‘A gram of meat for its weig

The Malta Independent on Sunday - - NEWS - Jeremy Mi­callef

A pound of salt

The word used to de­scribe the ac­tion of ex­chang­ing one ob­ject – what­ever it may be – for an­other is ‘barter’. Progress in fi­nance has fa­cil­i­tated the ex­change of value to an au­to­mated process, but be­hind the scenes it has been a cen­turies’ long process to get to where we are to­day.

Go­ing back to Ro­man times, Wayne Pisani, Grant Thorn­ton Malta part­ner and Pres­i­dent of the Malta In­sti­tute of Fi­nan­cial Ser­vices Prac­ti­tion­ers ex­plains the im­por­tance of ap­pre­ci­at­ing the evo­lu­tion­ary progress of money in order to truly un­der­stand the mov­ing gears in to­day’s pay­ment sys­tem.

“Money is im­plic­itly a means of fa­cil­i­tat­ing the barter of value. The term ‘salary’ is in­dica­tive of the ori­gin of money – derived as it is from the word ‘salarium’, the Latin for ‘salt’ – which was the medium of pay­ment to Ro­man sol­diers,” he says.

Back then, sol­diers were paid in salt and if they wanted to buy a sim­ple cab­bage, for ex­am­ple, they would need to find some­thing of equal value that the seller needed in order to barter for that cab­bage.

Meat would be a good ex­am­ple of this. Since elec­tric­ity – and thus fridges – was cen­turies away from be­ing dis­cov­ered, it was more likely that butch­ers would need salt to pre­serve their meat. As­sum­ing that the veg­etable seller would have needed meat for a broth, sol­diers would have had to go to the butcher and buy (barter) the meat with salt, and then buy (barter) the cab­bage with that meat, un­less the veg­etable seller was will­ing to take the ‘ex­change’ risk of ac­cept­ing the salt based on an as­sump­tion that the butcher would have even­tu­ally agreed to barter the ex­cess salt with its equiv­a­lent value in the meat he needed.

Pisani points out that whilst this made sense for bar­ter­ing be­tween par­ties and com­mu­ni­ties in rea­son­ably im­me­di­ate prox­im­ity, it be­came harder in a re­gional – and even­tu­ally glob­alised – econ­omy.

So­ci­ety then be­gan to ex­pe­ri­ence the evo­lu­tion of com­mod­ity cur­rency into minted units, the value of which was di­rectly pegged to the com­mod­ity of which they were made – coins which rep­re­sented their weight in what­ever min­eral they were made of.

Af­ter that came rep­re­sen­ta­tive cur­rency, rem­i­nis­cent of the me­di­ae­val bank­ing sys­tem that would serve as a point of trust, ten­der­ing re­ceipt for valu­ables such as art or gold.

“Trust shifted from a ne­ces­si­ty­driven com­mod­ity such as salt, to a store of value com­mod­ity such as gold, to a re­ceipt rep­re­sent­ing value is­sued by a sin­gle point of trust – the bank – run by af­flu­ent me­di­ae­val fam­i­lies as the Medici’s bank”, said Pisani.

Fast-for­ward a few cen­turies and we ex­pe­ri­enced the de­cou­pling of money from pre­cious valu­ables, typ­i­cally gold, when in – 1971 – the United States Trea­sury re­solved that it would no longer be nec­es­sary for the US dol­lar to be backed by gold: fiat money. Fiat money in cir­cu­la­tion is ac­cepted as a valu­able unit of ex­change on the ba­sis of the trust placed in the gov­ern­men­tal sys­tem is­su­ing the re­spec­tive coins and bank notes de­nom­i­nated in cur­ren­cies in le­gal ten­der, typ­i­cally backed by the econ­omy.

We went from com­mod­ity to rep­re­sen­ta­tive to to­day’s fiat money, cur­rency that a gov­ern­ment has de­clared to be le­gal ten­der. To­day’s fiat money re­lies on a cen­tral point of trust.

A cash­less so­ci­ety

Mov­ing onto the present and the po­ten­tial fu­ture, Pisani shows how a pub­lic blockchain could pos­si­bly be a so­lu­tion to do away with banks (the cen­tral points of trust). How­ever, the con­cept of a cash­less so­ci­ety is not con­tin­gent on blockchain. Money avail­able on credit cards and debit cards is al­ready in dig­i­tal for­mat with­out the use of blockchain.

“What is hin­der­ing us from mov­ing to a cash­less so­ci­ety is prob­a­bly a cul­tural mat­ter. I don’t think it’s a mat­ter of trust,” said Pisani.

Lo­cally speak­ing, mer­chants might not be will­ing to ac­cept cash­less pay­ments be­cause the trans­ac­tional charges in order for them to ac­cept such pay­ments dent their profit mar­gin, so it is likely that they would not ac­cept a card pay­ment for any­thing lower than €10 or €5 euro.

Tech­nol­ogy and reg­u­la­tion are mak­ing it pos­si­ble to re­duce these in­ter­me­di­ary charges or com­mis­sions. “The con­sumer ex­pects a se­cure, seam­less au­to­mated pay­ment ex­pe­ri­ence, prefer­ably with a small de­gree of hu­man in­ter­ven­tion to sign or in­put ver­i­fi­ca­tion pin codes, where the pay­ment is fa­cil­i­tated and pack­aged in soft­ware as a ser­vice (SaaS) for­mat, a con­cept that is per­me­at­ing the cash­less so­ci­ety. Trust is placed in the sys­tem,” he said.

Pisani rea­soned that it is not a ques­tion of re­mov­ing the point of trust, but a ques­tion of the trust point pro­vid­ing an easy to use, seam­less and in­tu­itive pay­ment ex­pe­ri­ence.

Gov­ern­ment steps in

“Per­son­ally, I think that the so­lu­tion is quite sim­ple: pull out all money in pa­per for­mat and is­sue it in dig­i­tal for­mat,” said Pisani, and ac­cord­ing to him, this process is al­ready in mo­tion. This is par­tic­u­larly the case in smaller coun­tries or those coun­tries that are in con­trol of their cur­rency, as is the case of Uruguay, where Uruguay’s Cen­tral Bank is­sues dig­i­tal notes rather than print­ing bank notes.

If we look back at the 1990s, and the ad­vent of on­line com­merce and the need to make elec­tronic pay­ments to buy some­thing off the in­ter­net, we may re­call the quest to fig­ure out an on­line pay­ment so­lu­tion. It was not easy to use one’s debit or credit card on­line. An elec­tronic wal­let so­lu­tion was needed: Pay­Pal pos­si­bly be­ing the widely ac­cepted pre­cur­sor to to­day’s elec­tronic money is­suers, pay­ment ser­vices

Grant Thorn­ton Malta Part­ner and Pres­i­dent of the Malta In­sti­tute of Fi­nan­cial Ser­vices Prac­ti­tion­ers Wayne Pisani

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