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For ages, the idea of money has been fundamental to human culture. It serves as a unit of account, a store of value, and a medium of exchange. We utilize it for bill payment, purchases of products and services, and savings for the future. But what is money’s inherent worth? Is it just a piece of paper or an electronic number displayed on a screen, or does it have a deeper meaning that extends beyond its physical form? Money’s value is determined by the faith and trust people put into it.

In his essay “The Island of Stone Money,” economist Milton Friedman describes how the Yap people used enormous stone discs as currency. These stone discs, known as Rai stones, were too heavy to travel, so the Yap people would simply transfer ownership through word of mouth. The stones would stay in their current location, but everyone in the community would identify the new owner. This method succeeded because the Yap people believed in the value of the stones, despite their inability to physically acquire or use them.

Similarly, in the article about Brazil’s fake money crisis, Chana Joffe-Walt recounts how the government restored trust in the currency by issuing a new currency, the Real. The Real was backed by the government’s guarantee to accept it as payment for taxes, which instilled confidence in the currency’s value. Despite the fact that the Real was initially only a piece of paper, it gained widespread acceptance and replaced the counterfeit money that had caused hyperinflation.

These instances show that the inherent value of money stems not from its physical form, but rather from people’s trust and faith in it. Money is a social construct whose worth is defined by the collective belief of a society. As long as people believe in the worth of money, it can be a useful means of commerce and store of wealth.

The Bitcoin example emphasizes the significance of trust and confidence in preserving the value of money. Money loses its value when people lose faith in its ability to be traded for goods and services. This is why governments and central banks play such an important role in keeping their currencies stable. They use monetary policies like limiting interest rates and regulating the money supply to ensure that people continue to believe in the worth of their currency.

Money, on the other hand, is subject to changes in faith and trust due to its abstract nature. This is clear from the case of Bitcoin, a digital currency that witnessed a crash in 2013. Bitcoin was developed as decentralized money that is free of government control and manipulation. It quickly acquired popularity among IT enthusiasts and investors, who named it as a revolutionary alternative to traditional currency. However, as Anne recounts in her piece, the bubble eventually burst, and the price of Bitcoin fell. People lost faith in the currency and began selling their Bitcoin holdings, leading its value to plummet dramatically.

Finally, our faith and trust in money determines its true value. Money is a social construct that functions as a way of transaction. Its physical form, whether paper or digital, is immaterial to its worth. What matters is a society’s shared belief in the worth of money. As long as people believe in money, it can serve its purpose of enabling economic transactions and safeguarding wealth. However, faith isnt definitive. As a result, governments and central banks must ensure that their currencies remain stable and that people continue to believe in the worth of money. 

References

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