MONEY MATTERS - FOR THE LAYPERSON

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INTRODUCTION

I have always been fascinated by the concept of money and the power it gives to individuals and societies.

Not surprising then that the individual who can afford more stuff is generally more influential in society. Similarly, nations with higher GDP are generally the ones that boss others around.
So where does money come from? And where is it going?

MONEY IN THE PAST

In Grade 9 Economics, we learned that money evolved in three steps:

1) Barter 

Cavemen back in the day used to barter by exchanging goods and services. For example, a farmer growing corn would trade some of his corn in exchange for milk from a shepherd.

2) Commodity Exchange 

Because barter was so inconvenient (the shepherd may not want the corn), people found certain commodities that everyone was willing to accept, and started using them as a medium of exchange. These commodities had to be rare and not perishable, and had to have inherent value (for example, gold). The farmer would sell his corn for gold, and then use the gold to buy milk.

3) Paper Exchange

But carrying gold was difficult, and it could not be divided into smaller portions easily. Then came along some smart people (call them bankers) who said they will store gold for the people in a safe, and give people paper receipts as proof of their gold reserves.

You know where I'm going with this. The paper receipts of course became the cash currency of today.

And then this happened on August 15, 1971 - Nixon Shock. The gold disappeared.
The Nixon shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, the most significant of which was the unilateral cancellation of the direct international convertibility of the United States dollar to gold.


MONEY IN THE FUTURE

Fast forward to 2018. Where are we headed now?
Today, with the advent of online banking, we don't use paper currency as much. Debit cards, Credit cards, Paypal, E-transfers are the order of the day. We buy and sell by transferring and moving around numerical digits to one another.

But of course, the digits are backed up by hard cash. Just like in the past, hard cash was backed up by gold.

In other words, if we wanted to get cash today, we could go to an ATM and withdraw. Just like in the past, if we wanted gold, we could go to a bank and request gold.
All that changed, however, when gold was taken out of the equation. Is it possible that paper currency, ie cash, could meet the same fate?
Imagine a future with no cash, just numerical digits. How would that impact you? Who would control those digits and how would that impact regulations? Which leads to a larger question - who controls the creation of money anyway?

That would be covered in my next post.

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