made just by numbers changing on a bank account statement. If everyone lost their faith in the banking system and attempted to withdraw all their cash, the system would collapse. This is because there is not enough money to back every number on every bank account. As long as people continue to trust the banking system and the value of their dollar, the system can continue to grow.
The idea of faith ruling a country’s economic success is shown in Brazil. When the Brazilian economy began to stumble and inflation was increasing, Brazilians began to lose faith in their currency. One day a cruzeiro could get them three pieces of gum and the next week it could only get them one piece. Each day their cruzeiro could get them less product, so there was a rush to spend it all quickly instead of saving it. This made inflation even worse and the cycle continued, until Edmar Bacha created a system of “real value” currency. Units of real value meant that prices always appeared to stay steady, the only thing that fluctuated was the amount of cruzeiros that was equivalent to the real value currency. For example, if the price of a piece of gum was 1 URV, it would remain 1 URV all throughout the week and the next week and the week after that. However, in week one, 1 URV may have equaled 15 cruzeiros while in week two 1 URV could equal 20 cruzeiros. The people of Brazil began to think in terms of URV’s so prices appeared to be staying steady. Although nothing had really changed, people’s confidence in their currency was regained, and that confidence allowed for a true change in the Brazilian economy.
All in all, the people’s trust in their currency is the most important aspect of a stable monetary system. If people have faith in the value of their currency, they will feel safe saving, spending, and accepting it. If one day all American companies decided that the dollar was worthless and they would not accept it as payment, then it would be worthless because it cannot be exchanged for any goods or services. However, as long as companies continue to feel as though the dollar is something to be sought after, the dollar does have value. When it’s broken down it means that one day someone can be rich and the next day they could have nothing. Despite the system’s apparent fragility, it’s not time to lose faith now. Currency systems like the United States’ are essential to society and as illogical as they seem, they work. By how things are going now, people are not likely to lose their idea of value in the dollar any time soon. Companies continue to seek the dollar crazily. People work tirelessly just to see the numbers in their bank account rise each week. As long as this pattern of intense desire for the dollar continues, the American monetary system will be able to thrive indefinitely.
References
Goldstein, Jacob. “The Invention Of ‘The Economy’” Planet Money. NPR, 28 Feb. 2014. Web. 13 Sept. 2016.
Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.
“How Fake Money Saved Brazil.” Planet Money. NPR, 4 Oct. 2010. Web. 13 Sept. 2016.
“The Invention of Money.” This American Life. This American Life, 7 Jan. 2011. Web. 13 Sept. 2016.
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