The Monetary System

Mankind has employed the use of currency since the dawn of time. Trade has been the cornerstone of all civilizations, whether within itself and others. The trade was based on two factors, which was the exchange of goods and services and the use of a medium of exchange to facilitate the same. The medium of exchange varied from salt, cowrie shells,  dates to gold and silver. As a matter of interest, the Chinese character for money (?) originated as a drawing of a Maldivian cowrie shell. Money or currency has three characteristics which are also known as the functions of money. These are:

  • Medium of exchange which is the most important function of money – this is generally the purchasing power to purchase goods and services and being accepted by the people as the medium of exchange.
  • Store of Value – this is the means by which the purchasing power of money can be stored to be used at a later date.
  • Unit of Value/Account – Money serves as a unit of measurement in terms of which the values of all good and services are measured and expressed.

This page is concerned with the second function of money thus money as a store of value. Commodity money is what mankind has used for thousands of years as established in the paragraph above.  This type of money can be described as money whose values is determined as having value from the commodity that it is made from. Thus commodity money has intrinsic value within itself ie the value of the money is within the money. The most significant of the commodity monies has always been gold and silver.

Commodity money

The world today uses what is known as fiat money. Money that has no intrinsic value within itself, but rather the value is determined by governments. The introduction of this currency was commenced by the bank of England in the 17th century and was firmly cemented in 1971 with the dissolution of the Breton Woods agreement. In this agreement, the U.S dollar was the de-facto standard for all other fiat currencies in the world, with buying and selling of oil exclusively in the U.S currency, known as the petrodollar.

The introduction of paper money has been one of the worst calamities to hit the masses as it has meant that most of the world’s wealth has transferred from the majority of mankind to the smaller elite ruling class. Before the great depression in 1933 , as an example, all gold was prohibited in the buying and selling of goods and services; this was the Gold confiscation act. The Federal Reserve purchased an ounce of gold for $20. Within a week, the value of an ounce of Gold rose to $35. This meant that overnight, the people would lose wealth to this paper currency. It does not take much intelligence to realize that this meant that the governments of the world would reap off the people. Before 1971, the value of the dollar was backed by Gold. After the collapse of the agreement, there was no backing, therefore the U.S was free to print as many dollars as they desired, thus purchasing Saudi oil for nothing except the cost of printing money and paper. This is also true for all world governments.

The value of one troy ounce of gold at the time of this writing is $1322. It is not the value of Gold going up, rather it is the value of the U.S dollar deteriorating.

The future is more grim. It is easy to see that paper money is now being replaced with electronic money. Already, most large transactions between governments already happens electronically! You don’t see a country going to another with containers of paper currency to purchase oil, do you? Hence, it is only micro transactions ie transactions between the masses that takes place using money. This is already being phased out as most people opt to use their debit/credit cards to purchase and sell goods and/or services. Technology and the media is hastening the conversion. The advent of mobile payment is a stepping stone to the completion of this transformation.

Bitcoin may be the precursor of this coming electronic money!

There will come a time when the governments of the world can go in into you account and confiscate what is in there, or worse still there may be the possibility that hackers may go in to the account and either steal the money or completely destroy your record. Gone will be the days when one could store money in the form of physical gold or silver if they choose to reside in mainstream society. Gold and Silver hold their values ; as an example what you could purchase 100 years ago with an ounce of silver may not change much due to inflation. However, all paper money inflates on significant levels and ALL world currencies are not able to hold value as has been witnessed time and time again.

The below video and resources will give the reader an introduction and shed more light on the topic as well as giving an indication of what the potential monetary future will be.