The Monies Story

Why am I talking about money, everyone knows what is money, at least it seems.

Money is something that a 5 years old kid can understand, yet it can be something that a highly educated adult not understand.

What is the definition of money? Simply put, money is something that your society recognize and accept as payment for stuffs and services.

The evolution of money begun when human started trading. They started with barter system, which is not very efficient. Later, the use of commodity money eventually developed. Example of commodity money are base metals like copper and nickels, salt, corns, large stones, shells, barley, etc. They can be so weird that you can't imagine.

All these commodity money have one big problem: they are commodity. Being a commodity means they are abundance, easy to mine or grow or harvest. They are hard to divide and impossible to standardize in a larger society. Some of them are edible and can go bad over time, some of them are immobile (ie: A giant stone).

Later, commodity money gave way to representative money.
Representative money consists of coins, or papers that can be exchanged for a fixed quantity of a commodity, ie: gold or silver. The value of representative money stands in direct and fixed relation to the commodity that backs it, while not itself being composed of that commodity.

Gold and Silver has been widely adopted as common money in many cultures and time frames in the human history. One of the most famous form of representative money is the evolution of Gold Standard.

Why gold and silver are the ultimate form of money?

• It is a store of value (Even your grandmother knows it, precious metal is the best bet against paper currency devaluation.)

• It is precious and scarce (We can't simply use a piece of plastic, wood or rock as money, else the world would quickly flooded with such currency and diluting its value. )
  

• It is uniform, (one troy ounce of 999 purity of gold coin is theoretically equal to another one troy ounce of 999 gold coin. Even though diamond and gem stone are scarce, they differ in terms of grades and qualities) *Note: Gold and Silver Coins carry different premiums depend on the producer, forms, popularity, liquidity, rarity, etc.

• Its divisible, a few thousands years ago, human already know how to make precious metal in various form to use as money.

Finally , we have fiat money.
Today, when you pull out your "money" from your wallet, be it USD notes or SGD notes, to buy some stuff from grocery store, the store keeper happily accept it, because your paper money is officially recognized as something valuable as stated on the paper. Have you ever just what is backing your currency notes?

Lets try to understand what is paper money, or fiat money.
Fiat money's value is not derived from any intrinsic value or guarantee that it can be converted into a valuable commodity. Instead, it has value only by your government order. When your government declare this piece of paper note worth this amount of breads, you are unlawful to say no, because the government make these papers to be legal tender.

So, if fiat money is not backed by something real, what are the things that backing fiat money?
You may be surprised! The answer is debts. I will touch on this on later posts.