Let's start our journey by asking a very simple question: what is money?
Money, as omnipresent as the air we breathe and as intricate as the society it sustains, is a tale deeply woven into human history. In the Australian context, this narrative is not merely about coins, notes, or transactions, but about the fundamental nature of trade, value, and trust. Despite money's pivotal role in life and society in Australia, its inner workings remain a mystery to many – its creation, functionality, and its indispensable role in almost every facet of the Australian economy remain largely unexplored.
Money, in its most basic form, is a masterful solution to the age-old problem of barter. In primitive societies, including those of Indigenous Australians, trade was straightforward – bartering what you had for what you needed. However, this system had a significant flaw: the need for a 'double coincidence of wants'. A farmer with grain but in need of a plough was obliged to find a blacksmith who, coincidentally, needed grain and had a spare plough. This inefficiency spurred the creation of money.
The earliest forms of money were items that held intrinsic value in society – such as shells, cattle, and notably, precious metals like gold and silver. These were chosen for their intrinsic qualities – rarity, durability, divisibility, and universal acceptance. The Australian gold rushes of the 19th century vividly illustrated gold's perceived value as the foundation of wealth, drawing thousands to the goldfields.
The progression from these commodities to coins was a significant milestone in the evolution of money. Coins, first minted in ancient Lydia (now Turkey), offered uniformity, portability, and durability. They also symbolised the authority and stability of the issuing government, a concept that persisted into the era of British colonisation in Australia, where British coins were initially circulated.
Money's primary roles are threefold: it acts as a medium of exchange, a unit of account, and a store of value. It facilitates trade by circumventing the limitations of barter, allowing for the buying and selling of goods and services, and is universally accepted within the economy. Money also provides a standard measure for pricing goods and services, aiding in budgeting, accounting, and valuation. Moreover, it can be saved and used in the future, maintaining its value over time, which is crucial in a stable economy like Australia's, where saving for future needs is common.
The impracticality and risks of carrying large amounts of metal led to the advent of paper money. Initially, these notes represented promises to pay a specified amount of gold or silver. However, the 20th century saw the global transition, including Australia, to a fiat currency system – money valued not by a physical commodity but by government decree.
Introduced in 1966, the Australian dollar is an example of fiat money. Its value is not anchored in gold or silver but in the trust and confidence placed in the Australian government and its economic policies. This 'trust', and nothing more, forms the basis of fiat money's value.
Fiat money, however, introduced new challenges, notably debasement. With no tangible backing, or effort required, governments can freely print money, diluting a currency's purchasing power and leading to inflation.
Australia is not immune to this problem. Since the creation of the Australian dollar, it has lost over 95% of its purchasing power. This loss is directly attributable to the continual expansion of the money supply - an effort coordinated by the Australian Government, the Reserve Bank and Australia's retail banks. As the money supply is increased, asset prices soar (look no futher than house prices) and consumer prices steadily and persistantly rise - making daily life harder and harder. Basics become unaffordable - and putting a roof over your head seemingly impossible.
Like most of the western developed world, Australia operates on broken fiat money - not grounded or backed by anything real and where it can be continually printed, leaving ordinary citizens struggling to make ends meet. Think of it this way: citizens have to work for every dollar they have. In countries with fiat currencies, Government's do not. They can just print it. Every dollar the Australian Government prints, makes your dollar worth less. Is that fair?