Wednesday, June 6, 2012

Real value currency

We all know that the current paper money was supposed to be backed by gold or precious commodities. In another words, bank should hold enough valuable commodities for each currency they issue. This is not happening anymore as the value of the currency is now based on value determined and backed by the issuing government, it is also called fiat money.

Thus, we are now in the world depending on governments of the world to be responsible and trustworthy.

Though some argue that it is backed in the value of goods and services a country generated. Lets discuss it from a service value situation. Imagine a government that uses a lot of services from the private sector. Valuing the services value is the judgement of the government. One government may value a cleaning service to be 1 ounce of gold while another government value the same service at 2 ounce of gold. Should the value of the country and currency based on this method? How fair it is in the international trade, when exchange is happening using a currency based on those principles?

Think about the stock market. A company may originate to sell their shares in the market for a value around its net book value, the shares are traded and suddenly become 15 times its net book value. It is only a perceived value of ownership of the part of the company. The perceived value is further traded in other derivative markets. As you can see, the real asset is the company vs the value published around the world may not present reality. But most of us are educated to accept and believe in it.

Thus we are now in the world depending on government of the world to be responsible and trustworthy.

Have you ever wonder how easy it is to print money, during chaos or during period of war? There will be no eyes watching anymore.

I believe should Bretton Woods concept are applied in the world today by every government and irrevocable, we should see a more stable and fair world.

Ability to revoke the system seems to suggest the system was only design to educate and increase confident of using paper money in international trade. Once it is accepted, cut the link to real value and start with something easily manipulated. Don't you think?

No comments:

Post a Comment