WHAT IS MONEY?
Throughout history and around the world, money has taken on diverse forms – from cowrie shells as the earliest forms of currency, to gold coins, through to pieces of paper or polymer notes.
Early forms of Money in Fiji
In the early 19th century, barter trading predominated, as the first European traders sought to trade with Fiji’s indigenous population for their sandalwood and bechede-mer. Barter trading phased out with increasing European settlement and the introduction of notes and coins (or hard currency). From as early as the 1860s, accepted mediums of exchange included British sovereigns, American and Mexican dollars, Bolivian half dollars, French francs, Russian roubles, Turkish gold coins and mohurs from India.
What is Money and why do we need it?
The standard definition of money is that the item would comprise of three attributes.
■Wide●y accepted means of payment
■U■it of account
■Store of value
The material or item used as money does not need to have any value in its own right. Some forms of money have had this, such as gold coins, while others have not, such as paper banknotes.
Money is a system of mutual trust. An example of the establishment of trust was the agreement in 1874 for Britain to take over the responsibility of Fiji’s governance. Prior to this, attempts by the Ratu Cakobau Government to issue currency was rejected as members of the public were unconvinced of the Government’s ability to back up the currency.
If money is mismanaged, trust can be lost. For example, an oversupply of paper money (printing and issuance), leads to the fall in value of money and in turn to hyperinflation. The worst hyperinflation recorded was in 1946 at the end of World War II in Hungary, where prices doubled every 15 hours, to a point where the government issued an entirely new currency for tax and postal payments.
Maintaining a stable currency and avoiding high inflation is in fact one of the core functions of central banks. The Reserve Bank of Fiji is responsible for printing the country’s currency notes and minting its coins. The central bank also ensures that there is adequate supply of high-quality currency in circulation to meet payment purposes.
Simply put, money facilitates trade which in turn facilitates growth. It enables for specialized production and niche trading on a larger scale and trust is placed in the value of money, rather than in an individual.
How is money created?
There are two main forms of money that exist in modern economies:
■coi■s and banknotes (i.e. currency)
■deposits held in accounts at banks or other authorized deposittaking institutions.
Currency is a physical form of money, while deposits held in accounts with a financial institution are a digital form of money and comprise the greatest share of money in a modern economy. In Fiji, money supply comprises notes and coins circulating in the economy and money placed with commercial banks and licensed credit institutions. Banks in Fiji hold most of the money supply.
There is also a subtle difference between currency and deposit account balances. Currency is backed by the central bank, which eliminates any risk of default. Deposit account balances, on the other hand, are liabilities of financial institutions (because the depositor can ask for them back) and these institutions are at possible risk from default.
Over the years, Fiji’s coins have been produced by the Royal Mint in London, the Royal Australian Mint, the Royal Canadian Mint and the Singapore Mint. The current coins are minted by the Royal Canadian Mint while the notes continued to be printed by De La Rue Currency.
In terms of money ‘creation’, deposits can also be created when financial intermediaries make loans. While the process of extending loans is central to the process of money creation, this does not mean that financial intermediaries are able to make loans and create money without limits. Deposit-taking institutions need to meet certain regulatory requirements and must be satisfied that borrowers can pay back their debts.
Deposits can also be created by the Reserve Bank, such as when the Reserve Bank purchases government bonds and the ultimate proceeds of the sale are deposited into the banking system, hence adding to total deposits.
Why don’t all countries use the same money?
Whilst it would be easier to use one stable form of currency across the world, it would make it difficult for individual economies to respond to economic shocks.
Choosing to have their own unit of account, allows countries to conduct their own economic policies and stabilize fluctuations in their currency in reaction to economic events.
Keeping your money safe
this season
With the festive season coming to its peak, here are some ways to protect your money.
Be vigilant when withdrawing from ATMs. Check the conditions of the ATM and contact your service provider should you notice anything out of the ordinary, such as a loose card reader or damage to the keypad.
Do not share your passwords. Sharing your ATM PIN or internet banking passwords put you at risk of losing your money. Also refrain from carrying written passwords or pins in your purse or wallet.
Scrutiny is key. Know that your bank won’t ask for personal information. Online fraud is rampant and the best way to protect yourself is to ask as many questions as possible.