The concept of money is not as concrete as it seems. Money is not the same everywhere. How it’s accepted is called a currency. Over many centuries, the physical attributes of money has changed. In the paper by Friedman in his “The Island of Stone Money” he mentions the people of Yap using ring shaped stones as currency. The value of the stones come from the labor that the workers put in. So, if we consider our paper system in the U.S. to have some “value” and the people of Yap recognize their stones to have “value” as well, then what’s the difference? Money is an abstract where people define its wealth. People as a whole within a society have to recognize the value of that abstract and such object has to be transferable one way or another. If something is not seen as something valuable then it cannot be considered as money.
I have known that the U.S. currency is based off of nothing. Before, the U.S. currency was based on how much gold was available. This is not all that different from what the people of Yap did. Both used one or more than one mixture of metals as their object of currency. The U.S., as well as other countries, used gold because it was rare. Whoever had the most gold had the most “money”. The people of Yap could not use this same concept because stone isn’t rare so, they brought a new concept: labor. The idea is that even though stone is abundant they crafted these stones into giant discs with a hole in the middle in various sizes. This required a lot of labor which drived the value of these giant disc shaped structures. A common aspect of both currencies is that the objects that they use are rare. An abundance of something is not valuable but something of rarity can be recognized to have value. And, if two parties recognize the object’s value then it can be used as currency. Gold is rare and the stones that the people of Yap are not found everywhere because they are handcrafted. The U.S. produces the dollar, a currency based off of nothing. But, if the dollar is made out of just paper and lint, then how is it rare and how can it be money? The U.S. Mint limits the amount of dollar bills produced. The dollar bills also have security features to make it harder to be reproduced. This produces a form of “rarity”. The more of these dollar bills are produced the more value of the dollar is reduced. In order for paper money like the U.S. dollar to have value we, as a society, have to accept the value of a dollar as such value and worth.
Cryptocurrency is a new form of currency that is digitally based. This form of currency takes the same idea from paper currency where it’s based off of nothing but it has a limited total amount. The difference with this currency is that this isn’t managed by a central bank. The most well known cryptocurrency is Bitcoin. The formation of Bitcoin can be seen as something similar to what the people of Yap did with their stone money. Bitcoin has been made as an alternate, baseless form of currency without the need of some central organization. People in today’s society have to recognize the value of a unit of Bitcoin to give it real meaning. The uniqueness of Bitcoin and other forms of cryptocurrency is that it is built to prevent inflation, meaning the Bitcoin will never lose its value because more time would be needed as more Bitcoin is made. This is the nature of mining Bitcoin. The issue with Bitcoin is its perceived value. The value of Bitcoin is not a fixed set which makes it volatile. This is usually caused by the lack of trust and a uniformed agreement about this new concept of a currency. Investors are scared off by the media thinking this is a bad investment. However, Bitcoin is a good concept and a step forward to a global currency where it is not managed by our governments with the potential to inflate its value.
Unlike cryptocurrency or even our fiat currency, gold had a major issue where its global supply grew too slowly which could potentially cause nations to overspend and approach inflation. With our current fiat currency, we aren’t much different from the people of Yap. One group uses stones and the other uses paper. Other than that, both are not backed by a physical commodity but rather given intrinsic value by the people who uses them. If we are to still use the fiat currency then I do see cryptocurrency as a better alternative to our current system, just not established enough. This new system has to be polished for more people to place their trust and their recognition of value.
Friedman, Milton. “The Island of Stone Money.” Counterintuitive, Stanford University, Feb 1991. https://counterintuitive2015.files.wordpress.com/2015/01/stonemoneyessay.pdf
Glass, Ira. “The Invention of Money.” This American Life, 19 Feb. 2018, https://www.thisamericanlife.org/423/the-invention-of-money
Renaut, Anne. “The bubble bursts on e-currency Bitcoin.”, 13 Apr. 2013, https://sg.news.yahoo.com/bubble-bursts-e-currency-bitcoin-064913387–finance.html