Examining Belief, Value, and Perception
in the Abstract Conception of Money

Economists and academics have been debating the inherent value of money—or lack thereof—for centuries. The value of money is derived from societal consensus and trust in its purchasing power, unlike tangible assets like gold or land, which have inherent value due to their scarcity and utility. Understanding this distinction is essential to comprehending the evolution of currency and how contemporary monetary systems operate.

The evolution of money is intricately linked to the idea of intrinsic value. Because of their intrinsic value, agricultural products or precious metals were used as commodity money in ancient societies. But as trade increased and economies became more complex, commodity money’s drawbacks were revealed. Representative money emerged as a result of the difficulty of transferring and confirming physical assets; tokens or certificates represented claims to goods kept in storage.

The introduction of fiat money made the inherent value of money even more ethereal. Fiat currency has no inherent value and is not supported by tangible assets; instead, it is valued by government decree. Rather, the stability of the underlying economy and faith in the issuing authority underpin its value. This major change in monetary systems—from commodity-based to fiat currency—emphasized the significance of having faith and confidence in the worth of money.

The gold standard, a monetary system in which the value of a nation’s currency is directly linked to gold reserves held by the government, is referenced by the labeling of gold in a US basement vault. A number of events, such as speculative trading and excessive lending, contributed to the decline in public trust in the banking system during the Great Depression. Banks faced insolvency as people scrambled to remove their gold deposits, which added to the economic slump. This historical illustration highlights the vulnerability of monetary systems and the possible repercussions of losing faith in the worth of money.

Fiat currency may seem especially strange to the Yap, who are known for using enormous limestone discs as money. Fiat currency is not intrinsically valuable; rather, its value is determined by government decree, unlike their stone money, which has both cultural significance and tangible value. Modern monetary systems, which rely on faith and trust in centralized authorities, are in stark contrast to the Yap’s reliance on tangible objects that have intrinsic value.

The necessity to stabilize the economy and rebuild public trust in the monetary system drove Brazil to adopt a new currency. The 1994 introduction of the Brazilian real, coupled with strict fiscal policies and a currency peg to the US dollar, gave Brazilians peace of mind that their savings would not be destroyed by hyperinflation. The dedication to stability and prudent monetary policy fostered confidence in the new currency, thereby promoting economic expansion and recuperation.

Concerns regarding the US dollar’s stability as a global reserve currency and the nation’s fiscal sustainability were brought to light by the “fiscal cliff” debate in the US. There were concerns about the government’s capacity to oversee its finances and preserve economic stability due to the possibility of automatic tax increases and spending reductions. In light of the possibility of a US debt default, concerns regarding the US dollar’s long-term sustainability as a store of value and medium of exchange emerged among investors and policymakers. This illustration shows how fiscal policy, monetary policy, and public opinion are all interrelated in determining how stable a currency system is.

The emergence of decentralized digital currencies that function outside of established banking systems, like Bitcoin, has completely changed the structure of the world economy. Because of blockchain technology, cryptocurrencies provide advantages like reduced transaction costs, more privacy, and improved security. However, traditional financial institutions and regulatory bodies face difficulties due to their decentralized nature and volatility. The rise in popularity of cryptocurrencies has spurred discussions about the nature of money in the future and how digital assets might change the financial sector.

Since virtual worlds and gaming platforms use online in-game currencies, which have limited use outside of the gaming environment, they can be considered more abstract than Bitcoin. In-game currencies are mainly used as tokens for virtual goods and services, but cryptocurrencies like Bitcoin and others have become popular as substitutes for cash and investments. As in-game currencies have no intrinsic value outside of the gaming community, their value is decided by players and game developers. Because players exchange virtual goods and participate in virtual economies within gaming communities, in-game currencies have real-world economic ramifications despite their abstract nature.

To sum up, the abstract idea of money is not limited to economic study; it also includes sociology, psychology, and philosophy. We can better understand the complexities of wealth and the changing nature of currency by critically analyzing the roles that faith, value, and perception play in monetary systems. The conversation about money and its effects on society is becoming more and more important as we live in a world that is becoming more digital and connected. Our understanding of money is shaped by the interaction of faith, value, and perception, which in turn affects economic behavior and social norms. Therefore, in order to address the opportunities and challenges brought about by the abstract nature of money in the modern world, it is imperative that interdisciplinary research and informed dialogue be fostered.

References

Friedman, Milton. “The Island of Stone Money.” The Island of Stone Money (1991): 3-7. Web. 10 Sept. 2016.

Joffe-Walt, Chana. “How Fake Money Saved Brazil.” NPR. 4 Oct. 2010. 

Renaut, Anne, “The bubble bursts on e-currency Bitcoin” AFP News, 13 April 2013.

Weidenhammer, R. (1932). [Review of Exchange, Prices and Production in Hyperinflation: Germany, 1920-1923, by F. D. Graham]. The American Economic Review, 22(1), 146–149. http://www.jstor.org/stable/1807287