Understand how money works
Money then and now
Prices rise, you deposit money in a bank, you borrow and repay. We read about present-day monetary situations alongside those of the past. We describe not only the similarities but also the differences and aspects that cannot be applied to the present.
Theme 15
Constraints of finance and currency
What has the state's need for expenditure done to the monetary system?
Recoinage/Debasement → Public finance, government bonds, central bank, inflation
Creating money from credit
On whose ledger does that balance exist?
Bills of exchange/Deposit receipts → Bank deposits/Credit creation
The state pays for war
What part of the monetary system does war test first?
War expenses/Recoinage → Government bonds, central bank, public finance
A strong currency crosses borders
Why does a coin that can be accepted without doubt cross borders?
Athenian owl drachma/Denarius/8 Reales → Dollar standard
The system makes good money disappear
What do people do when forced to accept two items of different value at the same price?
Forcing acceptance of coins of different fineness at the same nominal value → Currency choice, capital flight
The monetary system collapses
How does the manner of collapse teach us what supported the system?
Dynastic change/Recoinage → Currency crisis/Default
New technology changes money
When the technology of production changes, how does that affect who can be a producer?
Striking → Machinery → Paper → Electronic payments, CBDC, Crypto-assets
The private sector creates money
How has the state treated money created by non-state actors?
Merchant credit/Private notes/Banknotes → Bank deposits/Stablecoins
The balance of payments drives politics
Do monetary flows move faster than politics?
Global circulation of silver → Foreign exchange, current account balance, reserve currency
The center of gravity of what underpins value shifts
What gives today's money its value?
Metal/Sovereignty/Law/Insignia/Weights and measures → Paper/Data/The state/Taxes/Central bank/Banks/Payment networks
Putting a price on time
Is ten thousand yen today worth the same as ten thousand yen a year from now?
Lending/Interest/Interest prohibition and its circumvention → Commercial credit/Government bond yields/Interest rate markets/Policy rates/Yield curve
What is offered to secure credit?
What can the counterparty accept without doubt?
Pledges/Real estate/Commercial bills → Government bonds/Securities/Repo collateral
Who promises "safety"?
Behind the words "guaranteed" and "backed," who is offering what, and up to what amount?
Paper of the king's bank and shares of companies that underwrote government bonds → Deposits of trust companies → Securities and digital money claiming to be backed.
The price is not always what is written on the surface.
How much am I paying? Who is taking it, and where?
Profit from money exchange, seigniorage from recoinage, and coin clipping → Transaction fees and profits from balance management.
Is time the enemy of the borrower and the friend of the lender?
Is interest the price of time, or a dowry to compensate for a lack of credit?
Interest rates on suiko loans, prohibition of interest, and pledges for kariage loans → Interest-bearing paper and refinancing of government bonds → Zero interest rates and long- and short-term rates.
Correspondence table of past and present situations
For each theme, we have placed one representative situation from a historical period. Clicking on a past situation takes you to "History of Money in the World and Japan," while a present situation leads to the book.