My childhood was permeated by strange thoughts of what money really is, the concept of value eluded my simple mind. Other than 5 shilling coin being enough to carter for my samosa cravings I couldn’t get past the notion of value on a piece of metal. Questions such as who creates money? where does it come from? can we run out of money? why can’t I make my own money? pre-occupied my frontal lobe. To be frank these questions still creep in my mind to date, so hold-up, money has a very long and interesting history.
Every pre-civilization society had their own mode of “monetary exchanges”, a form of rudimentary money this included gold, silver, shells , copper, rice amongst others. At this point in history, “money” had physical value until Chinese merchant became tired of carrying gold and introduced bank notes that would be presented at a store (that’s how banks were “invented”) for exchanged to an amount of gold indicated on the paper. The Americans got clever and in 1971, president Richard Nixon banned money that is convertible to gold’ during the Brentton wood convention and all currencies in the world got tied to the US dollar. The dollar became the benchmark (the gold) for all currencies and international trade was now carried by the $. That’s why your local currency is always quoted to the dollar. A quick Q, what if US is no more like the soviet?
Despite the enthralling history I couldn’t still understand what money was. It took the intervention of a Computer Graphics lecturer who gave an analogy that made me go BAZINGA!!! . Though the analogy was unrelated to money the logic explained what money is. While explaining about input devices he explained about logical input devices in which the actual physical input devices are mapped onto these logical devices i.e the keyboard you’re using is not the physical device but a program in the operating systems that’s why it can be implemented on screen, via touch (some geeks can rig a few mouses to work as keyboard). Similarly the eyes, ears and nose are not the physical limbs visible but a part of the brain that can detect light, sound and smell. How does this relate to money?
After the introduction of fiat money the value of a currency was the amount in circulation and how much was in demand, the value isn’t backed by anything rather the word of the government that this piece of paper is worth 1000/= shillings. What you use to shop is just a representation of money not the real money. Think. if what you have is the actual money how about when you are paid via paypal or MPESA and made an online transaction, did you physically use the money, NOPE. The real value of money is the economic forces in a given country. The stronger the economy the more value the currency (digital or bank notes/coins).
But the question, what is money is till pending. Well, since the value of money is derived from the economic parameters of a country then what constitutes an economy constitutes money. An economy is defined as “the labor, capital and land resources; and the manufacturing, production, trade, distribution, and consumption of goods and services of an area.” Therefore money is a quality like honesty, patience, humility e.t.c. and is only relevant to a given country, just like the aforementioned qualities (some people are honest other aren’t). This is why you are required to exchange currency at borders, to get ‘relevant’. The lifeline of a currency is tied to a country, when that country cease to exist the currency automatically becomes just metal or paper, actually it’s not paper but cotton. We cannot run out of money since the central government produces notes and coins every year to replace old and lost currencies.