Money and trust may have two different definitions, but money cannot exist without trust. Allow us to explain.
In historical times, the barter system was used before money was even invented. Individuals exchanged goods or services for things they needed or saw value in. In order for this system to work, you need to want what the other person has or is offering. When money did start coming around, it was physical in the form of gold or silver coins. People valued these precious metals, but soon, money began evolving into paper bills then data on a computer.
Now that money occurs primarily as a digital record, it has evolved much more into a symbol than when it began. It really has no productive use physically speaking; you can’t eat money or build shelter with dollar bills. In fact, the United States Federal Reserve currently holds $1.46 trillion in circulation in the form of bills and coins. Everything else is an electronic record.
In order for money to function this way, it needs a strong level of trust and cooperation. When you review your bank account, you trust that the statement reads true. The same goes for our assets. Stocks and bonds are held in digital forms, but individuals are confident that someone is liable for them. This trust is not only within homes, but with businesses as well. You expect that when you want to cash out, so to speak, that you will be able to do so at any time, that the money exists as it is recorded.
What happens when we lose trust?
When trust goes to the wayside, society begins to lose function. If faith is lost in the establishments in charge of money, businesses and individuals want to collect their physical money in order to feel secure. Some of you may be able to relate to this from recent years during the 2007-2009 global financial crisis. And as this happens and people begin spending less, deflation occurs. In other words, the value of money increases, and the value of goods and services decreases. We cannot progress solely on a barter system. It is one of the reasons why currency was invented. Thus, we need to have that assurance and cooperation when it comes to our money.
How do we lose this trust?
Even if you do not pay attention to the news, we are sure you are familiar with the recent terrorist attacks over the years. Understandably so, when these attacks happen, the level of trust is low and fear begins to take over. It is during these times that the initial reaction is to unfortunately limit the liberties and freedoms of individuals in an effort to increase the protection of the public. However, if, for example, Paris continued to be on lock-down long after their November 2015 attacks, the city would begin to crumble. It would have a huge negative economic impact. Although there is always risk, the trust needs to remain intact. It is imperative that, as a whole, we continue to find a balance between security and our personal freedoms.
What can you do?
Find balance within your own finances as well. Life is all about balance, and while you should not hold on to all your money physically, you should also not have all your valuables in a digital form either. Money and trust takes work and strategy. Maintain some assets that are not through a computer or a stock broker. Keep physical goods that are useful and efficient as well as physical cash in the case of another nationwide financial emergency. If there were to be a breakdown, you can feel secure knowing you are prepared. The more people that feel secure, the more society and the economy can continue to be sustainable.
Money and trust need to go hand in hand in order for currency to continue to work properly. If we can all get on board with this concept, these two can continue to coincide and cooperate.
Do you keep any physical assets? What are your thoughts on the topic of money and trust? Keep the conversation going in our forums.