Sitting in the bus, crossing the London streets with bank after bank, I thought about how the LIBOR (London Interbank Offered Rate) Scandal with Barclays and other European Banks had turned out. What it basically meant was that Banks, the deposits of money, are bankrupt. In an age where banks themselves are bankrupt (money wise)- Does money really matter anymore?
They talk about the unsustainibility of the consumption socitieis, look around yourself- People who spend the most are also the ones who are indebted and bankrupt- Does money still have a value? We usually compare on basis of the positive outcomes: To us money has a value because we can buy something against it. But if money really had a value, why doesn’t its absence affect our comsuption (not on individual level but on broader terms)? Does money really represent what we own? Probably not- Anymore.
The financial system is flawed but very rigid and well established. It would help to remind ourselves how the money came into being in first place. The simplest form of exchange that exists and that is purely worthy of value, genuine and physical is that of the Barters Economy: exchange of good and service; its like assuming that I would take your camel and give you three goats in return; whatever shall be the case and its negotiation.
Then there was exchange of goods/ services against the gold/ silver/ bronze/ jewel i.e. natural resource. Rarely found natural resources like gold itself have a precious NATURAL value, that has not been set by an insitution but the nature itself. There’s only so much of gold that the Earth can provide. The first ‘banks’ started to give paper against the gold as the exchange of paper was secure, easy and quick! It was great until we realised that 98% of the world’s gold is no longer owned by people; instead they own paper now: money- And it does have the value, for now. But how reliable is it?
There are some amazing examples to understand the pointlessness of coinage/ money. An incapable financial aunthority in Pakistan printed more money with the intention of dealing with poverty; now there is more money in the system, but no increased value? Infact the currency got devalued with amazing numbers for inflation.
Note that: Creating money does not create value!
Another troublesome concept is that of Interest. It is defined as the ‘price of money’. If there is a price of money and you can buy it- then what’s the price/ value, you are paying for it? You are buying a value against greater value: Does not sound very sustainably and legit, does it? If there were $100 in the whole world (Assuming that money has a true value), and we were to charge 10% interest on each of the transaction and we gave it out to 10 people. How can we generate another $100 to pay off that interest?
Note that: Money does not correspond to the original value!
The concept of inflation is troublesome too in this respect. Inflation is known to regulate economies, encourage people to buy with respect to time and to alter the buying/ earning power overtime. But lets go back to the grass roots of the system. If I had $100 (Assuming that money has a true value), how can I over time with ideal inflation rate of 2.5%, claim the money to be worth $102.5 after a certain period of time? The money has been devalued- but against what value? Gold? Then how reliable is the value we hold i.e. money.
Note that: Money is only a number!
The value of money is not its original, natual value, it is whatever value that is created by the financial services that is economically and socially well rooted into our systems. Imagine a day, the notes (money) from all the banks are made available to everyone as much as they wanted. Would someone accept it against their goods/ services? The value of gold/ natural resource cannot be mutlipled or replenished, however the value of money (as we have seen) is altered time and time again, with policies, rules and financial tools. Can we really trust the policies that blindly? Or are we just making another bubble?