The Value of Money

In March, 2009, co-host of CNBC’s The Call, Larry Kudlow, lit a U.S. dollar note, destroying part of it.  He claimed that the burning dollar represented the value of our money.

Kudlow was introducing a segment on the U. S. Government’s new Term Asset-Backed Loan Facility and he said that the program - aimed at energizing the asset-backed securities market that  subsidizes loans to consumers and businesses - would result in “a lot of people lighting flame to the U.S. dollar which is going down in flames.”  http://thinkprogress.org/2009/03/19/kudlow-burns-money

Did he really believe that the burning note was in fact, burning money?

Modern money is not really a thing at all; it’s just an agreement made between us all, that makes it real.

Historically, we’ve seen money evolve: from barter of objects, to coins, and then into paper money in AD806 in China.  Then in the 1990s electronic-money developed out of the use of the telegraph in the 19th century.

Electronic Funds Transfer,  fiat or faith money,  securities and bonds, are all based on nothing tangible – magic? Our much loved, hard earned money holds its value only because we all agree that it does. And the agreement could be to use anything - the dollar, Yen or a local exchange currency.

In the U.S. the dollar currency is protected by federal law. Indeed, were Kudlow to be convicted of defacing the dollar he’d be eligible for up to six months in prison.

But there’s another, perhaps deeper reason why many of us gasp when we see a national currency defaced: it’s like burning an effigy.  It’s what that dollar note represents in the psyche of those who live in countries using the dollar as legal tender, rather than the piece of paper itself.

It’s the same feeling if we lose our credit card - instant panic – not because we love the piece of plastic, but because of the implications to our security, lifestyle and identity. Not to mention the hassle of cancelling the card and getting a new one.

So it’s not the bead, coin, paper or plastic that we love and protect, but the value these represent.  Money is a construct of our human ability to agree on the worth of something – an object, experience or thought - that we desire to have.  So we create a collective story about money and how it can get us what we want.

The more meaningless the tokens we exchange in terms of actual physical things, the greater our reliance on trust and our shared sense of money’s reality.

When we see the dollar note burned, just for a moment, the token of our trust has disappeared or been made worth-less. Of course, if we lived on an island with coconut trees as our only food source, then coconuts become the agreed value of exchange.

Currency is relative in its value, depending on where you live and in what time. This means money has no fixed value. It changes to suit the place and times in which it’s used.

In the recent event of the Global Financial Crisis (GFC) which really started to show its effects in the middle of 2007 and into 2008, the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.http://www.globalissues.org/article/768/global-financial-crisis

Conversations previously on the fringes are now centre-stage – global currency, local currencies and the future of money. It’s as if there’s a shift in consciousness that’s challenging our collective agreement about how we value money.

With the G20 Summit about to start in London on April 2, 2009, a United Nations panel of economists has proposed a new global currency reserve that would take over the US dollar-based system which has been used for decades.

The panel says that a new global reserve would be “feasible, non- inflationary and could be easily implemented”.  http://news.theage.com.au/breaking-news-business/un-proposes-new-global-currency-reserve-20090328-9egx.html

But what would a global currency look like – and who would administer it?

On the other side of the coin, Bernard Lietaer, currently a Research Fellow at the Center for Sustainable Resources of the University of California at Berkeley suggests local currencies are viable complimentary currencies that can, and are, being used alongside national currencies.

In The Future of Money: Beyond Greed and Scarcity, Lietaer points out that barter transactions are occurring in 1,900 local communities in the world, including over a hundred in the US. They are issuing their own currency, independently from the national money system.

This local currency doesn’t need to be small-scale. Like BerkShares, a local currency for the Berkshire region, dubbed in 2006 a “great economic experiment” by the New York Times, BerkShares “are a tool for community empowerment, enabling merchants and consumers to plant the seeds for an alternative economic future for their communities”. There are now over two million BerkShares in circulation.

Another example of complementary currencies is frequent flyer points issued by airlines and Lietaer says that anybody with access to a PC can start legal currency system.

For more information on starting a complementary currency go to The Access Foundation (link below).

Lietaer says that our biggest problem with money and currencies is unconsciousness. “We are not aware of what we are doing around money.We haven’t really thought about what money does to us. We believe
it’s neutral, so it doesn’t matter. But it’s not neutral: it deeply shapes us and our societies.”

Is an awakening consciousness around money the GFC’s silver lining?  Could it be that a three-tiered global/local system is evolving with a global currency, national currencies and local complementary currencies all happily co-existing?  If so, how would it work?

The idea is fascinating. If you have thoughts you’d like to share on this please go to our forum.

Or email Caroline: caroline@creativechangemakers.com.au

Sources:
http://research.microsoft.com
http://www.transaction.net/money/book/index.html
http://www.smallisbeautiful.org/local_currencies.html
Access Foundation - http://www.accessfoundation.org

Caroline Fisher©2009