Final Word

Currency war talk goes against the flow


First there was the fall in the price of oil, then the Swiss National Bank dropped its pegging of the franc to the euro, followed by the European Central Bank launching its €1 trillion quantitative easing package.

From the World Economic Front in Davos, Switzerland to the financial markets it was like releasing the cats amongst the pigeons, resulting in much talk about currency wars.

But all the talk of a currency war, implying a witches’ brew of trade and capital flow disruptions, goes totally against the flow of what currencies should be about. 

The word ‘currency’, first recorded in English in 1624 as ‘curraunt’, comes from the Latin word ‘currens’ as present participle of ‘currere’, meaning ‘’run". It arrived in English via the Old French word ‘corant’, also meaning running. In English it was first used in the sense ‘a flow’ or ‘course’ in 1699.

Although the term ‘currency’ for money as a means to facilitate the flow of trade between people, countries and regions only came much later, the practice goes back to at least 2 000 BC in Mesopotamia and somewhat later to ancient Egypt. Metals were used to produce symbols of valuable commodities like cereal grain in storage. They provided the basis for trade in the Fertile Crescent for more than 1 500 years.

By the 10th to 9th centuries BC, due to problems like piracy and the raiding of merchants, the precious metals of silver and gold itself became the store of value – stamped into coins guaranteeing a particular weight of precious metal.

In the mid- to late first century the Chinese became the first to introduce paper money, or banknotes, as we know them today. But at the time they were in effect only receipts for coins deposited to wholesalers by merchants. These they could carry as promissory notes, relieving them of the burden and perils of travelling with valuable and heavy coins.

By the 13th century standardised banknotes issued by the Chinese government delivered a nationwide acceptable currency to facilitate the free flow of trade in commodities and services.

In Europe in 1661, Sweden became the first country to introduce ‘paper money’. Over time this also facilitated the practice of interest-bearing deposits and loan. This not only smoothed the way for trade, but also for the development of credit systems and of people investing capital in businesses in exchange for a share in the stocks owned or traded in by the company – giving us the concept of ‘stockholders’. 

Long gone, however, are the days when the medium, or currency, of exchange was directly coupled to something of tangible value, be it gold or a specific weight of cereal grain. The latter, incidentally, giving rise the name of modern Israel’s currency, the shekel.

Now we live in an era where the value of money is no longer coupled to something tangible or of exact measurable value, like gold, but to elusive concepts like ‘supply and demand’.

No wonder the cat, since the middle-ages associated with witches, is loose amongst the pigeons of the financial markets. The abandonment of the ‘gold standard’ in the 1930s brought on the witches’ brew which delivered the first ‘currency war’ – a beggar-thy-neighbour strategy, by some also euphemistically called ‘competitive devaluation’.

It is the world of floating ‘fiat money’” meaning a currency declared by government as legal tender of a particular country. The term ‘fiat’ is a Latin word for “it shall be” – because government says so?

It could just as well have been called ‘fides’ money, ‘fides’ being the Latin word from which we got the word ‘faith’, because that is basically what it is based on, according to some sources.

For some, to the modern English ear, it might have been more appropriate to use the Greek word for faith – ‘pistis’.

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by Piet Coetzer

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