The difficulty most people in the west have in thinking about the nature of currency itself arises from the fact that much of our “common sense” is reliant on the mythos of currency as substantial, a mythos that in itself is so irrational as to be ridiculous.
Currency is defined as “a system of money in general use in a particular country.”, but this definition is in turn based on a more general definition, “the quality of being generally accepted”. In simple economics currency is often described as a ‘facilitator’ of trade, but the question of in what manner it facilitates trade is rarely asked, as if it were self-evident. Is it self-evident however, in terms of being advantageous over simple barter? And if so, in what way is it advantageous?
Simply, it is advantageous in trades where goods traded are not available simultaneously. Thus currency immediately implies bookkeeping, and a balancing of those books at some point. However there is a fundamental issue: how do we know that currency, as measure of past trades, is itself a coherent measure?
As measure, currency isn’t ‘real’ in the sense of being a thing, any more than a metre is ‘real’ as a thing. However with metres we are confident in what they measure – spatial distance, or extension. But what does currency measure? Initially currency measures the difference in the value of trades. As society and trading became more complex, it began to measure the difference in the value of trades between nations, but this reintroduced another problem initially solved by the Hittites, but brought into general use by the ancient Greeks, since it perfectly solved a problem inherent in the city-state model. Different currencies were issued by each city-state, and ‘sovereignty’ itself was determined as the right to issue currency. But how was a trader or money-exchanger to figure out the relative value of each city-state’s currency? Since by that point specific metals were considered the base, the substance, of a given currency, the technology of the touchstone, which allowed one to measure the different purities of each type of coin, solved the problem. This basic belief in the substance of money as the weight of ‘precious’ metal, though, is itself nothing but myth. The belief in it arose through the rites and mysteries of Greek religion – while many decry the fact that our great buildings are banks, not cathedrals or temples, the reality is that the Greek and Roman temples were also the mints for these currencies, the Mnemosynes in Athenian mythos, for instance, were in point of fact the bookkeepers of the mint. This mythos, in varied forms, led to modern currency via the initial base of the gold standard.
But why should the amount of a useless metal stored in a dusty basement somewhere determine the amount of currency a state can issue? Put that way, the idea is nonsensical, and so the notion that the guarantee of the state itself was the guarantee of the value of a currency ‘gained currency’, and the introduction of ‘fiat’ money replaced the gold standard. Many people still feel, in an intuitive way, that fiat money is somehow not as ‘real’ as money based on the gold standard, due to the simple fact that gold is a substantial thing, without realizing that neither is real, since a measure cannot be itself a thing.
But as measure, what does currency measure? And how do we measure currency itself, if we don’t have something such as gold purity to measure it against? Of course, like any measure, whether metres, litres or light-years, it is completely arbitrary. The mythos of currency as substantial though had to be maintained, hence the invention of a ‘reserve’ currency, the US dollar. All other currencies are valued against the US dollar, as are all basic resources. But what is the value of the US dollar based on? All other currencies, of course, and the values of all fluctuate daily due to currency exchange markets.
This is the basis, today, of the global financial system. But over the last 60 years or so two major things have happened, one that destabilizes the system itself, and one that threatens the basic mythos that underlies it. The first is that the reserve currency, the US dollar, has declined from representing 90% of world currency to under 15%. Any serious ‘run’, or failure of belief, in another major currency could not be stabilized by such a small percentage of the global total. The second is that in the transition from coins to paper, and finally to digits in a computer, the ‘reality’ of money, its substantiality, from a common sense perspective has largely disappeared.
What would be the result of a general decline in belief in currency? In terms of the way we measure the global financial system, not very much at first, since the general decline wouldn’t be noticed by a system that only measures relative changes. But as the decline gained momentum, the only possible result would be a general collapse of the global financial system.
Could we go back to the gold standard temporarily? Not likely, because we are habituated at this point to judge the value of gold in US dollars, not the value of a dollar in terms of gold. Could we ‘restart’ a collapsed system? Also unlikely, since there would be too many conflicting interests in play, and quite frankly, the majority of those interests would be against the idea, since it would only reinstate their former debts.
At the moment Germany and the rest of the eurozone is playing with people’s faith in the mythos, under the assumption it’s unassailable. But there would be a certain justice if the mythos was exposed as such precisely by the Greeks, from whom it originated.