E-Currencies and Money Part 3 – Money, Investment, Payment System, Or All of the Above?

Wikipedia defines money as “an exchange, a unit of calculation, and a means of saving.”

Money is just one form of money that falls into the first category of this definition. Money is also the smallest part of what economists define as “money supply.” The money supply consists of various components such as credit, deposits and others.

Since almost all electronic currencies are used as units of value in the exchange of goods and services, almost all of them are called money and currency. In addition, I believe that visa ™ dollar units ™ are also currencies, although companies don’t want you to treat them that way (for some this opinion may be controversial). In fact, credit card accounts are today the most widely used electronic money. I will continue and say that the difference between money and electronic money is almost zero in today’s electronic world.

The most interesting difference is between currencies issued by the state (let’s call them “public”) and currencies issued by private companies (let’s call them “private”).

With the advent and widespread PayPal private (electronic) currencies suddenly became a hot topic. PayPal was one of the first private currencies not tied to either the government or the credit card company. But private currencies are certainly not news. The original currencies that existed in the United States were in fact “banknotes” issued by American banks. They served a very important purpose in the early days of this country because they were valuable regardless of whether the United States continued to exist as an independent country. (Go to the spare parts store and check out some of these interesting documents.)

Original U.S. banknotes were usually provided with precious metal – in fact, it was often gold or silver certificates, which could be exchanged for bullion in the bank if desired. A bank account is a gold reserve to which you have received certificates.

In this context we need to look at private electronic currencies in circulation today.

All currencies are provided with something that confirms their value. Gold-backed currencies are the easiest to understand. Units of the value of such a currency are tied to the amount of gold that is in the “safe” reserve. You can still buy gold certificates, but not from many governments. They are usually issued by gold companies, which issue a certificate confirming ownership of gold in their vaults (“paper gold”). Make it a bearer certificate, and it will be more or less paper money secured with gold.

The second easiest to understand is a currency secured by currency (e.g. PayPal). For example, some small countries issue their own currency at a fixed rate against the U.S. dollar, which they keep in their own reserve. These are state currencies secured by the dollar. There is no shortage of private currencies secured by the dollar – one of the first was a tourist voucher. Sellers accept these pieces of paper because there is a well-funded and trustworthy company that accepts these pieces of paper in exchange for U.S. dollars. Visa, MasterCard and others also accept their currency along with U.S. dollars (and other currencies). Their units are valuable because traders believe that they will (usually) receive the state currency in exchange for units stored electronically in their accounts. But in fact, sellers value credit card units much less than the currencies on their accounts. Reasons – refundable payments and commissions (as well as troubles). However, merchants are not allowed to charge consumers more because of their agreements with these credit card companies. As a result, even cash buyers pay more for the goods and services of these sellers (and why you should always ask for a 2-3% discount when paying in cash).

The conundrum is why state currencies that are not endowed with any values have value. These currencies are often referred to as “paper” because people take them for face value based on trust in the issuer government. But that’s only part of the story. In fact, the value of these currencies depends on many factors.

To understand why, look at the global bond market. The U.S. government borrows billions and billions of dollars annually from foreign investors and governments. It must do so to finance its budget deficit, which of course includes interest on the debt and repayment of the principal amount of the debt. The U.S. government benefits from a very low interest rate on its debt. The reason for this is the world’s great confidence that the United States will pay this debt in a very reliable and predictable manner. Why does the world trust the U.S. government so much? Because of his ability to collect taxes from his citizens!

If the U.S. government suddenly cancels all its taxes, the value of the dollar will fall as investors lose faith in the U.S. government’s dollar debt. If the U.S. government suddenly raises taxes, for example, by 10,000%, the dollar will also fall, as the investment world realizes that people no longer have the incentive to work to make money, and therefore the wealth of the government may increase. tax money. will go to the toilet. If unemployment rises sharply or corporate income falls, or both, the US dollar will also lose its value.

On the other hand, if the U.S. government drastically reduced useless and unproductive spending, the dollar would rise in value, as investors around the world would see that the U.S. government would be even better able to repay its debts. (A rise in dollar value means lower interest rates on government bonds, resulting in a lower need for tax collection, leading to a higher dollar.) Basically it is your potential income and the potential of your children that determines the size of the dollar value. The value of the U.S. dollar is in all respects based on taxes.

You don’t hear this analysis directly, but indirectly in the media. It is a frightening reality that the U.S. government has full control over the value of your savings and has the right to actually rob you (taking value without your consent). It’s also a pretty negative way of describing things, even if they’re true.

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