Can Our Financial System Survive On E-Money Alone?|
Charnita E. Grandison|
February 8, 2010|
IS FIAT MONEY EXTINCT?
There are many purchase transactions previously handled by getting in the car, driving to a place of business, and conducting business personally with a representative of the company i.e. a cashier, an account manager, a teller, etc. Today, in this ever-evolving world of technology, this form of business in slowly fading; from the process taking money to the cash register, to calling a company and never conversing with a person, to paying a bill and never leaving your house. It stands to reason that the thought of never seeing paper money would cross the minds of many. Would it be feasible to consider the eradication of fiat money in this world of technology? Is fiat money truly extinct? This paper will discuss how fiat money came to exist and why it would be feasible to question if it is to the point of being extinct. It will cover the emergence of e-money, which is the form of currency that is believed to replace fiat money as well as the significance of the gold standard along with the impact all of these forms of currency exchanges will have on the economy. The History of Fiat Money
Before money was paper and coin-based, it was itself a commodity, or something of intrinsic value. If a clan or tribe had an affinity for a specific bead, shell or jewel, these communities would attribute a value to these objects. This might be due to usefulness, scarcity, or aesthetic appeal. Presumably, the more rare objects carried a greater value to their admirers. In the earliest cases, commodity-based monies were traded (effectively bartered) for other things of similar value. In that sense, early monies were convertible – but only in the most basic sense. For instance, what was accepted as currency in one corner of the world, might either be extremely banal or without any worth elsewhere.
Over time, in most places, precious metals became the foremost commodity-based forms of payment. Various metals would have different prescribed levels of importance: copper would have its own value, as would silver and gold. These forms of currency both had an intrinsic value, as well as a market value. Meaning copper, for example, received for payment could be melted down and made into something else (which could presumably be traded later), or held onto and used for future payment of something else.
In the West, the use of precious metals as currency led to the production of coinage (coins made from the precious metals). Used as trading devices, and units of measure, coins emerged in Mediterranean societies in the 6th Century BC. The Lydians, located in modern Turkey are credited as having produced the first stamped coins in 650 BC, and experts suggest that contemporary Ionians and Greeks used similar types of coins.
The Babylonians are credited as having developed the precursor to the modern-day economic system. The Ancient text, The Code of Hammurabi (17th century BC) standardized the currency system. It also established laws regarding money, including legal fines and interest rates. In effect, this was an attempt to arbitrate commerce.
The institution of coinage led to the development of representative currencies, in the form of notes. A representative currency is one which value of an exchange of goods or services is represented on a note. So, instead of paying for a new horse with a bucket of silver and gold coins, a note could be exchanged and the transaction completed. These ‘bank notes’ or ‘promissory notes’ were typically slips that proved a deposit into a bank, and could be signed over to other parties, much in the way a check is used today. The most famous form of representative currency is the British Pound Sterling. Formally developed in the late 17th century, Pounds were traded as currency, and backed by a promise to the...