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Money trivia

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You earn it, you save it and you spend it. Your life would not be the same without it. We use it every day but rarely think deeply about its origin and utility. Money makes the world go around and has been doing so for hundreds of years. Here are 10 things you probably don’t know about money.

  1. The Chinese were the first to use paper currency. They started carrying folding money circa AD 740 - during the Tang Dynasty. It took more than 900 years for the practice to catch on in Europe. Today, there are 180 official currencies in circulation, 31 of which use the term “dollar” to describe their currency.
  2. Paper currency is not made from the same paper used in books and magazines. This “normal” paper is made from cellulose which comes from trees. In contrast, paper currency is made of a mixture of 25 per cent linen and 75 per cent cotton, with silk fibres running through it.
  3. In Australia, the currency is made from polymer (plastic). Australia introduced the first plastic banknote in the world - with an optically variable device - in 1988. Polymer notes are difficult to forge, have greater durability than traditional notes and are more environmentally friendly.
  4. The world is awash with paper currency. According to the Bank for International Settlements, there’s a massive US$4.6 trillion on average in circulation. This accounts for around eight per cent of the world’s actual physical money - the other 92 per cent exists in bank accounts around the world.
  5. Governments profit from printing banknotes as the cost of manufacturing currency is lower than the face value. If a government adds five cents of ink to ten cents of paper to produce a $50 bill, the government makes $49.85. The value of currency over its cost of production is called seigniorage.
  6. Paper currency is very grubby. It’s estimated that 94 per cent of bills are contaminated with bacteria such as E.coli as they are touched by countless anonymous fingers. Paper money is said to carry more germs than a household toilet. Paper money can reportedly transport a flu virus for up to a fortnight.
  7. Most of the world’s money is lent into existence. When a bank makes a loan to a customer and deposits the proceeds into a bank account, new credit money is created. Thus, money borrowed from a financial institution increases the money supply.
  8. New credit money also has a multiplier effect. For example, a person borrows $1,000 to buy a ring. The jeweller takes the $1,000 and uses it to pay for repairs to his car. The car dealer, in turn, uses the money to help pay the wages of his mechanics and so it goes on and on.
  9. The use of cash is not universally declining. Australia, Canada and Sweden have seen a fall in usage. But in the US, the value of currency in circulation is at its highest level, relative to GDP, since the 1950s. Over recent years, the ratio of cash to GDP has also grown in Japan, Switzerland and the eurozone.
  10. Throughout history, a wide variety of items have served as money. These include commodity money (barter system), paper money (fiat currency), credit money (bank loans) and electronic money (e-banking). Money has long played a dominant role in society and some believe it’s humanity’s single greatest invention.

The world as we know it would not function without money. Money has shaped human civilisations and we use it to fund elections, bankroll wars and finance infrastructure. Money is classically defined in terms of its three main functions – a medium of exchange, a unit of account and a store of value.

As a medium of exchange, money enables us to pay for the goods and services we need. We use it to buy and sell from one another. Without money, we would have to barter for everything. Imagine asking a restaurant to provide you with a meal in exchange for washing the dishes! Money as a medium of exchange brings standardisation, making economic activity simpler.

As a unit of account, money (in Australia) is measured in dollars and cents. Everything in our economy has a dollars and cents price. Our restaurant meal cost precisely $42.75 rather than, say, ten-and-a-bit apples. Money is a standard numerical unit of measurement which is divisible into smaller units without the loss of value. What’s a fraction of an apple worth to someone?

As a store of value, money can be saved and spent at a later date. Holding money is a more effective way of storing value than, say, holding a banana which will rot. The value of money saved remains stable over time and can be retrieved at any time. Of course, inflation slowly erodes the purchasing power of money over time, but a dollar stored always retains its face value of $1.

Since Richard Nixon’s decision to remove the dollar’s peg to the gold standard in 1971, the supply of money (in various forms) in the global economy has exploded. My suspicion is that one day cash will be a relic of the past, but that day is still a long, long, way off. For now, many will continue to pay with cash rather than tap and go.

Paul J. Thomas, CEO



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CEO Paul Thomas