The value of money today is not the same in the future!

The pound has dropped dramatically in the months since the Brexit vote, but what does this really mean?

Who dropped it? Is it down the back of the sofa? And if you dropped it but I find it, can I spend it on a new suit, because I’m afraid I have already done that.

Many of us have had that moment on holiday where you stare at the bar bill and wonder “does this mean I have to sell a kidney or that I can now afford to pickle them in champagne?”

How much cheese can I get for 5000 ?

If I see a Malaysian bell, how much should I pay to ringgit

And if these jeans cost a million dong, will I ever stop finding that funny?

What we want to find out today is; how much is my money really worth?

Currency has existed in some form for over ten thousand years. Livestock, such as cows or camels, were used for millennia as a kind of standard when it came to bartering. Cowry shells are probably the oldest currency where the thing itself is not inherently useful, I mean, we all love a good shiny shell but
they are a little too crunchy for dinner and don't have a real use. The logic of shells as money is the same as metal coins as they are durable, they don’t decay and they are not easy to fake.

But it wasn’t until metal coins appeared that currency trading really began. The Chinese were streets ahead of everyone else since they developed coins, and later paper money, much earlier than it became common
elsewhere. But it would have been around the Mediterranean and the so called Holy Land that changes to the monetary system really started to take Off.

Most of the time valuing currencies was a simple matter of weight since coins were of different sizes and contained different amounts of precious metals, so if a Greek coin

contained more gold than an Egyptian one,

it would be assigned a higher value.

This association with precious metal continued and many currencies in the 19th century had a gold or silver standard, where their currency was set to a specific value of that metal, which enabled a simple way to trade reliably between nations.

The Scandinavian Monetary Union, for example, began in 1873 between Denmark and Sweden, with Norway joining two years later, when they realized they could get a much better deal on pickled herring if they joined.

The Swedes changed their currency to the Krona, or crown as it means, and made each worth 0.403 grams of gold.

The Danish rigsdaler became worth half a crown and the Norwegian speciedaler was a quarter Crown.

But in the 20th century, the gold standard was eventually abandoned by most nations, thanks to the two world wars, and most currency we have now is known as “fiat money”, meaning that it’s only value is that people believe it has value, rather than representing some quantity of gold, silver, rice, cows or the hatred of your entire family.

Of course, your currency doesn’t just change in relation to other currencies; it changes value in relation to itself, in what we call inflation or deflation.

Fifty years ago, in the US, the average house price was about $14,000 whereas now it’s up around $200,000. This isn’t down to any great improvement in the quality of the housing.

Inflation is where a currency, let’s say a dollar, can’t buy the same amount as it could before.

Most economies tend to experience inflation for a number of reasons. Firstly, if business costs go up, they will pass this on to customers.

Say there’s a shortage of oil because of an accident or a war. The demand for oil is still the same but now there’s less available, so oil is more valuable and you’ll need more money to buy it.

If you’re a company who uses a lot of oil, now you’re spending more money, so, to cover this loss, you make your product more expensive.

Another way might be if a government lowers taxes, then people have more money to spend. But businesses realise this, so they just raise their prices to make more money themselves. Governments try to keep inflation at around 3% but it can quickly get out of control, especially when they just start producing more money faster than origami rabbits. We call it hyper-inflation.

The most extreme case of this was in Hungary at the end of World War 2. In 1944, the biggest note was 1000 pengő.

By the middle of 1946 it was 100 quintillion, that’s one followed by twenty zeroes.

At its worst point, prices were doubling every 15 hours, so by the time you’d ordered a goulash you already couldn’t afford it. The only solution was to completely replace the currency and the Forint was introduced
in August 1946.

At that point, the sum total of every single pengo in the world, was worth just a thousandth of a dollar.

In the modern global world, you can have a currency that is either floating or pegged. Floating currencies, such as the Pound, Euro and Dollar, are worth whatever other countries will pay for them.

The governments do take steps to try and keep things stable but they let the market dictate their value. Pegged, or fixed currencies set a fixed rate between their currency and the US Dollar, or occasionally the Euro.

This is mainly to give it stability and if a lot of their trade is with the US, like Qatar and Jordan, or if they deal with mainly US tourists, like in Barbados. They still have inflation and deflation like everyone else but their government acts internally to balance it out.

During the cold war, Russia pegged its currency to the US Dollar for obvious political reasons but the rest of the world refused to accept the ruble at this value so it was unusable outside the Eastern Block.

Not letting a small thing like money get in the way, Pepsico worked with Moscow from 1972 by exchanging Pepsi syrup for the US distribution rights to Stolichnaya vodka.

When it comes to the world of the internet and its blurry borders, it seems that even a nation is not required for a currency to get up and running, thanks to the rise of crypt-currencies like Bitcoin, which first appeared in January 2009.

It started out as basically valueless but once the first purchase was made, two pizzas in Florida, then the bitcoin began its rapid journey to becoming a valid global currency, with one bitcoin being worth over $1000 in late 2013.

It’s not without its problems though. Although pitched as an anonymous currency, that only applies if you are never associated with your bitcoin account. Because if you’re connected to your account, the whole world will know you’ve been buying steroids, pet monkeys and Make America Great Again hats from China.

And like regular brick and mortar banks, there Are problems to deal with too. Just this August, a company called Bitfinex was hacked for $72 million.

As the Beatles once said, Money can’t buy you love, but that was a long time ago now and I’m pretty sure money has performed pretty well against love since then, last time I checked it was up 50 pips, which is why all the bankers have a yacht in France and so many MPs make highly suspicious expense claims two night a week.

thanks for reading!