Money Matters: How Money Really Works

The operation of money involves multiple levels, including its creation, circulation, and self-replication. Money initially served as the equivalent in commodity exchange, gradually evolving over time into forms such as paper money and bank deposits. Commercial banks facilitate the circulation and self-replication of money through deposits and loans. In the financial system, the creation and use of money not only affect the economic activities of individuals and businesses but also have a profound impact on social equity and sustainability. The structure and operation of the financial system, such as asset management capitalism, have a significant impact on the distribution of wealth and the utilization of resources in society.

The Laws of Money Operation

1. Inflation and Deflation:

The purchasing power of money changes over time. When the money supply is excessive, inflation leads to rising prices, while when the money supply is insufficient, deflation leads to falling prices.

2. Consumption and Saving:

Money can be used for consumption and saving. Consumption means using money to purchase goods and services, while saving means storing money for future use.

3. Investment and Returns:

Money can be used for investment, that is, purchasing assets or engaging in business to generate returns. Investment returns depend on the expected risks and returns of the investment.

4. Loans and Debts:

Money can be borrowed and lent out through loans. Borrowers need to pay interest and repay the principal within a certain period.

5. Monetary Policy:

Central banks influence economic activity by adjusting the money supply and interest rates. Monetary policy has a significant impact on inflation, economic growth, and employment.

6. Trade and International Finance:

Money plays a crucial role in international trade. Exchange rates between different countries affect trade competitiveness and international financial flows.

The Historical Evolution of Money

From Commodity Money to Credit Money The form of money has evolved with the development of trust:

1. Commodity Money Stage (e.g., Sumerian barley money):

Around 3000 BC, the Sumerians invented writing for administrative needs and simultaneously created barley money to meet economic needs. At this time, money needed to have practical value (e.g., barley is edible), as people had not yet established sufficient trust in symbols. The limitations of commodity money lay in its poor portability and unstable value (e.g., barley is perishable).

2. Metallic Currency Stage (e.g., gold and silver coins):

With the expansion of trade, metals (such as gold and silver) became a better choice due to their durability, divisibility, and high value density. Metallic currencies still retained some physical value, but began to transition towards symbolism.

3. Credit Currency Stage (e.g., paper money and digital currency):

Modern currencies (such as the US dollar) have completely detached themselves from physical value; their value stems solely from collective trust. Paper money bears national credit symbols (such as the signature of the finance minister), while digital currency relies on trust within electronic systems. Money in this stage becomes a purely "mutual trust system," its stability depending on national credit, legal guarantees, and social consensus.

Conclusion

The essence of money's operation is a trust network constructed by humanity through collective imagination. Its evolution from physical currency to credit reflects the expansion and deepening of the scope of trust. While efficient, this system is also fragile due to its reliance on complex relationship networks, requiring sustained support from political stability, social consensus, and cultural identity.