Currency 101: Dolla Dolla Bills Y’all 🤑

“What does it all mean?!?!??!”

Have you ever asked yourself who decided a flimsy piece of paper 💵, or a dulled round mineral 🪙 is worth anything? No? Well actually, many people haven’t! This is probably because the idea that these objects have worth has been accepted as an intrinsic truth of society since Jesus bought his first pair of sandals many millennia ago (well actually, paper money was first created during the 11th century Song dynasty, but you get my point). In fact, I cannot remember a time when I wondered about why the coins in my pocket were worth anything — well, not until cryptocurrency came on the scene at least; that’s that’s an article for another time.

After a bit of chatter around the proverbial water cooler, us Roamers (yes, we finally settled on a name, and… I’m not mad at the results 😍) are ready to break this topic down for you cool cats and kittens!

What had happened was, way back when, people use to barter. What’s bartering you ask? Well, bartering is the practice of exchanging goods or services without using any specific currency as an intermediary. It is generally quite subjective and extremely flexible; basically, I’ll give you something that you want or need if you give me something that I want or need just as much, or more.

As an example, perhaps you are interested in getting some food for you and your family. In exchange for the food you’d offer me a blanket. Blankets are generally useful, so I’m willing to agree to the terms, so long as I get two blankets, one for me and one for my ol’ lady; we have a barter! This is an example of a basic barter. That was it, nothing could be simpler right?!!

Bartering is known as the oldest form of commerce and served as the global standard since the O.G. Roamers, Cavepeople (hey, I don’t know how they identified). Bartering worked really well, until it didn’t. As communities of people advanced and populations grew, trade got more crucial and complex, and of course, people got woke (leaving the caves will do that to ya’) and noticed a few things:

  • Hustlers were rampant! Misinformation about the quality or usability of items and services could really impact sellers and buyers that had urgent needs or simply had trust in humanity. It was like everything you got was a bag of Lays, maybe it’s 100% potato chips, maybe it’s 100% air; this is cute when it’s chips, but not so fun when it’s medicine, clothing, a wagon, or even a horse (unpack this on your own time).
  • Ever heard the phrase “divvy the loot!”? No really! The inability to break down currency into smaller and consistent denominations really sucked for everyone. Let’s say you worked at a shack back in the day, it’s wintertime. I show up with a fresh Kat William style fur coat, hand stitched at that! You and your colleagues can’t resist the drip, so y’all load me up with the food I requested, in exchange for coat. Everyone is happy, well, until the end of the day. It’s pay time, but you and your colleagues are now disputing who gets the fur coat!?!? How will you divvy the loot!?!? In fact, perhaps I overpaid for a bag of potatoes and a loaf of bread with the fur coat in the first place, but, my options were limited since giving just a collar or a sleeve alone really would not have amounted to much to barter.
  • Mood rings were all the rage from the ’70s to the late ’90s. Throughout the day, they would change color based on your mood. Without a listed price, sellers could and would adjust prices based on their need or feeling at the time of sale; sometimes as petty as “for you, the price is 3 times as much cause suck ya mutha, I don’t like people like ya” (this is my attempt to impress my Afro-Caribbean colleagues, but it might just backfire). In simple terms, imagine if every time you went to a restaurant, the waitress changed the price of your favorite special based on how she was feeling in that moment. You guessed it, that’s bartering!

Overall, bartering just didn’t scale well, and as more and more people, villages, and cultures arose, finding an alternative was essential to the advancement of humanity. The alternative needed to fulfill a few criteria.

  • Value easily recognizable and accepted by the masses.
  • Different sized denominations to support small and large transactions.
  • Value and supply stabilized by an accessible central and trusted third party (e.g. a central governing body).
  • Deterrents to counterfeiting such as difficultly or punishments.

Fulfilling these criteria, would allow the same currency to be used to buy and sell anything from a bundle of hay, to a bowl of ramen, to a rental home, to a fleet of ships, no matter the season, the seller, or the buyer.

The central governing bodies of countless societies started to establish currencies for their established communities. It was a way to organize these communities and establish power all at once. Original currencies were promissory notes (basically a fancy I.O.U.) issued by a central governing body. Those in possession of the currency was promised/assured by the government that the currency was worth something of tangible value. These currencies could be traded in for things like livestock, grain, or even precious metals like copper, silver, steel, or gold; in fact, governing bodies issued coins in the form of precious metals to affirm their worth directly.

Fast forwarding a bit, this promissory note approach to currencies received a modern name “Commodity Based Currencies”. In the 1800s, it was clear the commodity of choice to back any currency was GOLD and the Gold Standard System was born! The Gold Standard System was as simple as it sounds, basically, for every dollar issued by the government, there was a gold brick in a vault somewhere assuring that that dollar was worthwhile to have. The Gold Standard offered stability, due to the finite supply of Gold, and defined a standard the entire world could appreciate (I mean, name a person or country not interested in gold bricks… I won’t hold my breath 😉).

The Gold Standard won the world over for a time, however, we continued to advance our approach to commerce. There was one fatal flaw in the Gold Standard that caused the world to leave it behind one by one starting in 1931. The fatal flaw of the Gold Standard was 🥁, it was too stable! Yup, you read that right. Stability was a double-edged sword, and in the 1930s, World War I and The Great Depression were the tipping point. During WWI, countries across the globe wanted to print more money than they had gold to finance the war. During the Great Depression, the gold standard stifled the United States from pumping cash into the economy to stimulate the economy. It was clear, a new system that assured greater flexibility was needed, though bartering was certainly not the solution.

The Fiat System replaced the Gold Standard, and has grown to be the modern-day global standard. The Fiat System is based on the most human thing imaginable, trust, also known in finance as creditworthiness. Today, under the Fiat System, governments control the amount of currency in circulation, printing money or destroying money to account for economic trends; we continue to leverage these bills and coins as we always have even without a brick of gold (or any tangible commodity for that matter) in a vault somewhere assuring stability. Overall, it works pretty well believe it or not, probably because not a lot of people in the last hundred years actually ever asked any government for those gold bricks.

To say this article was a mouthful, might be an understatement, but hey, hopefully you learned something.

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