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Money as trust

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Trust is the foundation of all human relationships and so it is with money. Indeed, it’s been said that money is the greatest trust system devised by humankind. Our entire monetary system is based on trust as it’s essential for virtually all economic activity.

We trust that money will retain its value. We trust that money will be accepted as a medium of exchange. We trust that governments will stand behind the money they issue. And we trust that financial institutions will safeguard our money and safely transfer it electronically. Money, then, is a collective belief system based on trust relationships.

Money is also an abstract representation of value. Currency has no inherent value in and of itself. Bank notes are just colourful pieces of paper with ink patterns used to represent different denominations. But we believe in the promissory value that’s printed on the paper.

On the face of all Australian bank notes is a public declaration: “This note is legal tender throughout Australia”. It is signed by the Governor of the Reserve Bank and the Secretary to the Treasury. Even though few of us have met these officials, all of us are willing to trust that the notes will be accepted as currency and the same holds true for other currencies.

The global monetary system functions smoothly because everybody has faith that those pieces of paper will be accepted by everybody else. Without the consent of the public, the system would not work. If citizens stopped believing that money had value, they would cease using it and the whole system would collapse.

Money is a social convention where one party accepts it as payment in the expectation that others will do so too. In his book Sapiens - A Brief History of Humankind, Yuval Noah Harari writes that “trust is the raw material from which all types of money are minted”.

He further states that money is “a system of mutual trust, and not just any system of mutual trust: money is the most universal and most efficient system of mutual trust ever devised”. Dr Harari continues:

Money is more open-minded than language, state laws, cultural codes, religious beliefs and social habits. Money is the only trust system created by humans that can bridge almost any cultural gap, and that does not discriminate on the basis of religion, gender, race, age or sexual orientation. Thanks to money, even people who don’t know each other and don’t trust each other can nevertheless cooperate effectively.

Trust powers money and has a specific value in dollars, euros, yen or other currency. Cryptocurrencies, like Bitcoin, have failed to gain broad acceptance as they are (understandably) not seen to be as trustworthy and durable as sovereign currencies.

Bitcoin was a radical social experiment which, ironically, was triggered by the catastrophic failure of the banking system. The Global Financial Crisis (GFC) undermined confidence in banks and bankers around the world have been working to rebuild the bond of trust with the public.

All financial institutions trade on trust and banks have devalued that trust. During the height of the GFC, banks did not even trust each other. This caused a credit crisis (or a crisis of trust) as banks were unwilling to lend to one another due to concerns that interbank loans would not be repaid.

The GFC prompted historian, Geoffrey Hosking, to investigate how trust has functioned in economic life, with money as its symbolic focus. In his book, Trust: Money, Markets and Society, he claims that humans have an “inborn propensity to trust” and that “money fixes it and makes it economically effective”.

Not surprisingly, Hosking believes that the foundation of capitalism is trust. Trust is the currency of business and life. Trust allows money to flow between us and that’s how business is done. Trust (not money) makes the world go ‘round.

Money connects us and is a way of organising our lives. We exchange cash (physical and electronic) routinely for all kinds of activity. And unlike the barter system of old, buyers and sellers don’t even need to be in the same place or know each other. The global acceptance of money enables us to act not just locally but globally.

Everything about money and banking is based on trust. If you think about it, you’ll see that a credit score is really a trust score. If a bank trusts you on the basis of your credit history (your track record in paying your debts), then you’ll be rewarded with a higher “credit worthiness” score and pay less for a loan.

Money is a remarkable human invention and a symbol of economic value and social power. If humans did not trust in money, the modern society in which we live would be inconceivable. Trust makes everyday transactions possible. The best investments we can collectively make is in trust.

Tru$t is the most valuable currency we have.

Paul J. Thomas, CEO


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CEO Paul Thomas