Stone Money – chickennugget246

Believe In It or Not

Over the course of history, civilizations have developed a means of monetary exchange in order to avoid having to barter directly for goods and services. Different nations in different regions developed their own mechanisms to do this. Some of this currency could come in the form of paper, stone, gold bars, or even come to them virtually. 

To begin, there was an island called Yap where 5,000 to 6,000 inhabitants had quite the unusual currency. They used large, stone wheels called fei as their means of exchange or what is now commonly referred to as money. This type of money was found on a completely different island approximately 400 miles away from Yap and then was brought to the island by courageous transporters. Although it was a very unique way of conducting business, it had many positive characteristics.

For instance, in one stormy journey, one of these large rocks sank into the bottom of the water while it was being transported to its rightful owner. Despite the fact that it remained in the bottom of the water, it was still to be owned by the individual expecting it. That was the belief, the truth, and the perception.

Another time, there was a situation when the dirt paths on the island were in need of repairs. Those individuals that insisted on not contributing to the order were to be given a fine. Therefore, a man was sent out to every district that was not consenting and put a cross in black paint on the stones to demonstrate that the government claimed the money or exchange from them. It worked and the people finally conceded. Consequently, the government sent out groups to erase the black crosses since the fine was paid and all was settled.

Similarly, as Milton Friedman suggests in “The Island of Stone Money,” France and the United States had a situation where France wanted the Federal Reserve Bank of New York to convert their dollar assets into gold because France feared that the United States would not stick to the gold standard. Well, the Federal Reserve Bank did something just as the people in Yap did, it marked the drawers in the reserve that were property to France. This caused a huge banking panic in the United States and caused people to view the United States dollar as weak. Much like the Yap story.

What is similar between the France and Yap situation is that both examples show the need for the society to have pure faith within their currency system. The Yap people established faith in their belief of the stone currency and the hard work it took to establish the currency within their village. To them, it was tangible in their minds, it was labor intensive, it was real, and the work to get it was worth it. France received the assurance by getting the confirmation from the United States government that gold supported their monetary currency. Once trust in the monetary exchange is secured by a nation, island, or district, the people will follow, as history suggests.

The need to have such belief or faith in your monetary system can also be displayed by what happened in Brazil. The prices in Brazil were going up every day and inflation was skyrocketing. They lost faith, suffered from major inflation, and did not have confidence in their medium of exchange. In 1950, the president of Brazil wanted to build a new massive city that would cost a lot of money but the government did not have it. So, to afford this dream, the government printed the money, created it, but the problem would be massive inflation. This lasted decades in Brazil and money was worth a fraction of its true value. This was a major political issue in Brazil and the presidents failed – every time. Finally, four heroes that taught graduate school were invited to come to Brazil in 1993 with their ideas to help Brazil and their economic struggles. They thought Brazil had to stop creating money so quickly and stabilize the people’s faith in money. They knew they needed to change the people themselves because the people were the main problem. So, they developed a plan for new currency, a virtual currency, which is what they called it. The Unit of Real Value or the URV was a local currency that allowed people to still keep the current currency in their pocket but paid everything else in the URV, even their taxes. The four heroes implemented this innovative exchange and explained to the country about this virtual currency. The people used it, got accustomed to it, had faith in it, believed in it, and it worked. Inflation in Brazil decreased, prices were much better, and eventually the new currency was accustomed and developed and real to the Brazilians. They had trust in it and their perception of the worth of it carried the values of the monetary currency. Brazil is the 8th largest economy now and their money is certainly worth something now, as they continue to believe this. 

As we look into the future and see the technological advances of monetary exchange systems, we arrive at bitcoins. The same concept applies as discussed earlier in this article. The problem with bitcoin is, it is not supported by any centralized bank and the value of bitcoin can change in a short period of time. The article suggests that something could be a value of $360 at the beginning of the day and only a $85 value at the end of the day. In addition, Jeff Reeves notes in, “Opinion: Bitcoin has no place in your – or any – portfolio,” that a bitcoin is worth what any given person on any given day is willing to pay. Although there may not be any fees in bitcoin as there are in a credit card transaction, having a system where the true value of the bitcoin is not stable, is not a reliable means of currency at the present time. Although there is a potential for the use of bitcoin in the future, if these issues are not corrected, it will not be effective because it will not be reliable. Actually, the stone currency used by the people in Yap was much more reliable than the use of bitcoins because with the stones, the villagers knew the value of their products based on the stones that they used. Bitcoins have not yet achieved that level of faith and positive perceptions needed to be a useful form of currency. 

As you can see from the above stated examples, the crux of the matter is that a monetary exchange system must have the faith and belief in it by the members of the society that uses it. Once such faith and perception is lost in the system, problems occur such as inflation, the value of money declines, and chaos in a nation or on an island erupts. Exactly what occurred in the Yap community through the use of the stones, what the four heroes were able to establish in Brazil, and what France needed from the United States by creating the gold standard, all had one thing in common. They all, collectively, needed to keep faith and perception of validity in the monetary exchange system. They needed to – believe in it or not.


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

“The Invention of Stone Money.” 423:The Invention of Stone Money. This is American Life, WBEZ. Chicago. 7Jan.2011. The Invention of Money – This is American Life

Reeves, J. “Opinion: Bitcoin has no place in your – or any – portfolio.” 31Jan.2015.

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2 Responses to Stone Money – chickennugget246

  1. chickennugget246 says:

    Hi! Could you let me know if this essay is well-written or if it has to be improved? If it has to be improved, what could I do to change it for the better? Thanks!


  2. davidbdale says:

    I kind of love it, ChickenNugget, even though you’ve phrased nothing as I would, and seem to draw conclusions that I would never choose. Your work follows its own logic, has a consistent voice, and does guide readers through a sequence of anecdotes that demonstrate that monetary systems require the faith and participation of their users.

    To be sure, improvements could be made. You misguide readers in places, not fulfilling their expectations. As one example, you promise that the Yap’s fei “had many positive characteristics,” but deliver just a dubious one, and then change course to tell the black cross story.

    For me, the point of the black crosses is that a “seizure” of their wealth could be established by a symbolic gesture (like labeling the drawers that contained France’s gold). You draw that comparison in your way, but disappoint readers who you told to look out for “positive characteristics.”

    If that sort of feedback is what you’re looking for, I can help further. Otherwise, I could help you improve the precision of individual sentences, many of which are vague and in need of clarity.

    Before I spend more time giving you what you might not want, can you guide me?

    Always Reply to Feedback, please, ChickenNugget. It’s the primary value of the course, and I love the conversations, but I tire of them if they become one-sided. Thanks!


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