For years, I operated as an entrepreneur without having a real knowledge of what currency is. After all: every country, all people, each culture, etc., have their own currency operation.
Does that mean the people and the citizens involved understand how their currency system work? After all, most of us were born and are living with the current financial system. Why try to understand something that seems to be so opaque?!
And because of the current economic and financial framework, more and more people are willing to dig more into that subject. The very one many of us have been avoiding for a long time. Life has a funny way of making us face our difficulties…
Anyways. Despite my humble knowledge about the subject, I was recently forced to revisit it – from a very different perspective. My review of it was triggered by a conversation with Regine, a friend of mine. It made me decide what my real Currency Operation is.
How did the conversation go?
It all started in a mi-joking, mi-serious way. Regine was facing the consequences a mistake she’d made. She needed help with a project, she subcontracted the financial audit of it, so she could focus on the actual value adding aspect of the project.
She’d wire the funds weeks before the deadline. However, the subcontractor did not deliver at all. Yet, he was fully paid. As a consequence, Regine had to do the work she didn’t want to do in the first place. The project was delayed by weeks. And of course, the subcontractor was reachable no more.
When she told me about it, I remember saying: “Why are people’s words so cheap? How can one be so lacking in basic ethics?” Those words came out of sarcasm, disbelief, and bafflement. As you can imagine, the little – yes, little – trust she had toward the subcontractor was gone. Buried.
Now, Regine is wise and runs her own organization. It isn’t farfetched to assume she’ll now have some safeguards to prevent reoccurrence from such nonsense. And she’d be right. It reminded me of the story behind money.
Which brings me to my point.
What’s the story behind money?
Il all starts with the metals…
In ancient times, confidence in coins depended on the type of metal used in their manufacture, its quality, and the uniformity of weight of each coin. The familiar shape of the coins and their well-known illustrations also contributed to the feeling of trust.
In case people did not have any coins, they would barter other items. Two chickens for a piece of cake, or for a day of work. The possessions of one would determine what currency they’d use to close a deal. In some areas, such system still exist.
Now imagine yourself living somewhere during the 15th century. In light of what I previously explained, how would you think a merchant would react if you offered to pay them with “paper” money? They’d probably call you crazy and deny you with their product.
Nowadays, paper money is all over the place.
Here comes the paper money.
The very first forms of functional paper money appeared in England around the 17th century. Such money were basic receipts for a claim on a quantity of gold stored at a goldsmith’s.
The trust placed in this new system came from both the authority that put it into circulation and the metal it symbolized. However, it took a great leap of faith for the general public (who were used to coins) to adopt the receipts as means of commercial transaction.
Eventually, people understood that paper money referred to the gold standard, i.e., a monetary system where each country had to have a reserve of gold to back up its currency. Moreover, they also knew that they could exchange their paper money for gold coins at any given time. With time, fewer and fewer people did.
Evolution of the commercial transaction
Since then, paper money transactions have also evolved: indeed, money can be transferred electronically as well. The first electronic transfers were traced back in the 1870. At that time, money could be wired through telegraphic systems.
At this date, other electronic-based systems are used for these purposes – debit cards, online banks transfers, credit cards, etc. Nowadays money is literally simply a series of numbers that rely solely on trust.
We are so used to this immaterial way and rely on that system. But above all, the electronic system behind this invisible money is what most people trust.
As a result, …
As of now, whether money is backed by gold or not is no longer a critical criteria. What matters is if it was issued by a respected authority. The trust that people had in gold reserves was transferred solely to the issuing body.
Therefore, the currency and cash we use on a daily basis would be worthless without trust. Be it gold or bits on a server, a viable currency relies on public trust.
So, what currency do I operate with?
Simple. Trust.
At the end of the day, we all operate with trust. If there is no trust, then there is nothing. Think about it. At each operation, the underlying currency is trust. Including all business-related exchanges.
Paying for something actually means you are telling them that you trust the salesperson to deliver what you’ve paid them for. A customer pays you because they trust you to deliver whatever they paid you for.
I believe that trust is there by default. Everyone tends to trust unless there is a reason to mistrust. The mistrust comes by because of a previous unfortunate experience or a betray of trust. If the trust is broken by one party, then the likelihood of reoccurrence of that trust is low. Like in Regine’s case.
What about you? What currency do you use in your daily lives? May I ask why your use that specific one? I love to read about your views and feedback in the comment section.
This post aimed to explain what real currency lies beneath that which we use on a daily basis. Feel free to comment and share.