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Risk:  Introduction

The use of money is inherently risky. Creating your own currency appears to increase risk. One of the problems associated with the use of local currencies is that is is usually easier to sell than buy. This may seem odd since in conventional economies it is easier to buy than sell. People in conventional systems are willing to sell goods and services because everyone wants to earn money. Unless, that is,  inflation is rampant or there is a shortage of food then people may be less willing to sell.

But with local currencies the range of things that can be bought is not large and often people are not eager to acquire them due to the difficulty of spending them. But if you are willing to accept them and you have a reasonably good product or service there will probably not be a shortage of people who are willing to buy what you have, but then you are stuck with the problem of what to spend these local dollars on.

So, there is a risk with accepting local currencies. This is not the case with rollars.

Risk:  Paper Risk

It is a rare person who prefers paper money to gold. This is because a bar of gold can be valued at any amount of paper money. Paper money may become worthless and generally declines in value. Paper money is however not always that easy to obtain. While it can be printed in unlimited quantities if there are no corresponding goods and services created to back up the issue the currency will revert back to its original paper value, which is pretty close to zero.

Another risk with paper bills is that they can be counterfeited. The watch you sold for $500.00 may upon later inspection have been sold for a worthless fistfull of paper.

Paper bills can also be stolen, burned, lost, blow away or eaten by your dog. The use of a paper money presents us with risk.

Risk:  Electronic Risk

To alleviate some of the risk that comes with using paper money, avoid counterfeit charges and reduce their overhead, banks make use of electronic money. This comes in several forms but we only need deal with our regular bank chequing account.

Often this is accessed using a debit card. This allows the bank to electronically transfer funds from our account to our butcher, baker or supermarket account or whosever else we purchase from.

Electronic currency opens us up to the risk of electronic fraud. Anyone with our passwords has the same freedom of access to our account as do we.

Risk:   Free Market Risk

When we have a dollar bill in our hand we have something visible that we know and can to some degree trust. We can access our electronic funds online and assure ourselves that the banks computers agree with our own records. But how do we trust the free market? What are the risks?

The free market eliminates all risk. The risk is in additions, deletions, modifications and transformations to the free market. If the free market is the sole provider of money and has total control over the money supply then it eradicates all risk.

However, the trick is to protect the free market from ourselves.

After-all we have not, to date, allowed the free market to control the money supply. This is not because the free market cannot be trusted. It is because it can be trusted to prevent the very fraud and deceit that has create a great many very poor people and a far fewer number of very rich people.

If the market was acting randomly the distribution of rich and poor should be pretty even. The fact that the numbers of poor are way out of proportion to the numbers of rich means there is a consciousness at work here.

If Bill is able to buy a dozen eggs from Sue today for m5.00 and a dozen eggs for $4.39 in subsequent weeks there may be some temptation for him not to honour the m5.00 debt. This is not to say Sue would lose out but the loss would be absorbed by the market. Sue would buy a service from Jane and get recompensed for her eggs and Jane could spend her income but the debt owned by Bill would remain outstanding.

However, thought the market would be deflated by a small amount the free market still provides a risk free marketing experience.

However it is important we consider how we track individual accounts.

This issue is considered in Money Types.

April 22, 2013

 

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