Day 73: The Money Supply - Part 3

I forgive myself for not accepting and allowing myself to realise that the value of money is dependent upon the amount of money available in circulation and thus, that money is currently not a stable point that one can use as a foundation to build one's life upon - as the foundation of life would and does go shaking with the whims of economical forces.

I forgive myself for not accepting and allowing myself to see and realise that I cannot trust in money as it exists currently - since the value of money is not consistent ad equal to life - but keeps on changing under different conditions, at different times - and thus, I forgive myself that I have accepted and allowed myself to place my trust in an economic system that is completely untrustworthy - of which I can, in no way say, that it will always 'be there fore me', that it will always support me, that it will never let me down.

I forgive myself for not accepting and allowing myself to realise that a World of Equality - where Money is Equal to the Value of Life - is exactly that: a system that will always be there for me, a system that will upport me and a system that will never let me down

I forgive myself for not accepting and allowing myself to realise that banks have the power to make my money worthless - where, individuals that were not even elected, have the power to influence the entire economy and everyone that's a part of it.

I forgive myself for accepting and allowing myself to believe that we live in a democracy when it is so hard to actually manage this economic system and where some of the most important ways of influencing it, is carried out by individuals that are not even representatives of the general population, but just some bankers who apparently know 'what's best for us' - yet, actually, just have the power to do what's in their own personal best interest and actually use it that way.

I forgive myelf for not accepting and allowing myself to realise that any economic system where such points are left to be decided upon by the private sector, is unacceptable as 'private' means 'personal' and that basically means that some will benefit and most will lose out.

I forgive myself for not accepting and allowing myself to question how banks actually operate and how it is acceptable for banks to lend out money they don't actually have - and then charge you for their 'service' as though they deserve to be rewarded for their effort - when all they do is use other people's money to make more money for themselves - and within this process, potentially de-stabilise the entire economy and everyone' lives.

I forgive myself for not accepting and allowing myself to see and realise how screwed up it is that each country exists in a state of competition with one another, where, continuously, each country is out for other countries' money - and do everything they can to draw money towards themselves, without caring about what effects this has on other economies, or even in terms of the local economy, where prices will rise and the poorer households will simply be excluded from economic participation and are forced to live in a state of survival.

I forgive myself for not accepting and allowing myself to see and realise how powe relations among countries take advantage of the mechanism of imports and exports - where developing countries that desperately attempt to draw funds into their country, are basically ordered to import goods from a certain country, in order to obtain loans from those countries = where they have to pay for the imported goods, meaning: money leaving their country, and where they have to eventually pay back the loan with interest, meaning: more money leaving the country - and they call this 'AID'.

I forgive myself for not accepting and allowing myself to realise that the only reason that AIDs is such a problem in Africa, is because the entire continent has become dependent on foreign AID to manage their extremely weak economie -where, just like with AIDs, their economies are unable to recover on their own and any economic fluctuation is like a lethal blow - and this happens constantly - and thousands literally die each day because of it.

I forgive myself for not accepting and allowing myself to realise that the only reason why the economic system seems to be working in a fairly stable way in developed countries, is because international relations manipulated the situation to become as such that the developed world experience the 'positive' side of the coin, and the developing world experiences the 'negative' side of the coin - where in developed countries the economic system seems to be working in a fairly stable way, it is absolute chaos in the developing world - and thus, I forgive myself for not accepting and allowing myself to realie that, as with any polarities, the apparent stability of the developed world cannot exist without the chaos of the developing world - and as such, in maintaining this economic system for our own sense of security and stability, we condemn millions to a life of chaos and suffering every day.

Day 72: The Money Supply - Part 2

There are two other factors that can influence the money supply: international transactions and government transactions.

2. International Transactions

Note that we are here looking at how the money supply within the economy of a particular country can change.

The influence of international transactions on the money supply is rather simple: If money comes into the country, then the money supply increases - when money goes out of the country, the money supply decreases.

What does it mean: money moving in or out of a country?

Most countries have an adopted an open market policy throughout the years - either willingly or under pressure - which means, for instance, that people in France can buy products from China. In this example, where China sells goods to France, we say that China is the exporter who exports goods to France - and France is the importer, who imports goods from China. The direction in which the goods (or services) move, is thus: from China to France. On the other hand, then, the money with which these goods were purchased moves in the opposite direction: from France to China. Money moved out of France and into China.

Most countries are both importers and exporters - where they both sell goods/services to individuals in other countries as well as buy goods/services from individuals in other countries. And thus - there is a continuous movement of money: money coming into the country and money leaving the country.

If the amount of money coming in to the country and the amount of money leaving the country is equal - then international transactions have no effect on the money supply. However -

If a country's exports exceeds its imports - the money supply will go up. Why?

With exporting, money comes into the country. With importing, money leaves the country. So, if there are more goods being exported (for which money is received) than there are goods being imported (for which money is given) - then the amount of money in circulation will increase - as more money comes in than leaves the country.

The opposite then:

If a country's imports exceeds its exports - the money supply will go down. Why?

Remember - with importing, money goes out of the country. With exporting, money comes into the country. So, if there are more goods being imported (for which money is given) than there are goods being exported (for which goods are received) - then the amount of money in circulation will decrease - since more money is leaving the country than comes in.

Obviously - it's not only about the quantity of goods/services that are being exported/imported, but also about the value of these goods/services. If only a small amount of goods are being exported, but they happen to be worth a fortune - then that can amount to the same as a massive amount of some cheap commodity being exported.

3. Government Transactions

How government transactions influence the money supply is as follows:

When governments deposit government funds - for instance, from collecting taxes - with the central bank, the money supply decreases. And in the other direction - when governments withdraw funds from their account at the central bank, the money supply increases.

Secondly - when government revenue is insufficient, governments can take out loans from the central bank. Such a loan, again would increase the money supply.

Day 71: The Money Supply - Part 1

What is 'Money Supply'?

The money supply refers to the liquid assets that are held by individuals - it includes coins, notes and demand deposits (cheque accounts). What notes and coins are is clear - but what are demand deposits? If you have a cheque account in which money was deposited - the bank has to pay out deposits in cash on demand, or has to transfer it immediately on demand to another bank or account holder. So - demand deposits - the money in your cheque accounts, is as good as notes due to immediacy with which the money becomes available. The money supply, in simple terms, refers to all the money that is in circulation in an economy, that is available to individuals to purchase goods or services with.

Why does it matter how much money is in circulation?

The amount of money available in circulation has an influence on the prices of goods and services. Remember the following from the blog-post 'Inflation - Part 1':

"In other words - whenever the amount of money in circulation increases in an economy, the prices will go up. Check: the more money is available in an economy, the less it is worth, which is reflected in higher prices - because with the same amount of money in your pocket, you can now purchase less stuff, which means that your money is not worth as much as it used to anymore."

If the money supply keeps on increasing - so will prices - and the result will be inflation. Why?

Because - more money in circulation means more money available to people to buy goods and services with. In other words: the demand for goods and services goes up. If the demand for goods and services goes up (more people are willing and able to buy goods and services), so do their prices.

What factors influence the Money Supply?

1. Banks

The supply of money can be increased by increasing either the amount of notes, coins or demand deposits. Banks play a crucial role within the latter: banks have the ability to create money by increasing the amount of demand deposits.

The question, then, is:

How are demand deposits created?

Firstly: if a person deposits, for instance, $100 in banknotes with a bank, the bank will in return give the person a cheque book, which will give the person the right to write out cheques to the value of $100.

Secondly - and more importantly: Banks noticed that the demand deposits held by them were never all claimed/withdrawn at the same time. They would always have demand deposits 'laying around'. They figured that, instead of leaving the money to collect dust, they could lend this money to other people and charge interest on the loan. This means: the bank would give money to people who hadn't put money in the bank beforehand.

In the First case, nothing actually happened to the money supply: $100 was deposited into a bank - and thus removed out of circulation. This means the money supply decreased by $100. However, the bank issued a cheque book of the value of $100, thereby again increasing the money supply by $100. The money supply before the creation of the demand deposit is thus the same as afterwards.

In the Second case, however, the money supply does change. Using the same amount as an example: Someone deposits $100 into a bank. The bank issues a cheque book of $100 - the money supply balances out. However, of the $100 deposited, the bank decides to lend out $80 to someone who needs and seems creditworhty enough (showing the capability to pay back loans). Now the money supply has increased with $80. At first there was just one person with $100 in their pocket, after the bank did its magic: there was one person with a $100 cheque book and another person with $80 of credit.

Is there a limit to the amount of money a bank can create?

Although small, there are limitations to the amount of money a bank can create.

At any time, a bank must have sufficient cash reserves to be able to provide for cash withdrawals. Secondly, a bank must be able to provide for claims of other banks. What does this mean?

Remember our example of someone bringing in $100 in his bank and receiving a cheque book of the value of $100. If this person writes a cheque of $100 to his landlord, the landlord will go to his bank to cash the cheque and receive $100 for it. The thing is that the landlord's bank and the bank of the person who wrote the cheque, are not necessarily the same one. A bank must therefore always make sure that it is able to provide for the claims of other banks.

Individual banks don't decide how big a percentage of received deposits they keep aside in the form of cash reserves - this is the job of the monetary authorities: the central banks.

Let's say that the central bank dictates that at all times a bank is obliged to hold 2.5% of their total demand deposits in the form of cash resrves. We say that 2.5% or 0.025 is the 'cash reserve ratio'.

Taking again our example of someone depositing $100 at his bank - what implication does a cash reserve ratio of 2.5% have in terms of limiting the bank's ability to increase the money supply?

Firstly - consider what would happen without there being a cash reserve requirement:

Step 1: A person (Person A) deposits $100 at the bank and receives a cheque book of the value of $100.
--------> Money Supply: Nothing changed
Step 2: The bank lends out the $100 that was deposited to someone else (Person B).
--------> Money Supply: + $100.
Step 3: Person B deposits the $100 at his bank and receives a cheque book of the value of $100.
--------> Money Supply: still + $100.
Step 4: The bank lends the deposit Person B made and lends it out to Person C.
--------> Money Supply: + $200.

As you can see - the process could just keep on repeating itself until an endless amount of money is created.

What happens then in case of there being a cash reserve ratio of 2.5%?

Step 1: A person (Person A) deposits $100 at the bank and receives a cheque book of the value of $100.
--------> Money Supply: Nothing changed
Step 2: The bank keeps $2.5 dollars in reserve and lends out $97.5 to someone else (Person B).
--------> Money Supply: + $97.5
Step 3: Person B deposits $97.5 at his bank and receives a cheque book of the value of $97.5 in exchange.
--------> Money Supply: still sitting at +$97.5
Step 4: Bank keeps 2.5% of Person B's deposit in the form of cash reserves ($2.44) and lends out $95.06 to Person C.
--------> Money Supply: + $192.56

As you can see, with each deposit, the amount a bank can lend out decreases in comparison to the initial amount of $100. There is thus a limit to the amount of money that can be created this way. We can actually calculate how much money will be in circulation if this process is continued until there is nothing more to lend:

$100 * 1/0.025 = $100 * 40 = $4000

The initial $100 that was in circulation, the fractional reserve banking system (which is what this banking system is called) can turn into $4000 in circulation.


We continue on the subject of the money supply within the next blog.

Day 70: Feedback on Inflation and Purpose of This Blog

Below is a cool discussion that took place in the comments section of the blogs:

Day 64: Inflation - Part 1
Day 65: Inflation - Part 2
Day 66: Inflation - Part 3

Ninasaid...

1. Moderate inflation does not necessarily cause loss of competitiveness in international markets. Usually inflation occurs when there is an increase in money supply. Exchange rates adjust to changes in money supply faster then prices do. Prices are relatively sticky.

2. Higher demand does not always come inflation. In fact, the level of demand which is significantly below production capacity pushes
costs up, because it makes per unit fixed production costs and marketing costs to increase. Therefore a very low demand is just as likely to cause increase in prices as very high demand.

3. Demand depends on the population structure. Young population demands a lot of goods and services. Older population is conservative with spending and has high propensity to save.

4. Although it is true that hyprinflation is destabilizing for the economy, a moderate inflation is believed to help job creation and promote economic growth.

August 12, 2012 5:04 PM 

Maite Zamora Morenosaid...

Hi Nina,

Cool that you're following this blog and adding your input. Though your statements are accurate (and btw don't contradict anything that was written), they are irrelevant to the purpose of this blog - which is to give readers a basic understanding of economic concepts so that they may gain insight into economics and how economics affects their lives. We're working here with simplified models so that the essence of the information can be grasped. The reality of economics is never this clear-cut and in practice contains many shades of grey - but the essence of the concepts remains and the understanding of them is really all that's necessary to gain a clearer understanding of what makes this world go 'round.

Now, Nina - I challenge you to look further than your schooling and merely entertain yourself with the extent of your knowledge - but to really question the implications of this economic system. Instead of regurgitating the general opinions and beliefs about it as how you've been presented with them in your education, investigate it for yourself in common sense. Our economic system has become far more than some 'fascinating object of study' - it is the one thing that controls people's lives. So - wake up and smell the coffee. Time to take responsibility within the knowledge that you have.

Enjoy.

August 12, 2012 10:31 PM 

Ninasaid...

Ah, sure, I already woke up a few years ago, in 2007, to be precise, when I wrote a letter to CFA institute, saying that with economic theory such as we have and teach we are headed streight towards the next Great Depression. I have explained back then why. I did not get a reply from them. I am not sure if you are interested either. The truth is, our economuc theory IS a mess. The reality is, we need this screwed up system to manage the screwed up people we have. If all people were 100% mature, 100% conscientious, 100% hard working and 100% willing to share we could have a much better system. But people are the way they are. Most of them lazy, irresponsible and greedy. This is why despite all the theoretical considerations the current fkd up system is the only one that works despite all odds with a little help from the governments, religious, charitable and various regulatory organizations. Ah, yes, andone more problem. We have 9 billion people on Earth and counting. Some believe it is too much. So we need a system that can help us reduce the numbers, no matter how faulty it may seem.

Not sure how this article is helping readers to understand the flaws of the current system. What I see is the concept tgat inflation is way too dangerous. And since it is sooo frkng dangerous let us make sure most people do not get access to money, because once theyget money they aregoing to demand goods and services, which will drive prices up. There are a couple of problems with this vision of inflation, which I have mentioned in my previous comment.

August 13, 2012 8:01 AM 

 

Maite Zamora Morenosaid...

Hi Nina,

There is a different way, I suggest investigating www.equalmoney.org.

In terms of the purpose of the blog - it's not to look at this one blog-post in isolation. In this post we're merely explaining the concept of inflation so that people may develop their vocabulary and more easily engage in/understand economic discussions and call out the bullshit.

August 13, 2012 3:49 PM 

 

Ninasaid...

I think I finally get the point. In a market economy the problem ofscarcity is resolved through a price increase. Suchway of a probkem resolution is in favor of the rich (who can still afford it at higher prices) and against the poor (who can not). Definitely this is unfair and causes numerous economic problems. I believe the 2008 crisis was to a large extend caused by that principle. First, the housing becomes sarce. Then we deal with the problem mainly by charging higher prices for real estate property. However, higher prices do not make scarcity disappear. They just make it less painful for people with sufficient money to pay themselves out of it.

This certainly goes against the rest of the people, who do not have enough financial resources to deal with scarcity by simply paying more then others do. One way they try to deal with it though is by borrowing more then normal, and for peope already struggling financially such borrowed money is almost impossible to repay, which leads to the credit crisis.

Becides, since scarcity can lead to higher prices and more profits it makes a lot of sense for some business groups to create it artificially! One fatal example of it I see when senior employees are purposefully sabotaging training and developement of junior employees withing the corporations. With more and better trained junior employees corporaions could produce more goods and services, which would be for everyones good. However out of fear of competition, or being replaced, or lising one's job, or having to accept pay cuts senior employees do their best to get rid of the juniors. That makes them more scarce and more valuable to their prospective employers! So juniors are punished into years of fruitless university studies and tens of thousands dollars of student loans that they can never repay, because they can not get jobs and acquire real skills necessary to do them. This way we have a waisted youth and a waisted economic system, capable of producing almost nothing at a reasonable cost. A better approach todealing with scarcity is certainly
needed and was previously concidered through planned economies. The concept was good. However implementation was tricky, especially with the leaders, who are not 100% trustworthy."

August 14, 2012 11:59 AM 

 

Maite Zamora Morenosaid...

Cool Nina - you should consider starting a blog of your own ;)

August 16, 2012 3:30 PM 

Day 69: The Functions of Money – Part 3

I commit myself to expose that Money is only a tool – and that we’ve currently accepted and allowed ourselves to use this tool in a way which does Not Serve Life and is Not Best For All – where Money is the tool which gives you access to Resources while at the same time have made it a ‘luxury’ which is not available for everyone – and where one has to ‘earn their money’ and ‘earn their living’ in a system which is not set up to provide money for everyone – and within that ensuring that not all beings born on the planet will have a life of sustenance

I commit myself to expose that how we currently use money is a scam, as money is a made up idea / creation of humans which is supposed to very closely linked to the ‘scarcity of resources’ – while the money which we currently use actually in no way represents the capacity of Earth or is managed in anyway whatsoever with the wellbeing of the planet and its people / animals / nature in mind – and so is just a fraud

I commit myself to expose that money backed up by gold or silver or money backed up by nothing is the same thing – as one is merely backing up one symbol representing ‘money’ with another symbol representing ‘money’ – where both are physical substances/manifestations to which we humans have attached a ‘special value’, where it is only valuable because everyone agrees that it is valuable – but that doesn’t make it valuable in fact – because as long as money is backed up by anything which has got no relation to Life and Sustainability we are just going to recreate the same system over and over again – as the money system will have no practical relationship with Life on Earth

I commit myself to expose that Money is not the Root of all Evil, and that a ‘moneyless’ society is not the Solution to the Problem, as Money is not the Problem but we Humans are – and thus we have to change the human as the human nature as our accepted and allowed value system where we value wants over needs and are okay with half of the members of our species living a life of misery if it means that some of us can do whatever the hell we want

I commit myself to expose that any money economy which uses money as a tool which gives people access to resources in order to sustain themselves, and then does not allow the system to work in a way so that all have access to the necessary money to get the resources they need – is evil – and those who accept and allow the system are equally evil – and such a system ought to be put to an end as it does not have the Best Interest of All Life at heart, but only the best interest of a few as those who have Money and such a discriminatory system is UNACCEPTABLE

I commit myself to show that Money works based on agreement, and that this agreement can be changed – and thus I commit myself to show that Money can be used in a different way as in the Equal Money System where all have access to money so all can have access to the resources they need – because Money is backed up by Life, and thus all get money by virtue of being Life and not because they had to go and “earn” it and prove that they are worthwhile to be kept a life by a Capitalist System that does not give a Shit about Life and who Lives and Who Dies as long as the creators of the Game and the Main players get their way

I commit myself to educate those who are willing to hear on how the Economic System and the Money System works, so all can realise what a SCAM it is, and that all the difficult and sophisticated sounding words and constructs are mostly just Band Aids for a System which is Doomed to Fail and within that educate / show that we can have a sustainable economy as the Equal Money System, which is PRO-LIFE and the first economic system which will distribute and manage resources responsibly while at the same time making sure that all constituents of the Earth are taking care off and that no-one is left behind -- which is what Economics was supposed to be about ALL ALONG

Day 68: The Functions of Money - Part 2

I forgive myself that I have accepted and allowed myself to have created a money economy, where money has no practical relation to the physical reality and sustainability – as money can simply be printed or made up out of anything without anyone regulating whether the amount of money in circulation actually represents the capacity of the Earth – as all our economic system currently cares about is the ‘pursuit of happiness’ -- but this ‘pursuit of happiness’ is only available for a few, where a few will have access to the majority of the resources while everyone else is being deprived – where an elite is living a lifestyle of abundance which is unsustainable with no regard for present and future implication / consequence

I forgive myself that I haven’t accepted and allowed myself to see and realise that the belief that money is only worth something when it is ‘backed up’ by ‘gold’ or ‘silver’ – is in fact false , as gold and silver are just material substances, like paper – which we’ve assigned particular values to, and so within backing up ‘paper money’ with ‘precious metal money’ is the same as backing up money with money – where we’re backing up one symbol representing money with another symbol representing money – which is the same as not backing up your money with anything

I forgive myself that I haven’t accepted and allowed myself to see and realise that even if money was backed up by gold or silver – that this would make no change whatsoever to the current situation in the world and the enormous inequality gap we are faced with – as the problem is not the money but us humans and our distorted value system, as we only value our limited self-interest and care only about our ‘personal pursuit of happiness’, without ever considering the happiness and wellbeing of the whole, as the whole of society and all living beings involved – and thus as long as we do not sort out our values it doesn’t matter whether our money is backed up or not – we’ll still be on a straight track to our own self-destruction as our value system is unsustainable and as far removed from physical reality as can be

I forgive myself that I have accepted and allowed myself to blame money as ‘the root of all evil’ – without seeing and realising that money is merely a tool, a concept to facilitate exchange and the allocation of resources – and the only real Evil is us humans, as we are responsible for the Equation through which money flows, which currently is seated within Inequality as the current Money Equation favours those who Have over those who Have Not – and so the suffering in the world as poverty, starvation and war is not the result of Money, as Money is merely a tool – but at the fault of those who wield the tool, which is us humans – and so the root of all Evil is us Humans as irresponsible wielders of a powerful tool, as Money is currently the tool which decides who lives and who dies

I forgive myself that I have accepted and allowed myself to have created an economic reality which relies on money and where people rely on Money to survive, but where we’ve accepted and allowed money to be Unreliable through manifestations such as Inflation, where those who know less about money and how money works are at a disadvantage where their personal access to resources will decrease overtime if they rely on money only simply because they are unaware of how the system works

I forgive myself that I haven’t accepted and allowed myself to see and realise that money as it is now is not a ‘fixed reality’ – as money is based on agreement and this agreement can change, where we collectively can decide to have a money economy based on Life and Sustainability where money again is just a tool used to facilitate exchange and the allocation of resources but which flows through an Equality Equation ensuring that All are taking care of, as All are Equally Valuable as Life – and so the Equal Money System do not prefer one Life form or being over another – and will cater for everyone, ensuring a Life of Comfort and Freedom for ALL in Fact, Now and in the Future

Day 67: The Functions of Money

Money as a Medium of Exchange

In a barter economy, one can only trade goods for other goods. If you want/require something like for instances clothes, and you only have wheat yourself which you cultivate, you need to find someone who can supply you with clothes and at the same time demands wheat.
For a trade to take place, a double coincidence of wants needs to be in place. Trading goods for goods can be limiting as one might have to first trade wheat with someone who has carrots, trade the carrots with someone else for spinach, and then go back to the person with the clothes because spinach is something he/she's willing to trade for clothes.

This type of inefficiency led people in even early primitive communities to come up with some form of money (for instance obsidian) to facilitate the exchange of goods. The advantage of a monetary economy is that the requirement of the double coincidence of wants falls away. As long as the wheat farmer can find someone who wants to buy his wheat, he can buy clothes with the money received for the wheat.
Money then serves as an intermediary to facilitate the process of exchange, making it more efficient.

Money from this perspective is anything that is generally accepted as payment for goods or services or that is accepted in settlement of debt.

What makes money "special" is that it is accepted as payment because people believe that it will be accepted as payment by other people. In England in the 12th century for instance, they came up with 'tally sticks' as a medium of exchange, which was basically a piece /stick of wood with notches in it. The use and exchange of money is thus completely dependent on its acceptance and belief of people as it being 'money' and it being 'valid'/'valuable' -- and so is completely based upon agreement.

Money does not have to be 'backed up' by anything such as gold or silver -- as again gold and silver are simply materials which we've decided to give value -- but that doesn't make them valuable in fact. Backing up money with 'gold' or 'silver' is then simply 'backing up money with another form of money' and does not make the money more 'real' / 'valuable' / 'better'.

Money as a Unit of Account

A unit of account is an agreed measure for expressing the prices of goods and services. In a money economy the prices of goods and services are expressed in monetary terms and so money also functions as a unit of account. The accounting function of money is secondary to that of the function as a medium of exchange.

Also note that money can lose its usefulness as a unit of account when going through a period of inflation, as when prices increase but your income/savings stay the same = you get less for the same amount of money.

Money as a Store of Value

Money also functions as a store of value. The most common form of holding wealth is money, as it is something which you can easily exchange for something else at any point in time.

There are other forms of storing value, such as property, stocks, shares etc. Of all the different forms of stores of value, money is the most 'liquid' one (since its easily exchangeable).

Holding / storing wealth in the form of money over long periods overtime also has very definitive disadvantages. Overtime, inflation progresses and your money will slowly but surely lose some of its value overtime (and will diminish a lot in periods of hyperinflation). In short, during inflation your money does not retain its value.
 n the long run, one is better off storing one's wealth in the form of property, Art, precious metals, etc. As prices increases, the prices of your Art pieces will also increase, and so will retain its value better than money in its simple form.

Money's function as a store of value also implies that it can be used as a standard of deferred payment. This practically means that money also works as the measure of value for future payments.