Hard currencies

It sometimes happens that questions which appear, on the surface, to have exceptionally obvious answers are, on close examination, very far from straightforward. Take, for example the apparently simple question : “What is money?”
Michael F. Bryan, vice president and economist in the Research Department of the Federal Reserve Bank of Cleveland, US, explains the underlying difficulty – one which is so fundamental its revelation may come as a shock to those who work in (or who study) the economic sector.

“The list of functions and qualities one finds in the standard textbook definition does not make for a very deep understanding of the subject. Unfortunately, economists have not yet come to a common agreement about the role of money in our economy.”

In his 2004 essay Island Money Bryan provides an example of the enigmatic nature of cash – the curious case of the currency which was used until fairly recently on the island of Yap in the South Pacific. Giant stone disks were specially fabricated on the neighbouring island of Palau, and painstakingly hauled some 250 kilometres by sea and overland to locations on Yap. They were so difficult to obtain that up to 10% of the adult male population were permanently engaged in disk cutting and haulage, explains Bryan.

“… they can still be found in abundance on Yap, and they have maintained their purchasing power reasonably well over time (particularly compared with other fiat monies, including dollars).”

The disks, which could reach more than three metres in diameter and required several men to lift, had no apparent practical application other than as money. They could be used to buy property on the island, and especially prized examples (those which had been cut using only seashells and transported by canoe) were considered to be worth more than an entire Yap village and its plantations.