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The Invention of Money
Money's Worth
The financial crisis of 2008 showed that the system can buckle anytime and money may not always be worth the same.
As we get hyper-connected, the state-backed authority of currency, and what Money is really worth, is being rethought. Society has historically tried to invent new forms of currency, most recent being Bitcoin, a cryptocurrency.
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Paper Money
The instruments of trade and finance, like paper money, are groundbreaking inventions, put to use by collective acceptance using authority and seals of trust.
Money's Worth
The financial crisis of 2008 showed that the system can buckle anytime and money may not always be worth the same.
As we get hyper-connected, the state-backed authority of currency, and what Money is really worth, is being rethought. Society has historically tried to invent new forms of currency, most recent being Bitcoin, a cryptocurrency.
The Idea of Libra Currency
The idea of Facebook's Libra, an attempt to create a new currency made from the architecture that powers Bitcoin, is that the value of new money is not derived from state authority, but a combination of mathematics, global connectivity, and trust that resides in people using Facebook.
The Invention of Paper Money
The King Williams Administration used to borrow large sums of money used for wars and then levied taxes on ship cargo and spirits to pay back the interest. This gave rise to Banks like the Bank of England, and finally Bank Notes, the currency still used today.
John Law
“Money is not the value for which goods are exchanged, but the value by which they are exchanged.”
The Rise of Paper Money
Paper Money was pushed as a 'fiat' currency due to an attractive quality: it was guaranteed to trade by the state authority for a specific weight of gold or silver, and couldn't be melted down or devalued.
The John Law Economic System
The financial system in use today is a version of John Law’s system:
Each country in the developed world has a central bank that issues paper money, manages the supply of credit in the interest of commerce, uses fractional-reserve banking, and has joint-stock companies that pay dividends.
Gold
- Real money is only gold, and all the other forms of currency in the system are merely different kinds of credit.
- Credit is an indispensable part of a functioning economy, so it continues to thrive even with historical setbacks.
- Gold is the only real 'legal tender'.
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Cryptocurrency Explained
Cryptocurrencies are a new, digital, and secure form of currencies. They have special encryption techniques that make them virtually impossible to be tracked or be stolen.
The Value of Cryptocurrency
Digital currencies are tricky when it comes to their value.
Initially, they had value due to their being encrypted and secure, and now there is some fluctuation.
Cryptocurrencies have an intrinsic value mainly because of the mass adoption of the currency and the buyers, who spent old-school money to buy cryptocurrencies, have jointly agreed and decided that there is a value.
Blockchains
- Cryptocurrencies work in a decentralized form due to the technology engine called Blockchain.
- Digital ledgers add on to all the transactions happening digitally, and they can be having tons of information stored, due to them being digital.
- The problem of security is handled by encrypted signatures used to confirm ledger transactions.
- People transacting in cryptocurrencies have unique secret keys and public keys, both acting as handles to identify and verify the transactions.
- Each ledger transaction also has a unique secure handle to ensure it is approved and cannot be forged.
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The Great Depression
.. was a devastating economic collapse which started in the US in 1929, lasting a decade. Europe was already struggling post the WWI recession, while the US was thriving. As borrowings and stoc...
Wall Street Down
On 29th October 1929, the infamous crash of Wall Street happened, where 30 million dollars were lost in a week, leading to customers rushing to withdraw their money, known as the ‘bank run’.
The entire world felt the capitalistic fall and realized that a boom leads to a bust, eventually. The disastrous effects felt around the world showed how economically interconnected the world had become.
A New Deal
In 1933, then-President Franklin Roosevelt promoted his recovery path of Relief, Recovery and Reform, to give shape to the slow and arduous reform process that will take decades.
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The illusion of control
Stress testing is a standard technique used to test how someone will perform in the "worst-case" scenario. The problem is that the "worst-case" scenario is subjective, causing an illusion of contro...
Success and crisis
Success in “normal” circumstances does not mean that you will succeed in a crisis since, in a crisis, the rules change. However, it can make you feel confident and make you highly vulnerable to the next crisis.
Drawing up your own tests
Your own incentives may support an illusion of control. If you draw up your own worst-case scenarios, you will always pass, but as a result, you will develop blind spots.
Encourage innovation in risk models to increase diversification and decrease risk.
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