‘A gram of meat for its weig
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