What is the bigger picture behind using paper currency?

[1] There has been a huge evolution of the type of commodities or objects we use through time. But is it worth anything?

As I promised on my previous blog, I am writing a politico-historical article to solve a puzzle I have had for a long time – the significance of paper currency. I will discuss the development of currency throughout the ages, from the ancient times to the contemporary ages. Furthermore, I will analyse the valour and usage behind the paper currency, and its relevance in the future as a form of concluding point. Constructive criticism are all but welcome, a token of your help would be greatly appreciated.

 

1) Development of currency 

Throughout history, people exchanged goods or services amongst each other for what they wanted in forms of commodities. For example, the traders used salt, tea, tobacco, spices, cattles and shells. However, a lot of these were not the most feasible ways to trade, as these ingredients or commodities were naturally perishable. [2]

 

1.1) Coins and paper 

Another example of currencies were the coins and paper currency. In circa 1000 BC China, as the Chinese were inspired from their earlier usage of shells, which in Chinese radical terms, correlates to shells or monetary problems. They all had a small square in the middle so that it can be looped together by a string. [3] China was technologically advanced at this time, and is known to have progressed to be the first official country to use paper money as currency, as they used it since circa 960 AD onwards. [2] Moving on the other side of the world, coins were introduced in ancient European civilisations like the Greco-Roman ones, as various kinds of metals were easily available in abundance, because of its re-usability and malleability. [2, 3]

 

3) Is it worth anything? The usage behind it all 

With some currency, we often find a recurring phrase, “Promise to pay the bearer on demand.” I have been taught that in essence, a 10, 20 or 50 dollar note is not worth anything. Ever since, I have been intrigued to discover why and how.

 

In 16th century England, gold-smith bankers started to use receipts for cash, promising to pay the bearer or depositor a certain amount of money. Throughout many wars, namely those of the Seven Years’ War and the First World War, England had to tweak its monetary system. For example, in 1759, during the Seven Years’ War, there were many gold shortages. This was key, as the English bank continued to introduce notes of smaller amounts – £10 pounds to £5 pounds, then to £2 and £1 pounds, ultimately causing the devaluation of the reserve. [4]

 

Eventually, the link with gold was broken, and Britain left the gold standard in 1931. There was a huge problem of hyperinflation and an uncertainty of returning to the gold standard in the two strongest economic powers during that time – the US and UK. At first, the Sterling to gold exchange was a lucrative enterprise. However, after many affected countries felt the full force of the Great Depression of 1929, the problem of convertibility for the British world currency was left to disappear. This was significant, as this marked the period where the authorities legalised the utilisation of paper currency instead. Furthermore, this was fundamental, as this was further emphasised when these countries had high unemployment rates, thereby having inflating their prices. Thus, the devaluation of currency and more competitive edge in the global market. [5] Thus, in summary, the paper currency we use now is not of that much use. Makes more sense now. There you go, learnt something new myself too.

 

4) Is paper currency the most feasible way of spending money?

According to the documentary Zeitgest: Money Segment, paper currency is used in society due to two main reasons – debt and interest. The government and federal reserve have money requests through loan demands and reserves. In exchanging this supply and demand amongst them, they draw up values and deposit the large sum of money into a bank account, becoming legal tender or legalised money. This sum of money can vary positively or negatively as a result of inflation, debt and interest. [6] Amplifying this in our society is down to the debt used for the cost of living, where the banks which distribute the money never had the money anyway, it was from the creation of the debt between the federal reserve and government. This is key, because it resembles almost as a black market, as we would not need paper currency if we did not owe debt to one another. [6] Moreover, this is like a running circus, where the elites prevail at the expense of the poor, with loans for employment and trapped in a deeper deadlock of perpetual and financial slavery. In truth, this is a complex, eye-opening and almost frightening expression of what occurs realistically, and I would highly recommend to watch the sixth link down in the references below.

 

In conclusion, throughout history, people found different commodities and ways to trade and pay one another, which developed to coins and paper currency. In its heyday, the paper currency is made out of the gold link and standard, being a suitable way to pay a bearer on demand. Since the after-war years of the First World War, the UK, one of the two most powerful economic powers in the world apart from the US, changed its methods of payment due to the low rate of convertibility.

 

Worse still, as the Zeitgeist documentary suggested, the money we use to buy and loan amongst each other to create employment boils down to a running circus of balancing debt and interest. So then, this triggers the question, should we continue to use paper currency in the future? Many of our liquidation and expenditure has now been globalised and through digitalised format, using credit cards and mobile payments. With an ever-evolving currency strength or weakness in stock markets, isn’t it important to understand how do you draw a line between which currency is more worthy than others? Or perhaps, how do you determine the value of a currency? How is the Euro crumbling, whilst the RMB is a staggering currency on possible brink of world domination? Do we find a dominating currency as the American dollar and Sterling Area once imposed, and replace it with the RMB, or do we abandon this completely and find better ways to solve economic crises we, as a world population, are getting accustomed to seeing? In summary, this is an open-ended thesis, and countless more questions can be asked. But I hope, with the signpost questions I have used as directions, this clarifies something for you to learn, and hopefully, able to judge for yourself. Till next time, and goodbye for now! 🙂

 

References

[1] http://www.mypapermoneyworld.com/wp-content/uploads/2013/01/Paper-Money-World-3.jpg

[2] http://inventors.about.com/od/mstartinventions/a/money.htm

[3] https://www.hostmerchantservices.com/articles/the-history-of-currency-from-bartering-to-the-credit-card/

[4] http://www.bankofengland.co.uk/banknotes/pages/about/history.aspx

[5] http://www.gold.org/government_affairs/gold_as_a_monetary_asset/role_in_international_monetary_system/why_did_the_gold_standard_break_down/

[6] http://www.youtube.com/watch?v=67OmYvzr9tY

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