Counterintuitive Spring 2023

How to Buy Money

Money, like many concepts, is capable of generating more and more skepticism as it’s inspected further. It becomes harder and harder to pin down it’s real use when closely examined, ultimately being shrugged off as an unexplainable prerequisite for a society to properly function. However in countries like the U.S that have relatively stable economies, we forget that money isn’t actually a solid thing. We often chock up money to it’s purchasing power in the present, forgetting that it could easily be subjected to change. The dollar could be compared to a stock, it’s value is contingent on the publics faith in the currency. 

Micronesia’s Island of Yap has been making economists squint at our view of money for the past 100 years. The island gained popularity for its novel stone disks that they use as currency, making up the basis of their economy. What’s stranger is the islanders rules surrounding the currency, stones that have sunk into the ocean are still honored, still usable by the owner despite them not being physically present. The defacto owners of the stone, a family, still utilize their invisible wealth generations later, as The Island of Stone Money author William Furness III writes, “a family whose wealth was unquestioned –acknowledged by everyone– and yet no one, not even the family itself had ever laid eye or hand on this wealth”. 

The islanders are also known to trade stones without actually moving them, meaning the coins remain at the same residence it resided at before the transaction. A household may own the stone without actually owning the stone. In reality, the most important part of the ordeal is that the public recognizes the recipient as the new owner. This seems bizarre, but in reality is similar to making any banking transaction. When we deposit money in our bank, they eventually turn around and give it to someone else, with the promise that you will be paid later on. Most of our wealth is based off IOU’s and account balances than something with intrinsic value like assets, or stone disks.

Under certain scenarios, the islanders seem like they are placing value on the physical aspects of their currency. During the island’s period of colonial German occupation, the government forced the islanders to repair their roads by marking their coins with black crosses. This caused the villagers to go into economic crisis, rushing to smooth out their roads. To the villagers, the physical location of the money is not really important, but who has claim towards the money. 

The intrigue of this story doesn’t come from how strange the islanders are, but rather how similar it is to modern monetary systems. Crisis’ like 2008’s housing bubble prove to us that the amount of money circulating in our economy is a lot more up in the air than we think. No money was lost during the housing bubble, but rather as Ira Glass explained on NPR’s Planet Money, “…[it] never existed in the first place.” The money the Fed wires over to banks, who in turn dole it out in the form of loans, is built on an if: whether the recipient can pay the loan back or not. In a way it’s much easier for a villager living in Yap to check the amount of money circling in their economy, simply walk around the island and count all the stones.

The implementation of the Brazilian Real is an example of the public increasing the purchasing power of their currency. Since the 1950s, the government had been rapidly printing money, their Brazilian cruzeiros, to fund a city planning project. This effectively flooded their economy with money, creating inflation. Lowered purchasing power of the cruzeiro brewed economic doubt towards its worth, causing retailers to frequently raise their prices. At its worst, the inflation rate reached 80% per month, prices climbing daily. Grocery stores were a brawl, where shoppers would have to physically race employees holding the price gun. People had to spend their money fast, as leaving it around would cause it to lose value over time.

To combat the discontent, in the 1990s the Brazilian government created a standard virtual currency, the URV. It’s fixed price gave citizens confidence in the purchasing power of the cruzeiros, as consumers could receive weekly updates on the value of the money in their wallets. Over time, retailers stopped raising their prices, people started taking out more loans, and the inflation died down. Eventually the cruzeiro and URVs were phased out, in favor of the newer Brazilian Real, a name which ironically contradicts its completely virtual conception. Brazil’s economic turmoil was caused by mass-printing money, effectively delegitimizing their currency. Any solution the government made was ultimately contingent on the peoples faith in their currency, and the decisions they made with their confidence.

Real world examples of money that people treat as a stock have been gaining a lot of media attention in the past decade, specifically cryptocurrency. Market Watch critiques Bitcoin for, among other things, it’s volatility. “While bitcoin surged from about $13 in January 2013 to a peak of roughly $1,150 at the end of November 2013, prices were as low as $178 a few weeks ago. Such a wild range in roughly two years should show how speculative bitcoin is.” However we know that similar to cryptocurrency, money’s value is capable of fluctuating astronomical amounts in a matter of weeks, as seen in Brazil.

What separates national currencies from cryptocurrency is the infrastructure built around them, in an attempt to create stability amidst the ever-changing prices caused by the supply chain. There are central banks, reports, treasuries ensuring the value of our bills and change. However, all of that infrastructure is built around essentially a fairy tale. 

Currency isn’t Tinkerbell, it doesn’t necessarily have more power the more we believe in it. However, doubt in the value of, the dollar for example, causes serious inflationary implications at a large scale. This is why governments generally focus on building accountability in their currency, while continuing to print money at a reasonable pace.