Ever wondered what gives money its value? It's a question that has puzzled many minds throughout history. Dr. Yuval Noah Harari, a renowned historian and writer, considers economists to be the world's greatest storytellers. A good story must be captivating and convincing, inspiring trust and vivid imagination. Now, think about this: Less than 1% of the world's population truly comprehends the intricacies of the global financial system. Yet, remarkably, you'd be hard-pressed to find someone who doesn't trust the Indian rupee, the US dollar, or the euro, even if they don't fully grasp them. This is the magic of economists as masterful storytellers.
Money, at its core, holds no intrinsic value. That is, its usefulness regardless of what people say about it. You can't eat it, ride it, or enjoy it like a movie. So, how did these pieces of paper and metal become so significant? The answer is both simple and profound: trust. Economists and the financial system have asked us to trust in currency, and trust we have. Consider the day when a certain Prime Minister declared the 500 and the 1000 rupee note as worthless paper—people immediately stopped using it. This demonstrates the incredible power of trust.
In a world where religious missionaries aim to convert souls to their faith, it's fascinating to note that money enjoys universal trust, transcending creeds, beliefs, and ideologies. While religions may divide us, money unites us all. It's a testament to our collective belief in a shared system, one built on trust, fortified by the storytelling prowess of economists. As Dr. Harari eloquently puts it in his popular book "Sapiens," "Money is the most universal and efficient system of mutual trust."
Now, picture a world where trust in money suddenly evaporates. It's a colossal problem because most money today exists as numbers in computers, with only a fraction, less than 10% (about $ 6 Trillion) being physical cash. Here's the twist: banks lend out more money than they have (About 10 times) , relying on the trust that it will be repaid in the future—a practice known as "credit creation." But if trust falters, and everyone rushes to withdraw their digital money as physical cash, it triggers a "bank run," potentially causing banks to collapse.
Inflation, that is a rise in the general price level in an economy, too, is tied to trust. It's a revaluation of the faith people have in their currency, influenced by other economic concepts like opportunity cost. What's intriguing is that as technology advances, sectors that rely less on technology tend to experience higher price increases than the average. This phenomenon is known as the Samuelson-Balasa effect.
In conclusion, our financial system is a realm of human imagination, built on trust and growth. Money is a symbol of that trust. It's a reminder that, in our digital age, trust remains the cornerstone of our financial world. So, the next time you check your bank balance or make a financial decision, remember, it's not just about numbers; it's about the trust that underpins them, a trust that economists and our financial system have masterfully cultivated.
Vivan Pande
Disclaimer: The opinions expressed in this article are solely those of the author and are not intended to spread misinformation or manipulate anyone. The information provided is based on the author's knowledge to the best of their ability. Readers are advised to conduct their own research and seek professional advice as needed. The author takes no responsibility for any actions taken based on this article.