What do $20 bills, BitCoins and Christianity have in common? They are each without value unless you believe they are valuable. Faith matters.
Money, like religion, is about faith. If you believe the $20 bill in your wallet will buy lunch and everyone else believes it too, then it will buy lunch. If anyone stops believing, then it will be become an elegantly printed piece of paper. No collectability value because they are not scarce.
BitCoins are the same. They have value as long as people believe they do. BitCoins have the further complication that they include a peer-to-peer exchange system. You can only trade with people who have the network connection that allows it to happen. They do not easily connect to our traditional banking system.
For people who believe in the evils of banking and of governments, BitCoins make sense as an alternative way to store value. That is one of the important aspects of money and it is currently fashionable to believe banks and governments are evil.
BitCoins are money in the exchange sense. BitCoins and $20 bills are not different from sea shells, wampum, salt, gold, silver and other “money.” People will accept what they believe is “money” in exchange for real things.
It is the rate of exchange that is problematic. How many pizzas will a BitCoin buy?
The advantage of salt, gold and silver is that they have other uses and that imposes a sort of floor price on their money value. They won’t go to zero even if faith is lost.
The ability to use money like silver, in other ways adds value. In the German hyper-inflation, notes printed on one side, (faster to print) became worth a little more because you could use the back for your grocery list or your to do list.
For most token money zero is the floor price.
Money that is harder to believe in has lower exchange values. At one time a $US bought much more than it does now. The government printed more of them and as there is no demand for them except in exchange, more of them means less value each. People lost a little faith.
Money is necessary to allow people to exchange goods and services efficiently. Money will always be there because I may not always have what you want, when I want your steaks. I need a store of value that comes in units with reasonably stable value. I need an easy way to exchange my money for your goods. BitCoins are not there yet, but the idea has some merit. Possibly some day there will be sufficient regulation and backing to make it work. Trust precedes faith.
As long as the value of money is backed by the selflessness, insight, integrity and intelligence of politicians and bankers, people will be looking for alternatives.
Just thinking out loud, but do you think it might be easier to recondition politicians and bankers than it would be to create a new currency?
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Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
In matters of faith there is a danger in equating pragmatism with truth. Pragmatism is situational and temporary. $20 bought lunch yesterday, will today, and may do so for many years to come. So I place faith in the expectation that it will have future value.
Truth, however is harder to find. We need to know truth now, even though it may not be revealed until some future date. That is why most people opt for pragmatism, placing faith in their own situational extrapolation for future expectations. Jesus, however, claimed “I am the Way, the Truth, and the Light.” Following this initiative takes one into a completely different economy.