Yesterday we talked about a strange case of someone getting de-banked… and I asked the question – what’s going on here? Is this a trend?
I suppose time will tell. But I can’t help but think that this is a signal we need to be paying attention to. And it’s a good opportunity to tune in to what’s happening in the world of money and finance.
So today, let’s talk about the nature of money.
Now, I know that may sound a little strange. We all use money every day. We’re familiar with it. But have we really thought about it?
Where does money come from? Why is it valuable?
The short answer is that money is a unit of account that serves as a medium of exchange. But this is an incomplete view.
In order to be viable over long periods of time, money must contain several definitive characteristics. Money must be:
- Portable
- Divisible
- Fungible
- Durable
Let’s examine each of these characteristics in more detail.
Money must be divisible. This one’s easy – we need to be able to make change out of our money. It should break down into consistent smaller units that add back up to consistent larger units.
Next, money must be fungible. This is a fancy way of saying that money should be interchangeable. That is to say, it should be uniform.
A dollar in my pocket should be the same as a dollar in your pocket. A Euro in my bank account should be the same as a Euro in your bank account. A one ounce gold coin in my safe should be the same as a one ounce gold coin in your safe. A bitcoin in my wallet should be the same as a bitcoin in your wallet. You get the point…
And last, money must be durable.
To be viable over long periods of time, money needs to serve as a store of value for us. We should be able to save our money and come back to it in a year… in 10 years… in 50 years and still be able to buy things with it.
In other words, good money should maintain its purchasing power over long periods of time.
This one’s a little tricky to analyze because value is subjective. Humans assign value to everything – something’s only worth what someone else is willing to pay for it. There’s really no such thing as intrinsic value.
So a big piece of the durability puzzle is that money must be relatively scarce. Otherwise people would not want to trade goods and services for it. This is why rocks and sea shells don’t work as money. It’s just basic supply and demand economics.
So these are the characteristics inherent in sound money. Sound money is money that will last for long periods of time.
Of course, we don’t have sound money today. The powers that be gradually eliminated sound money in America and thus the world.
To understand this, we have to understand our own monetary history. And that will be our topic for tomorrow…
-Joe Withrow
P.S. The rules of money changed in 2022. That’s both good news and bad news.
The bad news is that under the new rules now in place, traditional retirement planning just isn’t going to work very well. The good news is that we can leverage these rules into a far more robust financial strategy.
For all the details, see my book Beyond the Nest Egg. You can find it on Amazon at: https://www.amazon.com/Beyond-Nest-Egg-Financially-Independent-ebook/dp/B0CG7VYRV7/