Wednesday, June 13, 2012

Where is money?

It is not in the banks.
Not in your wallet.
Definitely not in the stock markets.

Take out the piece of paper you call money from your wallet and you will find this written.
"I promise to pay the bearer the sum of X rupees" - Governor RBI.

If money was money, you already have it and then why is Governor of RBI promising you to "pay it"? Well it turns out what it means is that in normal circumstances people will trust these pieces of paper, but even if they don't, I promise I will pay you something of value worth these pieces of paper.

Money is the promise we make to each other and the only species which honors promises is humans. You are money. Your wife, your kids, your parents, your neighbors, people in your office, people on the road, the shopkeepers, the drivers, the plumber ...


Things don't have value, people see value in things. This is simple stuff, one less indirection. The billions of dollars/rupees (pick your currency) is paper in the hands of few individuals or corporations, is nothing if the rest of world doesn't honors their promise to be of value to those who have this paper with them. I have no idea what RBI Governor will give to such a guy whose money no one accepts.

It is people who produce something valuable and it is other people who appreciate that value and pay for it. Money is not what you have in the bank, wallet or in stocks, the value of that piece of paper is in the people around you and their willingness to do something of value for you for that piece of paper. The value of money is in the people. Anything that stops other people from producing value, is decreasing the value of that paper you hold so dear. And many times what is stopping people is that they don't have that paper with them. Richest companies in the world are mostly monopolies (Oil and Gas, Infrastructure, Public Sector). The next richest are banks. Somehow capitalism fails to bring efficiency in banking even with private sector. Everyone of them seems to be making money. Give 5% interest for deposits and charge 15% for giving loans. Stupid regulations.

People seem to trust money more than they trust in people and paradoxically, trust in money is nothing but trust in people.  

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