My view of money has changed quite a bit since learning about the Fei of the island of Yap.  Based on The Island of Stone Money by Milton Friedman, the Yap used large coins of limestone as money.  Each coin was a physical representation of significant time and labor because the coins were made on an island hundreds of miles away.  When the coins were “spent”, they were rarely moved to the new owner, everyone in the village simply knew that the Fei had a new owner.  While it may seem completely alien to our system today, think back to the US gold standard.  US coins and paper money were backed by gold, a precious metal that represented time and effort to be mined and brought forth from the earth.  Instead of people carrying around gold all the time, they simply used dollars and cents to represent their wealth in gold.  Starting to see similarities?

The other intriguing aspect of Fei currency comes from the story of the sunken coin.  There was a Fei that was cut and polished, but didn’t make it back after bad weather caused the raft it was on to sink.  Despite it being lost to the bottom of the ocean, all the residents still acknowledged that the Fei was owned and was still valid currency.  In the NPR Broadcast about the island of Yap, they draw similarities between the Fei and our current banking system.  They made the point that today, when people are paid, they are given a check or have their wages deposited directly into their bank accounts.  There is no physical transfer, simply numbers changing on a computer.  Like the Fei, we never see it, but we have faith that it is going to be there when we need it.

The final realization about money is completely based on people’s faith in it.  Shortly before the great depression, the French decided to transfer all of their US currency into gold.  Despite the fact that the gold never left the room it was stored in, the French had lost faith in the dollar.  As a result, people began to question their own faith in the dollar, which eventually led to the great depression.  Another classic example of people loosing faith in their currency is Brazil.  Another NPR Broadcast, How Fake Money Saved Brazil, they outline the story of how over-printing of money caused massive inflation in Brazil.  As a result people lost faith in their money they spent it copiously as opposed to saving it.  To counterbalance the high inflation, Brazil changed its currency into a virtual currency that didn’t physically exist.  Steadily the people gained faith in the new currency, and when it was strong enough, they began printing a new currency based directly on the virtual currency.  Since the faith in the currency was restored, Brazil has worked its way to be the 7th largest economy in the world.  The faith in money has the power to keep it working even when there is over-printing and debt.  Japan has had substantial debt for some time, and now the central bank has printed substantial sums of money as a stimulus to the Japanese economy.  Similar to Brazil’s case, there should be inflation and a loss of faith in the currency right?  Instead of the currency plunging, it has remained relatively stable throughout this process.  Since Japan has the 3rd largest economy, people have faith that the currency is strong, therefore, it remains strong.  After completing the research for this assignment, I learned that since loosing the gold standard, the major backing for the US dollar is people’s faith in it.  It is pretty incredible that entire economies can stay afloat simply on the faith of the people, and without it, the system we have set up would never work.

Works Cited

Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. NPR, n.d. Web. 01 Feb. 2015.

Friedman, Milton. “The Island of Stone Money.” Diss. Hoover Institution, Stanford University , 1991.