The Illusion of One Money: Unraveling the Complex World of Currency, Wealth, and Liquidity
The way we use money takes on many forms
There’s a notion that we need one money. We don’t. And, we actually have many monies. We have many items that store value or create liquidity for us to live, and they are all in some shape or form, money.
We’re many thousands of years in and still haven’t created a “best money”. Why?
Because money takes many forms and requires many different aspects for it to be usable. For as long as humans have roamed the earth, we’ve confused the need for liquidity with the need for money. Yes, money provides a tangible unit for us to solve liquidity problems. But, given the nature of our mismatch of skill, timing, and needs we’ve not come up with a single solution that solves every mismatch.
Money Beyond Textbooks: Decoding the Real-World Dynamics
Anyone who has gone down the rabbit hole of, “What is money?”, will tell you the textbook definition. Money is a:
Medium of exchange
Store of value
Unit of account
These statements are great for textbooks but how they apply in the real world works very differently.
has probably the best definition of money that goes something like this:“Money is an asset unencumbered by liabilities, everything else is currency.”
True money stores value over time. Currency allows us to make an exchange with the expectation of doing so again in the near future. One holds value while the other loses value. However, both are useful at specific points and times.
Since real monies are assets, people believe in them. They are useful (store value/provide a foundation) and since money isn’t encumbered by debt it can’t be destroyed by rehypothecation or fractional reserve lending; i.e. leverage.
When you buy a house, it’s a liability. At the time of a non-cash purchase, currency is created out of thin air via the loan created to buy the house. The house only becomes an asset once you own it free and clear. When you finally pay off the loan, this action in turn destroys the currency. What remains is money, land, and a structure that stores value and has utility across time.
In recent year’s we’ve all argued or made the case for “what is money”, from the angle of, “which money gives me and my team the most money?” The idea behind this, is really which money gives me the most power?
Throughout history, this cycle has been repetitive and it will happen again.
What this approach doesn’t consider is which money provides the best network to the most people globally, while providing the necessary liquidity without indebting users by an amount that requires them to spend the rest of their lives chasing more money.
Why? It would be too fair and too simple. Humans like to make things complex and chaotic.
In the real world, money is many things at different times because we all have different needs at different times, and we each have different skills available to be able to fulfill those needs.
So, money most often is:
Stocks, bonds, gold, fiat (cash), commodities, coins, credit cards, skills, homes/real estate, bitcoin, Ethereum, DeFi, furniture, cars, food, natural resources, baseball cards, etc.
Every person on earth owns a mix of these things. Each store or can be converted into currency at varying speeds depending on one’s timing of needs. These are effectively what we call wealth and they are why wealth and money are not the same.
Each “money”, stores value in a different way. They all have different characteristics of erosion or growth across time. To unlock the value within these depends on the timing of our needs and what store of value the seller is willing to accept. The latter, most likely being the most important mismatch we need to solve for.
In the end, what we are really trying to solve for is liquidity. The liquidity we need to live whatever lifestyle we desire. Based on this desire, our wants, we will chase after what we perceive is the best money that will get us to our destination the fastest.
That’s why so many find themselves disillusioned with money, because they spend a lifetime chasing after money and things, only to realize they missed out on wealth.
Crafting a Wealthy Life: Navigating Choices, Needs, and Desires
Every one of the 8 billion people on earth have:
Different allocations to monies
A different timeframe of needs across various monies (liquidity)
A different set of desires for life.
Based on these three needs, we all have a different set of choices to apply to the items we hold as money. These choices create or destroy liquidity and change the path of value in our lives. How we use them determines whether or not we find true wealth or end up with a lot of money/currency.