Cash and Currency

Originally published in the Informanté newspaper on Thursday, 8 Feb, 2018.


Helen Gurley Brown once said, “Money, if it doesn’t bring you happiness, will at least help you be miserable in comfort.” Money, cash, currency – these things are all integral to our daily lives, and yet we don’t always know what makes it so. Common tales involve it being an improvement on simple bartering, but archaeologists have taken this myth to town – originally, humanity simply worked on gifts and debts. Yet around the world we all started using commodity money.

In 3000BC, the Mesopotamians used the shekel – the weight of 160 grains of barley. In the America’s, Asia, Australia and Africa, the use of shell money was prevalent – using the shells of the cowry, a type of sea snail. The Lydians (ancient Turks) were the first to introduce gold and silver coins, around 650 to 600 BC. Eventually this system of commodity currency would develop into representative currency, as bank would store the commodity, and the receipts would function as ‘notes.’ This system first started during the Song dynasty in China, and would later spread to Europe after a chapter in Marco Polo’s book, The Travels of Marco Polo, entitled ‘How the Great Kaan Causeth the Bark of Trees, Made Into Something Like Paper, to Pass for Money All Over his Country’ became widely read. 

During the 17th to 19th centuries, paper currency slowly replaced gold coins as a representative currency, and before long, use of actual gold was discouraged. Most currencies were pegged to gold. After World War II and the Bretton Woods conference, currencies were instead pegged to the US Dollar, which was pegged to gold, given that the US had the greatest gold reserves in the world. But the oil crisis of 1971 resulted in Richard Nixon abandoning the gold standard, and since then, paper money was backed by law only. In particular, governments impose taxes, which are only payable in legal tender, creating demand for that currency.

Why do we find money so useful, then? When William Stanley Jevons analysed the reasons back in 1875, he found four functions, elegantly summarized as “Money’s a matter of functions four. A Medium, a Measure, a Standard, a Store.” Modern economists now consider only three functions, however – a medium of exchange, a unit of account, and a store of value. 

We can immediately recognize the value of money as a medium of exchange. Without it, we’d have to barter, and to buy something at the supermarket, you’d have to have something the supermarket wanted as well. Money thus functions as an intermediary – you can give the supermarket money, and they can exchange that for what they need from someone else.

Its function as a store of value is also quite recognizable – you can save money to use later! Here, of course, is where the problem of inflation creeps in. However, inflation can usually be countered by saving money where it bears interest – if the interest paid is greater than inflation, your money holds its value. It is why money fails in a hyperinflationary economy, like that of Zimbabwe a few years ago. It fails as a medium of exchange when you cannot be certain that the money you received can be counted on to be the same value later, when you want to use it.

Finally, money is a unit of account – without money, accounting could not exist! It allows you to accurately measure your income and expenses, and make sure you don’t spend more than you’ve earned, as all expenses (or goods and services consumed) can be tracked with their prices over periods of time. It allows us to borrow money, purchase houses, and pay it off over time. And, of course, this is how government imposes taxes. 

Recently, however, there has emerged a new form of currency – cryptocurrency. Usually identified as the ‘coin’ that started this new trend, Bitcoin, it uses a technology known as a blockchain. Essentially, this relies on an open, public and encrypted ledger that verifies transactions based on computations done by volunteer networks of computers across the globe. These charge transaction fees for transactions verified, while also attempting to ‘mine’ new coins by discovering the relevant cryptographic keys.


The technology is quite innovative, and presents many solution for disparate transaction systems, but its proponents are arguing that it has the potential to replace our other forms of money. But does it provide the same functions as money? As a medium of exchange, it’s certainly making inroads – worldwide, many businesses already accept bitcoin, and with its recent popularity, that number is certain to rise. 

As a store of value, however… A year ago, a bitcoin was worth 942 USD, and in December 2017 it peaked at USD 19500. At time of writing, it has been hovering between USD 6000 and USD 9500 just over the last week. It does not seem to be quite stable and is thus unlikely to function as a store of value. As a unit of account – well, given its unstable value, it remains unlikely to be able to be used as a unit of account by person or companies, and I believe that until a government start accepting bitcoin to pay taxes, that will remain so for the foreseeable future. 

In Namibia, this is actually a moot point. The Bank of Namibia has released a Position Paper back in September 2017 that stipulated that there is no legal provision for the establishment of virtual currency exchanges in Namibia, and stated that it is not legal tender in Namibia. Bitcoin has become quite popular due to its rapid rise in value, with many ‘investing’ in bitcoin, but it should be remembered that as it currently stands, it is not money – it is a speculative investment. With no wealth created by itself, it rather transfers wealth with the changes in its value – it’s a zero-sum game. So while you can make lots of money quickly, it is also possible to lose it rather quickly as well, as the last month’s price fluctuations have shown. In the end, the only way to really become rich is slowly, with blood, sweat and tears.

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