What is money?
In this article, we discuss what money is, what is wrong with it nowadays and what we can do about it.
Money is part of our everyday lives. As well as being the measure of economic value, we receive our salaries in money and use it to buy products and services. But what is money, where do you need it and what are its various types today?
This article is about money: what is the essence and need of it and what different types does money take. Above all, this article will answer the question: What is wrong with today’s money? Finally, we will explain what money should be and how we can set things to rights.
What is money?
Money is a medium of exchange, a unit of account and a store of value. Being a medium of exchange is one of the most important features of money: you can use it to buy and sell things. Being a unit of account means that you use money to measure the economic value of goods, services and many other things. That is to say, money acts as a ruler when comparing the prices of products and services. And if the money is good money, it will store its value. Hence you can trust the value of good money.
Depending on where you are from, the most familiar type of money for you could be the euro, the dollar or perhaps the British pound. These types of money are useful in the sense that they can be used to pay for groceries and they act as measures for prices. However, such currencies are bad stores of value: most major currencies have lost their value over the last 20 years.
In the long run, this also makes currencies a bad unit of account, that is, a bad measure of value. This is because, in the long run, it is misleading to measure things in drastically weakening money. If the value of money is halved, all prices measured in that money will double. If the ruler is halved, everything seems twice as long.
Need for money
We have a natural need for money, which has come about with urbanisation. As humanity developed from hunter-gathering towards agriculture and modern cities, the need for commerce and trade grew considerably. Before, each small community provided for themselves, but in urban environments people had no more need to be independent multitalents. They began to specialise in different tasks. Thus was born a natural need to exchange know-how and labour that we call commerce—and soon, a standardised medium of exchange was needed.
Specialised people do what they do best. Shoemakers make shoes, farmers farm land and builders build houses. When you work, you use your own time and energy, which you can exchange for products and services.
But you do not have to exchange, for example, shoes for food: you get money from your work. Money makes it possible that we can get what we want and how much we want in exchange for working.
We can also save money and so accumulate wealth for bigger purchases like houses. This is why we need reliable money that keeps its value in the long run.
Types of money today
Nowadays, money comes in many types. Some of the most common are the currencies used in different countries and economic areas, such as the euro, US dollar, Japanese yen or pound sterling. These are so-called national currencies, and how much there is in circulation is controlled centrally by, for example, a central bank. This control means that national currencies can be created out of nothing, since there is nothing concrete behind them. They are only central banks’ verbal promises of the value of the money and its stability.
National currencies, like the euro, are debt.
We see national currencies more and more often as digital numbers on a bank account. Bank accounts make it possible to transfer national currencies digitally, but at the same time, the ownership of the deposited money is transferred from you to the bank. In other words, the bank owns the money on your account, since you have lent the money to the bank in accordance with the account agreement. The money on a bank account is thus double debt: both the central bank and the bank are indebted to you.
If you want to learn more about the topic, you should read Voima’s article about bank deposits.
In 2009, a new type of money was introduced: cryptocurrency. In contrast to national currencies, most cryptocurrencies are not controlled centrally. The amount of cryptocurrency in circulation is also often capped in advance. However, unlike gold, cryptocurrencies are not concrete: they exist only as bytes inside computers. The value of cryptocurrencies, such as Bitcoin, is also unstable, so it is difficult to use them as a measure for the value of things, and they are not used broadly as a medium of exchange.
Even though, in the Western world, gold is not generally used as a medium of exchange, in Asia gold is regarded as money that has been reliable through the ages. For example in Vietnam, it is still common to pay for bigger purchases like houses in gold. In addition, central banks across the world include gold as part of their foreign exchange reserves, alongside euros and dollars.
Unlike national currencies, gold does not have a central bank that controls the amount of gold in circulation. Gold cannot similarly be created out of nothing, which is why national currencies continuously lose their purchasing power when measured in gold. This weakening of purchasing power is called inflation. The fact that gold cannot be created out of nothing is one of the basic reasons why gold has been used as money for thousands of years and why gold still holds purchasing power all across the world.
Voima’s views on money
The fundamental principle of money is the same regardless of its form: time and energy are exchanged for money, with which you can later buy products and services. Money also serves as a unit of account, as the measure of the economic value of things.
There is good money and there is bad money. Euros represent bad money: euros lose their purchasing power, since they are created out of nothing. Thus euros are not a good store for your time and energy. Gold, on the other hand, represents good money: gold cannot be created out of nothing, so it keeps its purchasing power. You can store time and energy in gold, so you can use it later or even transfer it from one generation to another.
We at Voima believe that you should be compensated properly for your work. You should also be able to save the results of your work safely, without risks. This is why our aim is to create the safest bank by leading the change to gold-based financial services. This is how we can enable all to pursue their dreams with money that lasts.
Next, you should read what are the seven reasons to open a Voima Account or you could compare the differences between a bank account and a Voima Account. It is also recommended to read the article about the founding of Voima by Marko Viinikka.