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The irrelevance of currency reserves

- Steve Saville - Steculative Investor

This was an interesting article to read and one that caused me to ask myself a few questions. The first question had to do with the claim made by Mr. Saville that the money we have in our pockets is not backed by anything. It is a claim i have made myself. But is it really true? On its face, it would appear to be. However, when considering the question, i came to the realization that money is actually backed by something and that something is the obligation of the issuer to accept its own banknotes as payment for taxes, fines, permits, licences and whatever else we get dinged for. That might sound like sophistry, but i think it very important, for we know that the government will never stop taxing us and if they did not accept back the banknotes they issue, we would then be in a real pickle.

i also thought about one of Mr. Saville's claims about the problem with the money we now have; that being that it has no other use. As i see it, money has 4 functions. Most obviously, it is a medium of exchange. As well, aside from in hyper-inflationary periods, money serves as the most liquid store of value. It is also what is used to settle our contractual obligations. And lastly, money is what we use as our unit of account; measuring heterogenous goods, economic worth, assets and debts. i could not think of any other function that money has, nor could i imagine what other use it could have that Mr. Saville might believe it to lack. Indeed, it is precisely that money has no other use that makes it ideal to serve the roles it does.

If anyone of you kind and gentle readers could point out for me what other use money might have that Mr. Saville finds lacking, i would appreciate it.

Commented 4403 days ago

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Beginning of the headline :Last week we wrote: "The reserves held by a central bank have no influence on the associated currency's purchasing power and very little influence on its exchange rate. Today's currencies are not 'backed' by central bank reserves. The reserves are holdovers from a previous monetary system and are anachronistic under today's system... Read More

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