Thursday, 29 July 2010

Money Is A Figment

The Royal Mint picked out nearly £2m in fake £1 coins last year it has been reported. Actually when you think about it all the coinage and the notes we use are mere tokens anyway. 
The few exceptions are special issues of sovereigns and £5 coins made of gold  that are the other way round. They have no relation to the value of the coin either. They are legal tender but you wouldn’t spend them in quite that way.
If you were paid in gold coins the face value of the coins would be very low and presumably you would not be liable for tax, NIC etc. There was a legal case in America that decided you couldn’t do that but I am not sure it has been tried and tested under UK law. There is the minimum wage legislation however.
I pointed out to my Corporate Finance university class that most money doesn’t exist.  Banks work on the basis that not everyone will want their money in their hand at the same time and have done since 1931.  Therefore it is safe to lend most of it back out and when that person spends it and pays it back in, we’ll go round again.  One of the problems a year or two ago was that erstwhile respectable banks had stretched this principle beyond the limit.  The consequent ball of knitting could not be untangled.
Attempting to do so results in a run on the Bank. Selfish motives overtake academic principles. If the BBC reports queues around the Block to withdraw money from your Bank you are going to get down there yourself. I have been told that at the height of the banking crisis more than one major bank was within minutes of closing down the ATM cash tills!
Almost unbelievable, but then so was much else going on at the time.
So should we all go back to bartering? My expertise and knowledge is worth 53 of your lovely cabbages? We need a lowest common denominator of course. Other things besides round metal tokens have been used within living memory. Cigarettes in prison, or PoW camps for example. When paper IOUs were issued as a standard amount paper money was born.
There are interesting quirks around paper money -  who can issue it, where it can be issued and is it legal tender? (only sometimes) .  Other payment methods, cheques, credit cards, etc are not legal tender either.  It’s a minefield but actually, day to day, most people are happy to get on with it.  And not worry too much. 
‘Go to the Bank!’ declared my 5 year old (some years ago) when I said we had run out of money. As if the bank was a benevolent provider.
So money is all a big confidence trick. But what would we do without it? It is a measure of resource, a measure of success, a common denominator. (Who needs all those cabbages? ) Moreover money gets everywhere in business. Every department of business needs and uses it and could always do with a bit more in the budget. You do need to understand how it all fits together, and what your Accountant is on about with those papers he does for you. 
If your business needs developing, money will be part of the equation somewhere along the line. Let Bob Shepherd Associates sort it all out for you to your best advantage. We will help you Save Money and Make Money!   

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