tag:theconversation.com,2011:/fr/topics/currency-2989/articlesCurrency – The Conversation2024-03-06T13:23:20Ztag:theconversation.com,2011:article/2245452024-03-06T13:23:20Z2024-03-06T13:23:20ZNigeria: botched economic reforms plunge the country into crisis<p>Nigeria, Africa’s largest economy, is facing an economic crisis. From a botched currency redesign to the removal of fuel subsidies and a currency float, the nation has been plunged into spiralling inflation and a currency crisis with far-reaching consequences. The question now is: how long before the inferno consumes everything?</p>
<p>On October 26, 2022, the Central Bank of Nigeria announced a <a href="https://www.thecable.ng/breaking-buhari-unveils-redesigned-naira-notes">bold move</a> – that it had redesigned the country’s highest denomination notes (₦200, ₦500 and ₦1000) and would be removing all old notes from circulation. People were given a deadline of January 31, 2023 (a couple of weeks before a national election) to make this exchange, or all of the old notes would cease to be valid legal tender.</p>
<p>This initiative ostensibly aimed to curb counterfeiting, encourage cashless transactions, and limit the buying of votes during the elections. But, while the intention may have been sound, the execution proved disastrous. </p>
<p>Short deadlines, limited availability of new notes, and inadequate communication created widespread panic. It led to long queues at banks, frustration among citizens, and a <a href="https://carnegieendowment.org/2024/01/18/why-nigeria-s-controversial-naira-redesign-policy-hasn-t-met-its-objectives-pub-91405">thriving black market</a> for the new notes. </p>
<p>The confusion surrounding the currency redesign had an unintended consequence: the beginnings of a loss of confidence in the naira. People began to look to other mediums as a store of value and as a medium of exchange. The obvious choices were foreign currency like the US dollar and the British pound, as well as more stable cryptocurrencies like <a href="https://businessday.ng/business-economy/article/weak-naira-cross-border-payments-drive-nigerians-into-cryptos/">Tether’s USDT</a>.</p>
<p>The currency redesign was criticised at the time by the then-presidential candidate of the ruling party, Bola Ahmed Tinubu, who saw it as a move to <a href="https://www.vanguardngr.com/2023/01/2023-fuel-scarcity-naira-redesign-ploy-to-sabotage-my-chances-tinubu/">derail his presidential campaign</a>. However, Tinubu won the contested election and, once in power, set out to reshape the economy immediately. </p>
<p>In his inaugural address in May 2023, Tinubu <a href="https://www.premiumtimesng.com/news/top-news/601239-fuel-subsidy-is-gone-tinubu-declares.html">announced</a> that the “fuel subsidy is gone”, referring to the government’s longstanding subsidised petrol policy that ensured Nigerians enjoyed some of the lowest petrol prices in the world. Over the coming days, he would also announce the reversal of the currency redesign policy and the <a href="https://leadership.ng/tinubu-begins-monetary-policy-reforms-floats-naira/">floating of the Nigerian naira</a> on the foreign exchange market.</p>
<figure class="align-center ">
<img alt="A compilation of Nigerian naira bank notes." src="https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579202/original/file-20240301-28-sej1lc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">When in office, Tinubu reversed the currency redesign policy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/naira-currency-nigeria-200751113">Pavel Shlykov/Shutterstock</a></span>
</figcaption>
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<h2>Fuelling the flames</h2>
<p>Other underlying economic conditions around the time of Tinubu’s inauguration included a large amount of foreign debt, dwindling foreign reserves and global economic headwinds. When the removal of the fuel subsidy was announced, it was met with a mix of surprise and elation by many Nigerians, and in particular by international donor agencies like the International Monetary Fund and the World Bank, who had long been <a href="https://www.reuters.com/markets/commodities/nigeria-should-end-fuel-subsidy-speed-reforms-boost-growth-world-bank-says-2021-11-23/">advocating</a> for the removal.</p>
<p>But this was all before the effects began to bite. And bite hard they did. The price of Premium Motor Spirit (also known as gasoline or petrol), which used to retail for ₦189 (US$0.12) per litre, increased by 196% practically overnight and began to retail for <a href="https://www.reuters.com/world/africa/nigeria-triple-petrol-prices-after-president-says-subsidy-end-2023-05-31/">₦557 per litre</a>. </p>
<p>One challenge with developing economies like Nigeria is that a rise in fuel price tends to cause the price of everything else to rise. Many industries, particularly those in manufacturing and agriculture, tend to rely heavily on fuel for powering machinery and equipment due to the poor supply of grid electricity nationwide.</p>
<p>Many Nigerian households were significantly affected by the increased prices. But they saw an opportunity in that the savings from the fuel subsidy regime would be redistributed to improve education, healthcare provision and the general welfare of the people, as was promised during the electioneering. The regime cost the country an estimated <a href="https://www.premiumtimesng.com/news/top-news/582724-fuel-subsidy-now-above-n400bn-monthly-nnpcl.html">₦400 billion</a> a month at its height, after all. </p>
<h2>Enter currency devaluation</h2>
<p>Then, on June 14, 2023, the Tinubu government ended the policy of pegging the naira to the US dollar, allowing it to float and find its true market value based on supply and demand. The idea was to stop corruption and reduce arbitrage opportunities due to the difference between official and black-market foreign exchange prices. </p>
<p>Currency arbitrage happens when people buy a currency at the lower official exchange rate and immediately sell it at the higher black market rate for a profit. This practice often occurs where there are strict currency controls and black markets offer a truer reflection of a currency’s value based on supply and demand.</p>
<p>However, this was one policy change too many. The naira lost a staggering <a href="https://www.focus-economics.com/countries/nigeria/news/exchange-rate/central-bank-sets-the-naira-free-to-fall/">25% of its value</a> in one day, and the cascading effects now push the country to the brink.</p>
<p>Nigeria depends heavily on imported commodities, including essential goods like food, fuel and medicine. So the policy escalated the inflationary crisis, pushing inflation to almost 30% (the major driver being food inflation, which <a href="https://leadership.ng/food-headline-inflation-spike-to-35-4-29-9/">reached 35.4%</a>). </p>
<p>Imports in general have become significantly more expensive, and Nigerians are finding their purchasing power being eroded. Wages in Nigeria are pretty fixed. The current minimum wage in the country is <a href="https://www.statista.com/statistics/1119133/monthly-minimum-wage-in-nigeria/">₦30,000</a> per month and the average monthly income is <a href="https://wagecentre.com/work/work-in-africa/salary-in-nigeria">₦71,185</a>. </p>
<p>Businesses are also feeling the pinch, facing difficulties accessing the <a href="https://www.trade.gov/country-commercial-guides/nigeria-market-challenges">foreign exchange</a> critical for importing raw materials and equipment. </p>
<h2>Pheonix or ash?</h2>
<p>The Central Bank of Nigeria has implemented measures to counter the crisis. It recently raised interest rates from <a href="https://punchng.com/just-in-cbn-raises-interest-rate-to-22-75/">18.75% to 22.75%</a> and is selling US dollars through auctions. </p>
<p>Recovery is a possibility and there are already signs of appreciation in the currency. The <a href="https://businessday.ng/news/article/naira-records-first-gain-at-official-market-after-rate-hike/">naira appreciated</a> by 6.89% a day after interest rates were raised. But it will be a long, hard road. </p>
<p>These strategies often come with trade-offs. Higher interest rates can stifle already struggling economic growth, while currency interventions might deplete already strained reserves of foreign currency. </p>
<p>The bottom line is that if the current cost of living crisis continues, civil unrest is likely. Should this happen, who knows what – if anything – will be left behind when the flames are done.</p><img src="https://counter.theconversation.com/content/224545/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kunal Sen has received funding from ESRC and DFID. </span></em></p><p class="fine-print"><em><span>Chisom Ubabukoh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Africa’s largest economy is in crisis, and unrest is growing.Chisom Ubabukoh, Assistant Professor of Economics, O.P. Jindal Global UniversityKunal Sen, Professor and Director, World Institute for Development Economics Research (UNU-WIDER), United Nations UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2205592024-01-11T12:50:07Z2024-01-11T12:50:07ZCurious Kids: how much money is there in the world?<figure><img src="https://images.theconversation.com/files/568279/original/file-20240108-29-9nfec1.jpg?ixlib=rb-1.1.0&rect=7%2C7%2C5128%2C2595&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/pound-gbp-coin-gold-money-on-1044478525">Bukhta Yurii/Shutterstock</a></span></figcaption></figure><p><strong>How much money is there in the world? – Tsubamé, aged ten, London</strong></p>
<p>If we want to add up how much money there is in the world, a good place to start would be counting all the notes and coins out there – in people’s wallets and money boxes and in cash machines. </p>
<p>Let’s start with pounds. There is about <a href="https://stats.bis.org/statx/srs/table/T2?c=GB">£84 billion</a> (or 84,000,000,000) of British money out there in coins and notes. There’s also <a href="https://stats.bis.org/statx/srs/table/T2?c=US">US$2,236 billion</a> in US money, <a href="https://stats.bis.org/statx/srs/table/T2?c=XM">€1,578 billion</a> in the money of the European Union and <a href="https://stats.bis.org/statx/srs/table/T2?c=CN">¥9,616 billion</a> in Chinese money – plus money in many other currencies. </p>
<p>As money is not the same in every country, summing up all the coins and notes in the world means that you need to measure how much a US dollar, an Indian rupee, or a Chinese yuan is worth in Great British pounds. If this is done with <a href="https://stats.bis.org/statx/srs/table/CT2">the latest available data</a>, then added up, you will find a total of £6,113 billion. </p>
<hr>
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<img alt="" src="https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=368&fit=crop&dpr=1 754w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=368&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/282267/original/file-20190702-126345-1np1y7m.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=368&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption"></span>
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<p><em><a href="https://theconversation.com/au/topics/curious-kids-36782">Curious Kids</a> is a series by <a href="https://theconversation.com/uk">The Conversation</a> that gives children the chance to have their questions about the world answered by experts. If you have a question you’d like an expert to answer, send it to <a href="mailto:curiouskids@theconversation.com">curiouskids@theconversation.com</a> and make sure you include the asker’s first name, age and town or city. We won’t be able to answer every question, but we’ll do our very best.</em></p>
<hr>
<p>This amount could change very quickly and is probably already outdated at the moment you read this article. </p>
<p>This is partly because countries print more money all the time. But it’s also because the exchange rate – how much a British pound, say, is worth in another currency, like US dollars – is not always the same. <a href="https://www.xe.com/currencyconverter/convert/?Amount=1&From=GBP&To=USD">Today, £1 is worth</a> around US$1.30 – one dollar and 30 cents in US money. Ten years ago, it was much more: <a href="https://www.xe.com/currencycharts/?from=GBP&to=USD&view=10Y">one dollar and 70 cents</a>. </p>
<p>How many US dollars you get for a pound depends on how much people want to use British money. That’s why when some people decide to create their own money, such as cryptocurrencies like bitcoin, they spend so much time <a href="https://theconversation.com/why-sports-sponsorship-is-unlikely-to-save-cryptocurrency-firms-from-crypto-winter-195582">trying to convince others</a> to use it. </p>
<p>But counting coins and notes does not tell us everything about how much money there is in the world. For instance, people have money in their bank accounts that do not correspond to any specific coin. In the UK, around 96% of money exists only in electronic form. When you include that, the total is not £84 billion but <a href="https://stats.bis.org/statx/srs/table/T2?c=GB">£2,223 billion</a>. If you add up again the figures available for the entire world – money in coins and notes, plus electronic money in bank accounts – you get roughly £46,557 billion. </p>
<h2>Wealth – but not money</h2>
<p>What’s more, many things that are worth a lot are not money itself. Very rich people keep only a little part of their fortune in cash. They prefer to also own things like businesses that are likely to make them even richer.</p>
<p>Perhaps a better way to count how much money there is in the world is to look at the value of the things we buy and sell. That is a tricky thing to do, because you don’t want to double count anything. If farmers sell the milk of their cows to a cheese maker, who then sells cheese to a shop, which sells it to people, all the value – the milk, the cheese and the people selling it, is contained in what you pay at the shop: the final sale. </p>
<p>When you sum up all these final sales, you will find that last year, in the entire world, there was around <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD">£79,437 billion</a> worth of value created. </p>
<figure class="align-center ">
<img alt="Diamonds with one held in tweezers" src="https://images.theconversation.com/files/568282/original/file-20240108-25-lhu7a2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/568282/original/file-20240108-25-lhu7a2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/568282/original/file-20240108-25-lhu7a2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/568282/original/file-20240108-25-lhu7a2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/568282/original/file-20240108-25-lhu7a2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/568282/original/file-20240108-25-lhu7a2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/568282/original/file-20240108-25-lhu7a2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Diamonds aren’t money, but they can make you rich.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/brilliant-cut-diamond-held-by-tweezers-1069154252">Bjoern Wylezich/Shutterstock</a></span>
</figcaption>
</figure>
<p>But there are also a lot of things that have value and are not exchanged. If you own a bag of diamonds and keep it in your bedroom, you are rich. But this is not money. And you are not exchanging it either. So it does not count in any of the numbers I have given you so far.</p>
<p>And sometimes, things that have value cannot easily be turned into money. Imagine that you own a beautiful forest, with a nice clean river to swim in during the summer, and some very rare birds and old trees. And underneath that forest, there is a lot of oil. </p>
<p>By owning this forest, you are very wealthy. Like the diamonds in your bedroom, owning the land and the forest and the oil makes you rich. But once you decide to turn your wealth into a lot of money, you will need to destroy the forest: cut down the trees for wood to sell, and drill into the earth to get the oil out. </p>
<p>People might have enjoyed spending time with friends walking in the forest, or paddling in the rivers. This has value, and it is lost when the forest is gone. And the wealth you held by owning the forest is gone too.</p>
<p>If we want the money we use to still be worth something in the future, we sometimes need to restrain from destroying what we own to get cash today.</p><img src="https://counter.theconversation.com/content/220559/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We can look at the value of the things we buy and sell.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2089122023-07-24T20:09:39Z2023-07-24T20:09:39ZBees have appeared on coins for millennia, hinting at an age-old link between sweetness and value<figure><img src="https://images.theconversation.com/files/538671/original/file-20230721-25-7t24i7.jpg?ixlib=rb-1.1.0&rect=22%2C137%2C1894%2C1661&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">NZ Post Collectables</span></span></figcaption></figure><p>In 2022, the Royal Australian Mint issued a $2 coin decorated with honeybees. Around 2,400 years earlier, a mint in the kingdom of Macedon had the same idea, creating a silver obol coin with a bee stamped on one side.</p>
<p>Over the centuries between these two events, currency demonstrating a symbolic link between honey and money is surprisingly common. </p>
<p>In a recent study in <a href="https://s3.ap-southeast-2.amazonaws.com/assets.mmxgroup.com.au/ACR/Bee+Article.pdf">Australian Coin Review</a>, I trace the bee through numismatic history – and suggest a scientific reason why our brains might naturally draw a connection between the melliferous insects and the abstract idea of value.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/536400/original/file-20230709-15-2u5ywn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/536400/original/file-20230709-15-2u5ywn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/536400/original/file-20230709-15-2u5ywn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/536400/original/file-20230709-15-2u5ywn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/536400/original/file-20230709-15-2u5ywn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/536400/original/file-20230709-15-2u5ywn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/536400/original/file-20230709-15-2u5ywn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A Royal Australian Mint 2022 two-dollar coin representing 200 years since the introduction of the honeybee to Australia.</span>
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</figure>
<h2>What is currency and why is it important?</h2>
<p>Money is a store of value, and can act as a medium of exchange for goods or services. Currency is a physical manifestation of money, so coins are a durable representation of value. </p>
<p>Coins have had central role in many communities to enable efficient trade since ancient times. Their durability makes them important time capsules.</p>
<p>Ancient Malta was famous for its honey. The modern 3 Mils coin (<a href="https://en.numista.com/catalogue/pieces1775.html">1972-81</a>) celebrates this history with images of a bee and honeycomb. According to the information card issued with the coin set,</p>
<blockquote>
<p>A bee and honeycomb are shown on the 3 Mils coin, symbolising the fact that honey was used as currency in Ancient Malta. </p>
</blockquote>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/536403/original/file-20230709-23-drk2lj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/536403/original/file-20230709-23-drk2lj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=582&fit=crop&dpr=1 600w, https://images.theconversation.com/files/536403/original/file-20230709-23-drk2lj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=582&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/536403/original/file-20230709-23-drk2lj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=582&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/536403/original/file-20230709-23-drk2lj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=732&fit=crop&dpr=1 754w, https://images.theconversation.com/files/536403/original/file-20230709-23-drk2lj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=732&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/536403/original/file-20230709-23-drk2lj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=732&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A circulating 3 Mils coin from Malta showing a honeybee on honeycomb.</span>
</figcaption>
</figure>
<p>In ancient Greece, bees were used on some of the earliest coins made in Europe. A silver Greek obol coin minted in Macedon between 412 BCE and 350 BCE, now housed in the British Museum, shows a bee on one side of the coin. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/536411/original/file-20230709-182252-v4evxr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/536411/original/file-20230709-182252-v4evxr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/536411/original/file-20230709-182252-v4evxr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/536411/original/file-20230709-182252-v4evxr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/536411/original/file-20230709-182252-v4evxr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=368&fit=crop&dpr=1 754w, https://images.theconversation.com/files/536411/original/file-20230709-182252-v4evxr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=368&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/536411/original/file-20230709-182252-v4evxr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=368&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An ancient obol from Macedon, dated between 412 BCE and 350 BCE, shows a bee one side.</span>
</figcaption>
</figure>
<p>Bees also feature on coins minted elsewhere in the ancient Greek world, such as a bronze coin minted in Ephesus dated between 202 BCE and 133 BCE. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/536407/original/file-20230709-27-a2jvo3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/536407/original/file-20230709-27-a2jvo3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=546&fit=crop&dpr=1 600w, https://images.theconversation.com/files/536407/original/file-20230709-27-a2jvo3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=546&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/536407/original/file-20230709-27-a2jvo3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=546&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/536407/original/file-20230709-27-a2jvo3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=686&fit=crop&dpr=1 754w, https://images.theconversation.com/files/536407/original/file-20230709-27-a2jvo3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=686&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/536407/original/file-20230709-27-a2jvo3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=686&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A bronze coin minted in Ephesus, dated between 202BCE and 133BCE, featuring a honeybee.</span>
</figcaption>
</figure>
<p>The use of bees on ancient coins extended for many centuries including widely circulated bronze coins, and new varieties <a href="https://coinweek.com/bee-all-that-you-can-bee-honeybees-on-ancient-coins/">continue to be discovered</a>.</p>
<h2>Why we might like bees on coins</h2>
<p>Why have bees appeared so often on coins? One approach to this question comes from the field of neuro-aesthetics, which seeks to understand our tastes by understanding the basic brain processes that underpin aesthetic appreciation.</p>
<p>From this perspective, it seems likely the sweet taste of honey – which indicates the large amount of sugar it delivers – promotes positive neural activity <a href="https://brill.com/view/journals/artp/10/1/article-p1_2.xml">associated with bees and honey</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/from-rock-carvings-to-rock-music-the-prevalence-of-bees-in-art-throughout-human-history-173069">From rock carvings to rock music – the prevalence of bees in art throughout human history</a>
</strong>
</em>
</p>
<hr>
<p>Indeed, primatologist Jane Goodall once proposed that obtaining high-calorie nutrition from bee honey may have been <a href="https://www.sciencedirect.com/science/article/abs/pii/S0066185668800032">an important step</a> in the cognitive development of primates.</p>
<p>Our brain may thus be pre-adapted to liking bees due to their association with the sweet taste of honey. Early usage of bees on coins may have been a functional illustration of the link between a known value (honey) and a new form of currency: coins as money. </p>
<h2>The bee on modern coins</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/536393/original/file-20230709-17-jywq3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/536393/original/file-20230709-17-jywq3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=588&fit=crop&dpr=1 600w, https://images.theconversation.com/files/536393/original/file-20230709-17-jywq3f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=588&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/536393/original/file-20230709-17-jywq3f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=588&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/536393/original/file-20230709-17-jywq3f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=738&fit=crop&dpr=1 754w, https://images.theconversation.com/files/536393/original/file-20230709-17-jywq3f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=738&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/536393/original/file-20230709-17-jywq3f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=738&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A 1920 Italian bronze ten-centesimi coin featuring featuring an Italian honeybee on a flower.</span>
</figcaption>
</figure>
<p>The use of bees as a design feature has persisted from ancient to modern times. A honeybee visiting a flower is shown on a series of ten-centesimi bronze coins issued in Italy from <a href="https://en.numista.com/catalogue/pieces1960.html">1919 to 1937</a>. </p>
<p>(As an aside, the world’s last stock of pure Italian honeybees is found in Australia, on Kangaroo Island, which was declared a sanctuary for Ligurian bees by an <a href="https://www.legislation.sa.gov.au/home/historical-numbered-as-made-acts/1885/0342-Lingurian-Bees-Act-No-342-of-48-and-49-Vic,-1885.pdf">act of parliament</a> in 1885.)</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/536416/original/file-20230709-15-60yst8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/536416/original/file-20230709-15-60yst8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=586&fit=crop&dpr=1 600w, https://images.theconversation.com/files/536416/original/file-20230709-15-60yst8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=586&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/536416/original/file-20230709-15-60yst8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=586&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/536416/original/file-20230709-15-60yst8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=737&fit=crop&dpr=1 754w, https://images.theconversation.com/files/536416/original/file-20230709-15-60yst8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=737&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/536416/original/file-20230709-15-60yst8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=737&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A coin from Tonga showing 20 honeybees emerging from a hive.</span>
</figcaption>
</figure>
<p>More recently, a 20-seniti coin from the Pacific nation of Tonga shows 20 honeybees flying out of a hive. This coin was part of a series initiated by the Food and Agriculture Organization of the United Nations to promote sustainable agricultural and cultural development around the world. </p>
<p>Bees are relevant here because their pollinating efforts contribute to about one-third of the food required to feed the world, with a value in excess of <a href="https://zenodo.org/record/2616458">US$200 billion per year</a>, and they are threatened by climate change and other environmental factors.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/bees-face-many-challenges-and-climate-change-is-ratcheting-up-the-pressure-190296">Bees face many challenges – and climate change is ratcheting up the pressure</a>
</strong>
</em>
</p>
<hr>
<h2>Bees on coins, today and tomorrow</h2>
<p>Public awareness of bees and environmental sustainability may well be factors in the current interest in bee coins. The diversity of countries using bees as a design feature over the entire history of coins suggests people have valued the relationship with bees as essential to our own prosperity for a long time. </p>
<p>In Australia, the 2022 honeybee $2 coin is part of a series developed by the <a href="https://www.ramint.gov.au/about-mint">Royal Australian Mint</a>. In 2019, the Perth Mint in Western Australia also released coins and stamps celebrating native bees.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/536405/original/file-20230709-15-iditcb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/536405/original/file-20230709-15-iditcb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=373&fit=crop&dpr=1 600w, https://images.theconversation.com/files/536405/original/file-20230709-15-iditcb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=373&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/536405/original/file-20230709-15-iditcb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=373&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/536405/original/file-20230709-15-iditcb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=469&fit=crop&dpr=1 754w, https://images.theconversation.com/files/536405/original/file-20230709-15-iditcb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=469&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/536405/original/file-20230709-15-iditcb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=469&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australian native bee coin and stamps released in 2019 by the Perth Mint.</span>
</figcaption>
</figure>
<p>Despite the decline of cash, bee coins still appear to be going strong. The buzzing companions of human society are likely to be an important subject for coin design for as long as coins continue to be used.</p><img src="https://counter.theconversation.com/content/208912/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adrian Dyer receives funding from the Australian Research Council and the Alexander von Humboldt Foundation.</span></em></p>The surprising frequency of bees on coins through history shows the enduring importance to human societies of our buzzing companions.Adrian Dyer, Associate Professor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2055112023-06-27T16:00:54Z2023-06-27T16:00:54ZWelsh mining towns had alternative currencies 200 years ago – here’s what the crypto world could learn from them<figure><img src="https://images.theconversation.com/files/532005/original/file-20230614-21-yyoovi.jpg?ixlib=rb-1.1.0&rect=0%2C28%2C2400%2C1156&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A halfpenny token issued by the Parys Mining Company of Anglesey in 1788. The hooded druid design was used for many years and was the first of hundreds of token designs.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Conder_Token_1788_Anglesey_Halfpenny_DH275_composite.jpg">BrandonBigheart/Wikimedia</a></span></figcaption></figure><p><em>You can also read this article <a href="https://theconversation.com/dyma-beth-allair-byd-crypto-ei-ddysgu-or-arian-cyfredol-oedd-yn-cael-ei-dalu-i-weithwyr-yng-nghymru-canrifoedd-yn-ol-205424">in Welsh</a>.</em></p>
<p>The global cryptocurrency market has seen a number of recent setbacks: from the collapse of the <a href="https://www.ft.com/content/c10bc6f7-abbe-45dc-9367-042186c3336f">Terra/Luna system in May 2022</a> to the failure of <a href="https://www.ft.com/content/913ff750-d1f4-486a-9801-e05be20041c1">FTX</a>, one of the largest crypto exchanges in the world. </p>
<p>Because of these factors, and other concerns over cryptocurrencies’ <a href="https://ccaf.io/cbnsi/cbeci/ghg">carbon emissions</a>, these assets <a href="https://www.bloomberg.com/news/articles/2022-09-30/does-crypto-owe-anyone-an-apology-after-2-trillion-of-losses">lost US$2 trillion in value</a> (£1.5 trillion) in 2022.</p>
<p>But while cryptocurrencies get a lot of attention today, in some ways they are not a revolutionary concept. Hundreds of years ago, workers in Wales were often paid with alternative currencies instead of money.</p>
<p>These currencies were physical tokens that represented and were linked to the value of real money. Many cryptocurrencies work in a similar way, acting as digital tokens that <a href="https://www.oecd.org/finance/The-Tokenisation-of-Assets-and-Potential-Implications-for-Financial-Markets-HIGHLIGHTS.pdf">represent a ledger of financial assets</a> (this is known as “tokenisation”).</p>
<p>Digital currencies are also not reliant on any central authority, such as a <a href="https://www.bloomberg.com/opinion/articles/2021-03-15/cryptocurrencies-are-rising-so-are-the-stakes-for-governments">government or bank</a>, to uphold or maintain their network of exchange. Again, this is similar to how physical tokens were used by Welsh mining companies. </p>
<h2>Currency crisis</h2>
<p>Towards the end of the 18th century the coinage of Britain was in a deplorable state due to the severe <a href="https://coinsandhistoryfoundation.org/2021/07/13/eighteenth-century-britain-coinage-in-crisis/#:%7E:text=The%20production%20of%20silver%20coins,of%20coins%20made%20from%20it.">shortages</a> of silver and copper coins. During the Industrial Revolution people migrated from the countryside into mining and manufacturing centres. But living in towns required money, and the ability to pay wages was impossible for businesses without small change. </p>
<p>With an influx of new workers using money, new shops were opened to meet demand, creating more jobs that required payment in coins. Although the production of counterfeit coins was illegal and <a href="https://www.jstor.org/stable/4091719">punishable by death</a>, it was not illegal to produce tokens with other designs which could be used instead of coins. </p>
<p>The first great era of token production during the <a href="https://education.nationalgeographic.org/resource/industrial-revolution-and-technology/">first Industrial Revolution</a> began in 1787 with the issue of the <a href="https://www.britishmuseum.org/collection/term/BIOG214134">Parys Mining Company</a> token. This company mined at Parys Mountain on the Welsh island of Anglesey. It briefly produced more copper than any other mine in the world during the Industrial Revolution. </p>
<figure class="align-center ">
<img alt="A quarried landscape of brown and orange earth." src="https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531672/original/file-20230613-15-vt2pzd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">What Parys mountain on Anglesey looks like today.</span>
<span class="attribution"><a class="source" href="https://pixabay.com/photos/anglesey-parys-mountain-wales-3816220/">rhianjane/Pixabay</a></span>
</figcaption>
</figure>
<p>It also used the high-quality ore from its mine to produce tokens which could be exchanged for official coin at full value at any one of its shops or offices. This made the Parys Mining Company the first company in the world to issue tokens. These were described as the “<a href="http://provincialtokencoinage.weebly.com">premier tokens</a>” of the 18th century by that era’s coin experts.</p>
<p>Soon, practically every town in Britain was producing its own tokens. This was driven in part by a shortage of government coinage and improvements in coin manufacturing by <a href="https://globalcapitalism.history.ox.ac.uk/files/case28-matthewboultonscoinspdf">Matthew Boulton’s Soho Mint</a> in Birmingham, who also turned his hand to tokens. </p>
<p>By the turn of the 19th century, the total supply and fast circulation of tokens, foreign coins and other substitutes probably <a href="http://projects.exeter.ac.uk/RDavies/arian/welsh.html">exceeded</a> those of the official coin of the country.</p>
<p>The process of tokenisation was subsequently seen in other countries, in particular the United States. Mining and logging camps in the 19th century US were typically owned and operated by a single company, often <a href="https://www.jstor.org/stable/1992612">in remote</a> locations with poor access to cash. </p>
<p>These companies would often pay their workers in “scrip”, or tokens. The workers, given the limited places they could spend scrips, had little choice but to purchase goods at company-owned stores. By placing large mark ups on goods, the <a href="https://rethinkq.adp.com/artifact-coal-company-scrip-miners/">company</a> could increase their profits and enforce employee loyalty. </p>
<figure class="align-left ">
<img alt="A close up of a silver coin on a green background." src="https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=576&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=576&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=576&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=724&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=724&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531992/original/file-20230614-19842-dbn8gn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=724&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A Parys penny produced by the Parys Mining Company.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Parys_Penny.jpg">Obscurasky/Wikimedia</a></span>
</figcaption>
</figure>
<p>While the production of tokens by the Parys Mining Company were spurred on by the first Industrial Revolution, the adoption and popularity of Bitcoin and other cryptocurrencies has been hastened by the <a href="https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/">fourth Industrial Revolution</a>.</p>
<p>Although they are more than 200 years apart, the history of these tokens have important lessons for today’s cryptocurrencies. First, for cryptocurrencies to succeed there needs to be various ways for individuals to accumulate the crypto/tokens, plus a demand and use for the crypto that means it holds its value, and trusted environments where exchange for goods and services can take place.</p>
<p>And second, for cryptocurrencies to be successful and sustainable in the long term they must uphold their original purpose of having an ecosystem that remains independent of a single company or government. Efforts to lock cryptocurrencies to a single organisation do not look positive, for example Facebook’s failed attempt to <a href="https://www.coindesk.com/layer2/2022/01/28/reflecting-on-facebooks-hilarious-well-deserved-crypto-failure/">launch a cryptocurrency</a>, announced in 2019. </p>
<p>The tokens of Welsh mining companies inherently failed when the closures of the mine or shops led to the removal of one or more of the three components of the ecosystem. And then people left with the tokens lost their money, a lesson for us today.</p><img src="https://counter.theconversation.com/content/205511/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A Welsh mining company was the first to issue tokens to workers as an alternative form of payment.Edward Thomas Jones, Senior Lecturer in Economics / Director of the Institute of European Finance, Bangor UniversityLaurence Jones, Lecturer in Finance, Bangor UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2055192023-06-01T12:30:26Z2023-06-01T12:30:26ZWar in Ukraine might give the Chinese yuan the boost it needs to become a major global currency – and be a serious contender against the US dollar<figure><img src="https://images.theconversation.com/files/528317/original/file-20230525-29-2upko8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">China and the U.S. compete to be the world's largest economy, but the dollar dominates the yuan as a currency.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/sino-us-trade-war-royalty-free-image/1216692156">peng song/Moment Collection/Getty Images</a></span></figcaption></figure><p>The Chinese economy’s sheer size and rapid growth are impressive.</p>
<p>China maintained one of the <a href="https://www.worldbank.org/en/country/china/overview#1">highest economic growth rates</a> in the world for more than a quarter of a century, helping lift <a href="https://www.worldbank.org/en/news/press-release/2022/04/01/lifting-800-million-people-out-of-poverty-new-report-looks-at-lessons-from-china-s-experience">over 800 million people</a> out of poverty in just a few decades. The country is the <a href="https://wits.worldbank.org/CountrySnapshot/en/CHN">largest exporter in the world</a> and the most important trading partner of Japan, Germany, Brazil and many other countries. It has the <a href="https://www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD">second-largest economy</a> after the U.S., based on the market exchange rate, and the largest <a href="https://databankfiles.worldbank.org/public/ddpext_download/GDP_PPP.pdf">based on purchasing power</a>.</p>
<p>And yet the yuan still lags as a major global currency. The war in Ukraine, which started in February 2022, may change that. </p>
<p>As a <a href="https://www.loyola.edu/sellinger-business/faculty-research/directory/chuluun">professor of finance</a> and <a href="https://www.mheducation.com/highered/product/international-financial-management-eun-resnick/1264413092.html">expert on international finance</a>, I understand how this geopolitical conflict may put China’s currency on the next phase of its path to becoming a global currency – and prompt the onset of the decline of the U.S. dollar from <a href="https://www.bis.org/statistics/rpfx22_fx.htm">its current dominance</a>. </p>
<h2>Chinese yuan’s slow progress</h2>
<p>China has long wanted to make the yuan a global force and has mounted significant efforts to do so in recent years. </p>
<p>For example, the Chinese government <a href="https://www.reuters.com/article/uk-china-economy-yuan/china-launches-yuan-cross-border-interbank-payment-system-idUKKCN0S204320151008">launched the Cross-Border Interbank Payments System</a>, or CIPS, in 2015 to facilitate cross-border payments in yuan. Three years later, in 2018, it launched the world’s <a href="http://www.xinhuanet.com/english/2018-03/26/c_137065815.htm">first yuan-denominated crude oil futures contracts</a> to allow exporters to sell oil in yuan. </p>
<p>China has also emerged perhaps as the <a href="https://hbr.org/2020/02/how-much-money-does-the-world-owe-china">world’s largest creditor</a>, with the government and state-controlled enterprises extending loans to dozens of developing countries. And China is <a href="https://www.cnn.com/2023/04/24/economy/china-digital-yuan-government-salary-intl-hnk/index.html">developing a digital yuan</a> as one of the world’s first central bank digital currencies. Even the trading hours for the yuan were <a href="https://www.reuters.com/article/china-yuan-trading/update-1-china-to-extend-fx-market-trading-hours-to-further-internationalise-yuan-idINL1N33K0GJ">recently extended</a> on the mainland.</p>
<p>Thanks to these efforts, the yuan is now the <a href="https://www.bis.org/statistics/rpfx22_fx.htm">fifth-most-traded currency</a> in the world. That is a phenomenal rise from its <a href="https://www.bis.org/publ/rpfx02.htm">35th place in 2001</a>. The yuan is also the <a href="https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre">fifth-most-actively used currency</a> for global payments as of April 2023, up from 30th place in early 2011. </p>
<p>Rankings can be misleading, though. The yuan’s average trading volume is still <a href="https://www.bis.org/statistics/rpfx22_fx.htm">less than a 10th</a> of the U.S. dollar’s. Moreover, almost all trading was against the U.S. dollar, with little trading against other currencies.</p>
<p>And when it comes to global payments, the actual share of the yuan is a <a href="https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre">mere 2.3%</a>, compared with 42.7% for the dollar and 31.7% for the euro. The yuan also constituted <a href="https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4">less than 3%</a> of the world foreign exchange reserves at the end of 2022, compared with 58% for the dollar and 20% for the euro.</p>
<figure class="align-center ">
<img alt="Two men shake hands in front of Russian and Chinese flags" src="https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=425&fit=crop&dpr=1 600w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=425&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=425&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=534&fit=crop&dpr=1 754w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=534&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/528318/original/file-20230525-27-sg2yw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=534&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Russian Prime Minister Mikhail Mishustin meets with Chinese President Xi Jinping in Beijing on May 24, 2023, with the two countries signing a new set of trade agreements.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/russian-prime-minister-mikhail-mishustin-meets-with-chinas-news-photo/1257684729">Alexander Astafyev/Sputnik/AFP</a></span>
</figcaption>
</figure>
<h2>US dollar’s dominance questioned</h2>
<p>The U.S. dollar has reigned supreme as the dominant global currency for decades – and concern about how that benefits the U.S. and potentially hurts emerging markets <a href="https://scholar.harvard.edu/gopinath/publications/dominant-currency-paradigm-0">is not new</a>. </p>
<p>The value of the <a href="https://www.reuters.com/markets/currencies/recession-worries-could-support-dollar-after-monstrous-2022-rally-2022-12-08/">U.S. dollar appreciated significantly</a> against most other currencies in 2022 as the Federal Reserve hiked interest rates. This had negative consequences for residents of almost any country that borrows in dollars, pays for imports in dollars, or buys wheat, oil or other commodities priced in dollars, as these transactions became more expensive. </p>
<p>After Russia invaded Ukraine in early 2022, the U.S. and its Western allies put sanctions on Russia, <a href="https://www.swift.com/news-events/news/message-swift-community">including cutting Russia’s access</a> to the global dollar-based payments system known as the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. That clearly displayed how the dollar can be weaponized. </p>
<p>With Russia largely cut off from international financial markets, it stepped up its trade with China. Russia began <a href="https://www.cnn.com/2022/09/06/energy/china-russian-gas-payments-ruble-yuan/index.html">receiving payments for coal and gas in yuan</a>, and Moscow <a href="https://www.reuters.com/markets/currencies/permitted-share-chinas-yuan-russian-wealth-fund-doubled-60-finmin-2022-12-30/">increased the yuan holdings</a> in its foreign currency reserves. Russian companies like Rosneft <a href="https://www.rosneft.com/press/releases/item/212071/">issued bonds denominated in yuan</a>. According to Bloomberg, the yuan is now the <a href="https://www.bloomberg.com/news/articles/2023-04-03/china-s-yuan-replaces-dollar-as-most-traded-currency-in-russia">most-traded currency in Russia</a>.</p>
<p>Other countries took notice of Russia’s increasing use of the yuan and saw an opportunity to decrease their own dependency on the dollar.</p>
<p><a href="https://www.reuters.com/business/energy/bangladesh-pay-russia-yuan-nuclear-plant-2023-04-17/">Bangladesh is now paying Russia in yuan</a> for the construction of a nuclear power station. <a href="https://www.nasdaq.com/articles/china-completes-first-yuan-settled-lng-trade">France is accepting payment in yuan for liquefied natural gas</a> bought from China’s state-owned oil company. A Brazilian bank controlled by a Chinese state bank is becoming the first Latin American bank to <a href="https://www.bloomberg.com/news/articles/2023-03-30/brazil-takes-steps-to-transact-in-yuan-as-ties-with-china-grow#xj4y7vzkg">participate directly in China’s payments system, CIPS</a>. <a href="https://www.bloomberg.com/news/articles/2023-02-22/iraq-pivots-to-yuan-for-china-imports-in-defense-of-own-currency#xj4y7vzkg">Iraq wants to pay for imports from China in yuan</a>, and even Tesco, the British retailer, <a href="https://www.economist.com/leaders/2013/02/09/yuan-for-the-money">wants to pay for its Chinese imported goods in yuan</a>. </p>
<p>The combined dollar amount of these transactions is still relatively small, but the shift to yuan is significant.</p>
<h2>Yuan still not freely available</h2>
<p>China keeps <a href="https://www.safe.gov.cn/en/2023/0222/2067.html">a tight grip</a> on money coming in and out of the country. Such capital controls and limited transparency in Chinese financial markets mean China still lacks the deep and free financial markets that are required to make the yuan a major global currency. </p>
<p>For the yuan to achieve a truly global standing, it needs to be freely available for cross-border investment and not just serve as a payment medium to accommodate trade. </p>
<p>But the war in Ukraine may have just made it feasible for the yuan to eventually join the ranks of the dollar and the euro – even if the volume isn’t there yet. And any U.S. policy decisions that weaken the reputation and strength of U.S. institutions – such as <a href="https://theconversation.com/voters-want-compromise-in-congress-so-why-the-brinkmanship-over-the-debt-ceiling-206465">the recent drama over raising the debt ceiling</a>, which brought the government to the brink of default – will accelerate the rise of the yuan and decline of the dollar.</p><img src="https://counter.theconversation.com/content/205519/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tuugi Chuluun does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite China’s economic power, the yuan lags as a major global currency. Here’s why current US interest rates and sanctions on Russia may change that.Tuugi Chuluun, Associate Professor of Finance, Loyola University MarylandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2034352023-05-02T14:06:01Z2023-05-02T14:06:01ZNigeria and digital banking: a revolution still waiting to happen<figure><img src="https://images.theconversation.com/files/520775/original/file-20230413-26-hhkl4x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cash is still king in Nigeria. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/this-picture-taken-on-january-28-2016-in-lagos-shows-naira-news-photo/507489912?adppopup=true">Pius Utomi Ekpei/AFP via Getty Images </a></span></figcaption></figure><p><em>At the end of 2022 the Central Bank of Nigeria <a href="https://punchng.com/just-in-buhari-unveils-new-naira-notes-at-aso-rock/">launched</a> new banknotes. At the same time it also <a href="https://www.pensionnigeria.com/blog/cbn-imposes-new-cash-withdrawal-limits-on-nigeria-bank-accounts-full-circular-to-banks/">capped</a> withdrawal of the new banknotes. The rollout of the currency change was <a href="https://www.premiumtimesng.com/news/top-news/585737-timeline-naira-redesign-policy-from-inception-to-supreme-court-judgement.html">shambolic</a>. But it also led people to turn to digital financial services such as the use of <a href="https://nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">point of sale (PoS) machines for payments</a> in their transactions. <a href="https://pubdocs.worldbank.org/en/230281588169110691/Digital-Financial-Services.pdf#page=12">Digital financial services</a> are financial services which rely on digital technologies for their delivery and use by consumers. The Conversation Africa’s Wale Fatade asks Iwa Salami, an expert in financial technology regulation and financial regulation in emerging economies, to explain the increase and its implications.</em></p>
<p><strong>How did the botched currency changeover affect the way Nigerians used the banking system?</strong></p>
<p>The Central Bank <a href="https://www.cbn.gov.ng/Out/2022/CCD/Naira_Redesign.pdf">set a deadline of 31 January 2023</a> for all old notes to be deposited in banks in exchange for new. The country was <a href="https://www.premiumtimesng.com/news/top-news/585737-timeline-naira-redesign-policy-from-inception-to-supreme-court-judgement.html">plunged into a currency crisis</a> when all old notes were out of circulation and the new notes were hardly circulating. The ensuing scarcity of cash made life unbearably hard for Nigerians.</p>
<p>One outcome was that Nigerians sought alternative ways to pay for goods and services using digital alternatives, such as point of sale machines. Between 2017 and 2022, the number of point of sale terminals in Nigeria grew significantly. </p>
<p><a href="https://www.statista.com/statistics/1178109/number-of-pos-terminals-in-nigeria/">In 2017, there were around 155,000 terminals</a>, and this number has increased to roughly 1.1 million as of April 2022. Merchants and PoS operators handle the machines. Their operations are <a href="https://www.cbn.gov.ng/cashless/POS_GUIDELINES_August2011_FINAL_FINAL%20(2).pdf">regulated by the Central Bank</a>. </p>
<p>It also resulted in a <a href="https://www.nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">surge </a>in point of sales transactions in Nigeria. There was a 40.69% year-on-year increase from the N573.72 billion (US$1.24 billion) transactions that was done in January 2022 to N807.16 billion (US$1.75 billion) in January 2023. Total cashless transactions also rose by 45.41% year-on-year to N39.58 trillion (US$85.96 billion) in January 2023.</p>
<h2>What are the most developed forms of electronic transacting in Nigeria?</h2>
<p><strong>Point of Sale (PoS):</strong> These devices are installed both by traditional banks as well as by payment service banks. They are now ubiquitous throughout Nigeria - in supermarkets, large retail outlets as well as in small-scale businesses set up for this purpose only. </p>
<p><strong>Payment service banks:</strong> These <a href="https://www.mondaq.com/nigeria/financial-services/1188262/payment-service-banks-psb-in-nigeria">are technology driven companies</a> licensed by the Central Bank to engage in banking activities. Examples are Hope and MoneyMaster.</p>
<p><strong>Fintechs:</strong> This <a href="https://plaid.com/resources/fintech/what-is-fintech/">includes</a> any app, software, or technology that allows people or businesses to digitally access, manage, or gain insights into their finances or make financial transactions. A number of companies offer these services in Nigeria. They include Flutterwave, Piggyvest, OPay, Interswitch, Kuda and Remita. </p>
<p><strong>Online banking offered by traditional banks:</strong> All Nigerian banks offer online services. However, the services aren’t always reliable. During the currency crisis, for example, platforms collapsed and customers were unable to transact. Digital platforms didn’t have the ability to cope with the deluge of online transactions.</p>
<p><strong>Mobile money:</strong> <a href="https://datahelp.imf.org/knowledgebase/articles/1906552-fas-what-is-mobile-money-how-is-it-different-fro#:%7E:text=It%20is%20a%20financial%20service,is%20a%20basic%20mobile%20phone.">Financial service offered by a mobile network operator</a> and can be independent of the traditional banking network. A bank account is not required to use mobile money services – the only pre-requisite is a basic mobile phone.</p>
<p>Those offering this service include MTN and Airtel Africa. As with most other countries on the continent, mobile money uptake in Nigeria has been slow. The exception has been <a href="https://thedocs.worldbank.org/en/doc/4fff8526d366d112cd9fd96eaf4adbb1-0050062022/original/FindexNote1-062419.pdf">Kenya,</a> where the <a href="https://www.vodafone.com/about-vodafone/what-we-do/consumer-products-and-services/m-pesa">launch of MPesa in 2007 </a> led to a massive uptake in mobile financial services. </p>
<p>In 2022, the Central Bank of Nigeria issued MTN the first license to operate mobile money services. It started <a href="https://www.mtn.ng/wp-content/uploads/2022/05/MoMo-Payment-Service-Bank-commences-Commercial-Operations.pdf?_ga=2.69147735.751641338.1681378566-391186901.1681378566">operations in May</a>. MTN is the largest mobile network operator in Nigeria.</p>
<h2>Can you paint a picture of the banking landscape?</h2>
<p><a href="https://www.statista.com/statistics/1182094/number-of-bank-customers-in-nigeria/">In 2021 Nigeria had 122.3 million active bank customers</a>. According to February 2022 data only <a href="https://www.statista.com/statistics/1139751/popularity-of-financial-products-or-services-in-nigeria/">39% of Nigerians</a> use the formal banking system.</p>
<p>As has been shown elsewhere, <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf#page=14">mobile money offerings</a>, as well as other digital services, can extend banking to the unbanked. </p>
<p>In 2022 the volume of transactions performed electronically in Nigeria surged to the highest in five years. The total volume of the Inter Bank Settlement Scheme Instant Payment Platform transactions<a href="https://www.nibss-plc.com.ng/news/4cy2cqt4g9bkj44n75n4ete3x9#:%7E:text=A%20latest%20Mastercard%20survey%20said,websites%20to%20make%20financial%20transactions.">rose by 613.1% to 5.2 billion in 2022 from 729.2 million in 2018</a>. <a href="https://www.nibss-plc.com.ng/news/4cy2cqt4g9bkj44n75n4ete3x9#:%7E:text=A%20latest%20Mastercard%20survey%20said,websites%20to%20make%20financial%20transactions.">Its value also increased</a> by 381.5% from N80.4 trillion (US$174.6 billion) as at 2018 to N387.1 trillion (US$840.67billion) in 2022. </p>
<p>In my view, the spike in the value of transactions carried out at point-of-sale devices in Nigeria in January 2023 – they went up by <a href="https://nibss-plc.com.ng/news/4xapzv7015vgjryewfn8e2wd50">40.7% higher compared to the same month in 2022</a> – shows a wider adoption of digital payments. It is also an indication of the huge opportunities that mobile money operators and other forms of digital payments have in Nigeria. </p>
<h2>How does Nigeria’s digital currency eNaira fit into the picture?</h2>
<p>eNaira was <a href="https://www.cbn.gov.ng/out/2021/ccd/enaira%20launch%20press%20release%20%20231021.pdf">launched by the Central Bank in October 2021</a>. However, <a href="https://www.bloomberg.com/news/articles/2022-10-25/shunned-digital-currency-looks-for-street-credibility-in-nigeria?leadSource=uverify%20wall">less than 0.5% of Nigerians</a> were recorded as using it a year after its launch. </p>
<p>The Central Bank didn’t have an adoption strategy for the eNaira planned ahead of the currency change over. This was clearly a missed opportunity. </p>
<p>Although the aim of the currency was to <a href="https://enaira.gov.ng/assets/download/eNaira_Design_Paper.pdf#page=4">facilitate financial inclusion</a> and shrink the size of the informal market, it’s fallen short of the mark. It is currently only accessible to those with bank accounts. So, despite a <a href="https://www.bloomberg.com/news/articles/2023-03-21/nigeria-digital-currency-transactions-jump-63-on-cash-shortages?leadSource=uverify%20wall&sref=3REHEaVI">reported increase in the number of e-Naira wallets</a> to 13 million since October 2022, and an increase in the value of transactions in 2023, a lot still needs to be done to drive widespread adoption by the financially excluded. </p>
<p>Rethinking its architecture and policies to drive its adoption could include: </p>
<ul>
<li><p>making it accessible to all with a mobile phone; </p></li>
<li><p>incentivising people to use it such as granting significant discounts when used to pay taxes and for other public services; and </p></li>
<li><p>embedding mobile network or payments apps into Central Bank Digital Currency wallets for the wallets to be inter-operable with mobile network operators’ infrastructure. </p></li>
</ul>
<p>A lesson of the currency crisis is that fintech offers a solution to the limitations of legacy financial institutions, and at the same time, they can help address the financial exclusion challenge in Nigeria.</p>
<p>Had Nigeria appreciated the value of digital finance and particularly the key role to be played by mobile money operators, the impact of the crisis would not have been as painful.</p><img src="https://counter.theconversation.com/content/203435/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Iwa Salami does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Nigeria’s Central Bank didn’t have an adoption strategy for its digital currency. It was a missed opportunity.Iwa Salami, Reader (Associate Professor) in Law, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2027952023-04-18T16:12:05Z2023-04-18T16:12:05ZTravelling abroad? Don’t be tempted to pay your way using your home currency<figure><img src="https://images.theconversation.com/files/521033/original/file-20230414-24-9lv892.jpg?ixlib=rb-1.1.0&rect=116%2C62%2C5874%2C3889&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/typical-view-parisian-street-tables-brasserie-734931022">Catarina Belova/Shutterstock</a></span></figcaption></figure><p>Part of the joy of travelling comes from experiencing the unfamiliar – a different climate, culture or cuisine. But when it comes to paying for things abroad, we might feel more comfortable using the currency we are most familiar with, the one we use at home.</p>
<p>This has recently become a common – and expensive – option for tourists withdrawing money from cash machines, or paying electronically in shops and restaurants. </p>
<p>When a restaurant bill arrives for example, foreign customers may be offered the choice on the card reader to pay in their home currency rather than the local one. This feature, known as “dynamic currency conversion” or “currency choice” sounds appealing at first – a service which has done the hard work for you, converting the bill to a currency you understand, giving you a better idea of how much money you are spending. </p>
<p>But it comes at a price – as the fees charged for this convenience can be exorbitant. In fact, <a href="https://fil.forbrukerradet.no/wp-content/uploads/2017/07/input-from-ncc-to-the-european-commission-on-dcc-30062017.pdf">one study</a> shows that the average fee applied to this kind of conversion is a whopping 7.6%, more than double the cost of paying in the local currency (usually between 1.5% and 3%). </p>
<p>So suppose a French traveller goes out for dinner in a British town, and the final bill comes to £88.43, the equivalent of €100. Paying in UK currency, which would then converted to euros by the French diner’s bank, would lead to a payment of around €102. But using the dynamic currency conversion to pay the restaurant bill directly in euros would end up costing them €107.60.</p>
<p>Despite the high fees, <a href="https://journals.sagepub.com/doi/full/10.1177/07439156231157721">our research shows</a> that more than half of international customers still choose to pay in their familiar home currency. The most obvious explanation for this is an understandable preference for the familiar when dealing with money abroad.</p>
<p>But it is also true that the fees are not explicitly shown to customers. That is, tourists may see the applied exchange rate, but they are not shown the hidden fees or how that exchange rate compares with others. </p>
<p>And while expensive for tourists, the currency choice “service” can be highly lucrative for those who operate it. The companies which provide dynamic currency conversion options earn significant conversion revenues – a portion of which is often shared with the business where the transaction takes place. </p>
<p><a href="https://www.electronicpaymentsinternational.com/opinion/dcc-routing-revenues-away-from-issuer-into-acquirers-pockets/">Sources indicate</a> that extra revenues for retailers come to around 1% of the transaction value. We have also been told of well known department stores training employees to actively encourage foreign customers to pay for purchases in their home currency.</p>
<h2>Greater transparency</h2>
<p>And despite the high conversion fees involved with dynamic currency conversion, most government regulators around the world have been hesitant to intervene. One possible reason for this is that regulation would be seen as potentially hitting the profits of local businesses. </p>
<p>The exception is the European Union (EU), which considers excessive transaction costs <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32021R1230">to be a barrier</a> to the development of businesses and aims to protect European consumers. </p>
<p>The latest <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32021R1230">EU regulations</a> (not yet enforced) aim to enhance transparency by including extra information about the costs of currency choice on card readers and ATMs. </p>
<p>This is a step in the right direction. But we would in fact encourage a reduction in the amount of information to make things simpler, so that customers are made aware purely of the percentage fee being added if they choose to pay in their own currency. We also think there should be maximum conversion charges to protect unaware customers from excessive fees.</p>
<p>With the continued growth of international travel, it is crucial to find ways to help people make informed financial decisions when dealing with exchange rates and making payments outside of their currency zone.</p>
<p>But for now, travellers are likely to spend more of their money abroad than they need to, because of something they intuitively feel will make a transaction simpler and less time consuming. </p>
<p>So if you’re on holiday or travelling for work, our advice is to decline the option of paying in your home currency and instead opt for the more reasonable conversion fees charged by your bank. Your travel experience could end up much cheaper if you do.</p><img src="https://counter.theconversation.com/content/202795/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s a popular but expensive way of paying.Dirk Gerritsen, Assistant Professor of Finance and Financial Markets, Utrecht UniversityBora Lancee, Researcher, Utrecht UniversityCoen Rigtering, Assistant Professor in Strategy and Organization, Utrecht UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2032822023-04-07T17:29:51Z2023-04-07T17:29:51ZI tried to pay my taxes in cash – here’s what happened, and why the IRS should make it easier to do so<figure><img src="https://images.theconversation.com/files/519957/original/file-20230407-24-e52vep.jpg?ixlib=rb-1.1.0&rect=176%2C193%2C5431%2C3539&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It turns out paying taxes in cash ain't easy.
</span> <span class="attribution"><span class="source">nikom khotjan/Moment via Getty Images</span></span></figcaption></figure><p><a href="https://www.irs.gov/newsroom/filing-season-statistics-for-week-ending-december-30-2022">About two-thirds of all U.S. residents who file</a> federal income taxes typically get a refund. Unfortunately, this year I am among the other third who owe the Internal Revenue Service money. </p>
<p>So I tried something I’ve never done before and few people do: I wanted to <a href="https://theconversation.com/is-doing-your-taxes-making-you-crazy-heres-why-it-shouldnt-114572">pay my tax bill</a> in cash – that is, with real paper currency. </p>
<p>In our <a href="https://www.pcbb.com/bid/2023-02-15-is-the-us-moving-toward-a-cashless-society">nearly cashless society</a>, this might sound like a hassle.</p>
<h2>Why pay taxes in cash</h2>
<p>For one thing, I’m an economist <a href="https://blogs.bu.edu/zagorsky/">writing a book</a> explaining the <a href="https://theconversation.com/in-defense-of-cash-why-we-should-bring-back-the-500-note-and-other-big-bills-85880">advantages of using cash</a>, and I was simply curious what might happen. </p>
<p>But beyond my own <a href="http://businessmacroeconomics.com/">book-related</a> interest in paying taxes in cash, I had other reasons for wanting to do so. For years while teaching students about money, I noted the front of every piece of U.S. currency declares: “This note is legal tender for all debts public and private.”</p>
<p>The statement seemed ironic since I couldn’t <a href="https://theconversation.com/if-cash-is-king-how-can-stores-refuse-to-take-your-dollars-63516">figure out how to pay</a> income taxes, one of people’s most significant public debts, with currency. </p>
<p>I also wondered how difficult it is for the unbanked to pay taxes. <a href="https://www.fdic.gov/analysis/household-survey/index.html">Federal Deposit Insurance Corp. data shows</a> about 6 million households have no connection to the formal banking system.</p>
<p>The IRS does not publish data on the methods people use to pay their taxes, but several IRS employees I spoke with told me almost no one pays the IRS in cash. </p>
<figure class="align-center ">
<img alt="a one dollar bill" src="https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=277&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=277&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=277&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=348&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=348&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519952/original/file-20230407-3779-6wvjhi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=348&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Every U.S. bill declares that it can be used to pay any debt.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/one-us-dollar-bill-royalty-free-image/87243724?phrase=close%20up%20of%20dollar%20bill">Peter Dazeley/The Image Bank via Getty Images</a></span>
</figcaption>
</figure>
<h2>How to pay in cash</h2>
<p>The IRS certainly doesn’t make it easy to do so.</p>
<p>Recently, a student of mine pointed out where the <a href="https://www.irs.gov/payments/what-to-expect-when-you-pay-cash-at-an-irs-office">instructions for paying the government with paper money</a> are buried, so I gave it a try. The five-step set of instructions hinted that paying cash directly is a time-consuming process and that I needed to start a month or two before taxes are due.</p>
<p>Following the instructions, <a href="https://theconversation.com/why-most-of-us-procrastinate-in-filing-our-taxes-and-why-it-doesnt-make-any-sense-39766">I completed my taxes early</a> and learned I owed a bit more than US$1,000. Then I called on the phone to <a href="https://www.irs.gov/help/contact-your-local-irs-office">schedule a face-to-face appointment</a> with the IRS to see when and where I could pay.</p>
<p>The operator, who told me her name was “Ms. Johnson,” was cheerful and helpful – but tried her very best to dissuade me from paying in cash. She offered to walk me through the steps on the phone so that I could <a href="https://www.irs.gov/payments/direct-pay">pay online</a> and not have to come into my local IRS office.</p>
<h2>Alternative ways to pay ‘in cash’</h2>
<p>For example, the IRS suggests cash payers can “<a href="https://www.irs.gov/payments/pay-your-taxes-with-cash">Buy a prepaid credit card and pay online</a>.” </p>
<p>This sounds easy but turns out to be costly. For example, Walmart, one of the largest U.S. retailers, offers a <a href="https://www.walmartmoneycard.com/">reloadable basic debit card</a>. The <a href="https://www.walmartmoneycard.com/legal-info/fee-plan">card costs</a> $1 to buy, $6 per month in fees and $3 to load with cash. Once the card is loaded with money, the <a href="https://www.irs.gov/payments/pay-your-taxes-by-debit-or-credit-card">businesses the IRS uses to accept debit card payments charge</a> around $2.50 for each payment, with payments <a href="https://www.irs.gov/payments/frequency-limit-table-by-type-of-tax-payment">limited to two per year</a>.</p>
<p>The <a href="https://www.irs.gov/payments/pay-with-cash-at-a-retail-partner">IRS also has partnered with national chains</a> like CVS, Walgreens, 7-Eleven and Family Dollar to accept cash on its behalf. Their service fees are less, either $1.50 or $2.50 per payment. However, the steps needed to <a href="https://fed.acipayonline.com/index.jsp">navigate the online program</a> before you can show up at a retailer seemed almost as difficult as filling in the tax forms.</p>
<p>More importantly, this program has a $500 per payment limit and a $1,000 maximum amount accepted per year. This made the method impractical for me and for most people who owe the IRS money. <a href="https://www.irs.gov/pub/irs-soi/20in33ar.xls">The latest IRS figures</a> show people who owe income taxes on average pay over $6,000.</p>
<p>Or, I could <a href="https://www.irs.gov/payments/pay-by-debit-or-credit-card-when-you-e-file">use a credit or debit card</a>, but these methods charged around 2.5% more for the convenience. </p>
<p>After I declined all of Ms. Johnson’s alternative payment offers, she told me I was lucky. There was an appointment available at the downtown Boston <a href="https://apps.irs.gov/app/office-locator/">taxpayer assistance center</a> in a few days. Her schedule showed many other centers around the country were booked until May, long after taxes were due.</p>
<figure class="align-center ">
<img alt="a stone block has the letters internal revenue service carved into it behind the green leaves of a tree" src="https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519958/original/file-20230407-18-iuxkz7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The author had to go to an IRS assistance center to try to pay his taxes in cash.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/TaxSeasonBegins/98cf9ddeb9214107ad0fd1318e7bb74b/photo?Query=irs&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2485&currentItemNo=43">AP Photo/Patrick Semansky</a></span>
</figcaption>
</figure>
<h2>An arduous process – but a successful one</h2>
<p>I had cash at home, but not enough. I went to the bank and made sure I got exact change in crisp new bills to make the transaction as easy as possible.</p>
<p>My goal was not to cause pain like the Virginia man who <a href="https://www.bbc.com/news/world-us-canada-38603615">used 300,000 coins to pay his motor vehicle bill</a> or the California man who pushed in <a href="https://abcnews.go.com/blogs/headlines/2013/01/california-man-pays-off-13000-property-tax-bill-in-coins-dollar-bills">wheelbarrows filled with $1 coins to pay his $13,000 property tax bill</a>. Nor was I interested in recreating the famous but fictional <a href="https://cap-press.com/sites/pj/articles/ThePractice2.htm">British case of Board of Inland Revenue v. Haddock</a>, in which Haddock tried paying his tax bill by writing a check on the side of a cow. <a href="https://www.snopes.com/fact-check/check-on-side-of-cow/">Although it never happened</a>, the case is still cited in legal circles.</p>
<p>I made it to the IRS building, went through airport-style screening and checked in on time. The receptionist was polite and again told me all the ways to pay without cash. After I declined, he asked me to take a seat in the waiting area filled with people clutching paperwork. As I walked away, the receptionist did a facepalm while shaking his head, which was not a positive sign.</p>
<p>After a 30-minute wait, another polite IRS worker came out and told me they could not accept cash that day because no courier was scheduled. Current IRS rules require that a courier take all cash immediately to the bank because they said “holding cash was not safe.” This is surprising given the federal office building was swarming with armed guards and required screening to enter.</p>
<p>I came back a week later when another cash payer was showing up. This time I had more success. It took 30 minutes, but after completing a multipart carbon form by hand, I got a receipt that said my taxes were paid.</p>
<h2>A simple solution</h2>
<p>Paying the IRS with cash is possible, but it turned out to be onerous and time-consuming. </p>
<p>I believe there is a simple solution. The <a href="https://www.law.cornell.edu/uscode/text/26/6302">Code of Federal Regulations</a>, which governs the IRS and other agencies, allows authorized banks to accept tax payments. The law doesn’t specify payment only by check or other methods. This means if procedures existed, taxpayers could walk into major banks, hand the teller cash and have the bank inform the IRS of the amount paid.</p>
<p>For people without bank accounts, their only option for paying taxes shouldn’t require paying fees to credit card processors or retailers – especially since they are likely among the poorest taxpayers.</p>
<p>If the government wants everyone to pay their taxes, why doesn’t it make it as easy as possible?</p><img src="https://counter.theconversation.com/content/203282/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As the US increasingly becomes a cashless society, it’s getting harder to use currency to pay for things – including taxes. One fearless economist gave it a try.Jay L. Zagorsky, Clinical Associate Professor, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1990912023-02-03T03:55:09Z2023-02-03T03:55:09ZIt’s tradition: Indigenous designs have been on Australian money since decimalisation<figure><img src="https://images.theconversation.com/files/508024/original/file-20230203-295-7racqb.jpg?ixlib=rb-1.1.0&rect=0%2C328%2C4992%2C2488&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>Indigenous Australians are respectfully advised that the following includes the names and images of some people who are now deceased.</em></p>
<p>The Reserve Bank of Australia <a href="https://www.rba.gov.au/media-releases/2023/mr-23-02.html">has announced</a> that Queen Elizabeth II’s portrait on Australia’s $5 banknote will not be replaced by one of Charles III (as is happening in the <a href="https://www.bankofengland.co.uk/banknotes/king-charles-banknotes">United Kingdom</a>). It will instead <a href="https://www.rba.gov.au/media-releases/2023/mr-23-02.html">show a design</a> that “honours the culture and history of the First Australians”. </p>
<p>While some will complain this is a break from the tradition of the reigning monarch’s head being on the lowest-denomination banknote, that has only been the case in Australia since 1966, when decimal currency was introduced. </p>
<p>Before that, navigator and cartographer Matthew Flinders appeared on the lowest (ten shilling) note. The queen was on the pound note (equal to 20 shillings). </p>
<p>The Reserve Bank of Australia consulted the federal government, which supports the change, but the decision is its own. </p>
<p>An <a href="https://www.smh.com.au/politics/federal/voters-want-australians-of-note-on-the-next-5-not-king-charles-20221014-p5bpr1.html">opinion poll</a> last year indicated just 34% of Australians wanted to see King Charles replace his mother on the $5 note, with 43% preferring another person, such as a famous Australian, and 23% undecided. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/putting-king-charles-iii-on-british-currency-bucks-a-global-trend-to-honor-diverse-national-heroes-on-coins-and-bills-191487">Putting King Charles III on British currency bucks a global trend to honor diverse national heroes on coins and bills</a>
</strong>
</em>
</p>
<hr>
<h2>What will the new design show?</h2>
<p>Will the design honour an Indigenous individual, or a group, or First Nations people more generally? It will likely be several years before we know.</p>
<p>Banknote design is complex, and the central bank will need to consult widely and deeply with Indigenous Australians to avoid the cultural insensitivities that have marred previous efforts to depict Indigenous motifs or individuals. </p>
<p>What we do know is the note’s other side will show an image of Parliament House, as it does now. The current design includes the Forecourt Mosaic, which is based on Michael Nelson Jagamara’s work <a href="https://thenewdaily.com.au/news/2021/03/10/pioneering-indigenous-artist-kumantje-nelson-jagamara-remembered-in-alice-springs/">Possum and Wallaby Dreaming</a>. </p>
<figure class="align-center ">
<img alt="Australia's parliament house will continue to feature on one side of the next $5 banknote." src="https://images.theconversation.com/files/508015/original/file-20230203-22-7racqb.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/508015/original/file-20230203-22-7racqb.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/508015/original/file-20230203-22-7racqb.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/508015/original/file-20230203-22-7racqb.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/508015/original/file-20230203-22-7racqb.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/508015/original/file-20230203-22-7racqb.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/508015/original/file-20230203-22-7racqb.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australia’s parliament house will continue to feature on one side of the next $5 banknote.</span>
<span class="attribution"><span class="source">RBA</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>A return to tradition</h2>
<p>While breaking with one “tradition”, an Indigenous motif on the lowest-denomination banknote restores another.</p>
<p>When decimal currency was introduced in 1966, the lowest-denomination banknote was the $1 note. One side featured a youthful Queen Elizabeth and the Australian coat of arms. The other showed an Indigenous design, based on bark painting by artist <a href="https://museum.rba.gov.au/exhibitions/hccoombs-and-first-australians/">David Malangi Daymirringu</a>, a Yolngu man from what is now northeastern Arnhem Land, and others.</p>
<figure class="align-center ">
<img alt="The design of Australia' $1 note was based on work by artist [David Malangi Daymirringu." src="https://images.theconversation.com/files/507982/original/file-20230202-16591-3d58yn.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/507982/original/file-20230202-16591-3d58yn.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=333&fit=crop&dpr=1 600w, https://images.theconversation.com/files/507982/original/file-20230202-16591-3d58yn.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=333&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/507982/original/file-20230202-16591-3d58yn.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=333&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/507982/original/file-20230202-16591-3d58yn.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=419&fit=crop&dpr=1 754w, https://images.theconversation.com/files/507982/original/file-20230202-16591-3d58yn.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=419&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/507982/original/file-20230202-16591-3d58yn.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=419&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The design of Australia’ $1 note was based on work by artist [David Malangi Daymirringu.</span>
<span class="attribution"><span class="source">RBA</span></span>
</figcaption>
</figure>
<p>The Reserve Bank’s governor at the time was HC “Nugget” Coombs, a strong advocate for Indigenous Australians. But to his later embarrassment, it turned out no one at the bank thought to ask permission to copy the artworks used in the design – nor offer payment.</p>
<p>Only after the banknote was issued did an Adelaide newspaper report on the treatment of <a href="https://museum.rba.gov.au/exhibitions/hccoombs-and-first-australians/">Malangi</a>, who came to be known as “Dollar Dave”.</p>
<p>Coombs subsequently sought to make amends. Malangi was paid $1,000 (the same given to those whose art was used on other banknotes), a fishing kit and a special medallion Coombs commissioned. </p>
<p>The $1 note was phased out in 1984 (replaced by the $1 coin, showing a mob of kangaroos, in keeping with animal motifs on Australian coins). </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/dollar-dave-and-the-reserve-bank-a-tale-of-art-theft-and-human-rights-56593">'Dollar Dave' and the Reserve Bank: a tale of art, theft and human rights</a>
</strong>
</em>
</p>
<hr>
<h2>David Unaipon and the $50 note</h2>
<p>The first Australian banknote to honour an Indigenous individual was the $50 note in 1996, with the change from paper to polymer notes. </p>
<p>Portraits of scientists Howard Walter Florey and Sir Ian Clunies Ross were replaced by Australia’s first female parliamentarian, Edith Cowan, and <a href="https://banknotes.rba.gov.au/australias-banknotes/people-on-the-banknotes/david-unaipon/">David Unaipon</a>, a Ngarrindjeri man from what is now southeastern South Australia.</p>
<figure class="align-center ">
<img alt="In 1996 Australia's $50 note became the first to honour an Indigenous individual, David Unaipon." src="https://images.theconversation.com/files/507998/original/file-20230202-5680-evskvs.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/507998/original/file-20230202-5680-evskvs.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=253&fit=crop&dpr=1 600w, https://images.theconversation.com/files/507998/original/file-20230202-5680-evskvs.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=253&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/507998/original/file-20230202-5680-evskvs.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=253&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/507998/original/file-20230202-5680-evskvs.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=318&fit=crop&dpr=1 754w, https://images.theconversation.com/files/507998/original/file-20230202-5680-evskvs.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=318&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/507998/original/file-20230202-5680-evskvs.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=318&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In 1996 Australia’s $50 note became the first to honour an Indigenous individual, David Unaipon.</span>
<span class="attribution"><span class="source">RBA</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Unaipon (born in 1872) was a preacher, inventor and author. He was an expert in ballistics and <a href="https://banknotes.rba.gov.au/australias-banknotes/banknotes-in-circulation/fifty-dollar/">believed</a> the aerodynamics of the boomerang could be applied to aircraft. </p>
<p>His book, <a href="https://www.mup.com.au/books/legendary-tales-of-the-australian-aborigines-paperback-softback">Myths and Legends of the Australian Aboriginals</a>, was the first by an Indigenous author to be published in Australia – though without credit (W. Ramsay Smith, SA’s chief medical officer, was listed as the author). The book was finally republished with Unaipon’s name on the cover in 2006.</p>
<h2>Gwoya Jungarai and the $2 coin</h2>
<figure class="align-right ">
<img alt="Gwoya Jungarai on the $2 coin." src="https://images.theconversation.com/files/508019/original/file-20230203-24-49lq81.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/508019/original/file-20230203-24-49lq81.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/508019/original/file-20230203-24-49lq81.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/508019/original/file-20230203-24-49lq81.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/508019/original/file-20230203-24-49lq81.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/508019/original/file-20230203-24-49lq81.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/508019/original/file-20230203-24-49lq81.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Gwoya Jungarai on the $2 coin.</span>
<span class="attribution"><span class="source">Royal Australian Mint</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The first Australian coin to feature an Indigenous Australian was the <a href="https://www.ramint.gov.au/two-dollars">$2 coin</a> in 1988, showing Gwoya Jungarai (sometimes spelled Tjungurrayi). </p>
<p>Known as “One Pound Jimmy”, he was a survivor of the <a href="https://www.sbs.com.au/news/article/remembering-the-coniston-massacre/7lwdujx6n">Coniston Massacre</a> in the Northern Territory in 1928, when police killed at least 31 Warlpiri men, women and children. </p>
<p>This was a time when chief protectors were appointed to “<a href="https://researchdata.edu.au/chief-protector-aborigines/491514#:%7E:text=The%20Protector%20was%20to%20watch,Colony%20or%20the%20Chief%20protector.">watch over the interests</a>” of First Nations people, and to “<a href="https://trove.nla.gov.au/newspaper/article/40497593">smooth the dying pillow</a>” for a race of people who had been brought to the edge of extinction. </p>
<p>The image of Gwoya Jungarai came from a photo of him in 1935. This was used on a postage stamp in 1950, making him the first living Australian to be so featured. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/elder-lawman-survivor-stamp-research-is-the-latest-chapter-in-gwoja-tjungurrayis-remarkable-life-in-pictures-161437">Elder, lawman, survivor: stamp research is the latest chapter in Gwoja Tjungurrayi's remarkable life in pictures</a>
</strong>
</em>
</p>
<hr>
<h2>What do other Commonwealth countries do?</h2>
<p>New Zealand has the Indigenous name of the country (Aotearoa) and its Reserve Bank (Te Pūtea Matua) on <a href="https://www.rbnz.govt.nz/money-and-cash/banknotes/banknotes-in-circulation">its notes</a>. This is feasible as there is one dominant Indigenous language, whereas in Australia there are hundreds. </p>
<p>One note (the <a href="https://www.rbnz.govt.nz/money-and-cash/banknotes/banknotes-in-circulation/50-banknote">$50</a>) honours a Māori individual <a href="https://teara.govt.nz/en/biographies/3n5/ngata-apirana-turupa">Apirana Ngata</a>, the first Māori to graduate from a local university and a parliamentarian for 38 years. </p>
<figure class="align-center ">
<img alt="Apirana Ngata on New Zealand's $50 note." src="https://images.theconversation.com/files/508003/original/file-20230203-22172-vb0e2j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/508003/original/file-20230203-22172-vb0e2j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=285&fit=crop&dpr=1 600w, https://images.theconversation.com/files/508003/original/file-20230203-22172-vb0e2j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=285&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/508003/original/file-20230203-22172-vb0e2j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=285&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/508003/original/file-20230203-22172-vb0e2j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=358&fit=crop&dpr=1 754w, https://images.theconversation.com/files/508003/original/file-20230203-22172-vb0e2j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=358&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/508003/original/file-20230203-22172-vb0e2j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=358&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Apirana Ngata on New Zealand’s $50 note..</span>
<span class="attribution"><span class="source">RBNZ</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Canada’s <a href="https://www.bankofcanada.ca/banknotes/bank-note-series/frontiers/50-polymer-note/">$50 note</a> includes the Inuit word for “Arctic”.</p>
<p>The Reserve Bank of Australia is a founding member of the international <a href="https://www.rba.gov.au/media-releases/2021/mr-21-05.html">Central Bank Network for Indigenous Inclusion</a>, along with its peers in Canada and New Zealand. So there may be international discussion of the issues involved.</p>
<p>But the key to ensuring the design fulfils its potential to bring the country together and heal old wounds will be to consult with those whose culture and history the design is meant to honour.</p><img src="https://counter.theconversation.com/content/199091/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins used to work for the Reserve Bank of Australia.</span></em></p><p class="fine-print"><em><span>Wayne H Applebee does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While breaking with one “tradition”, an Indigenous motif on Australia’s $5 banknote will restore another.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraWayne H Applebee, PhD student lecturer in cultural studies, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1977772023-01-17T20:16:09Z2023-01-17T20:16:09ZCryptocurrencies are in crisis, but they are not going to disappear<figure><img src="https://images.theconversation.com/files/504333/original/file-20230112-22-3byu1u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A worker from Hope House, an organization that sponsors the use of cryptocurrencies on El Zonte beach, makes a purchase at a small shop that accepts bitcoins, in Tamanique, El Salvador, June 9, 2021.</span> <span class="attribution"><span class="source">(AP Photo/Salvador Melendez)</span></span></figcaption></figure><p>Cryptocurrencies are experiencing their worst crisis <a href="https://www.investopedia.com/terms/c/cryptocurrency.asp">since the arrival of the first crypto assets and virtual currencies</a> in the 1990s and their democratization in the 2010s. </p>
<p>Bitcoin had an unprecedented tumble in late 2020 and has yet to recover. In addition to this sharp decline, there is much discussion about the worrisome collapse of some so-called <a href="https://www.investopedia.com/terms/s/stablecoin.asp">stablecoins</a>, which are supposed to be less volatile. </p>
<p>This is compounded by the fall of cryptocurrency giants, particularly due to <a href="https://www.investopedia.com/what-went-wrong-with-ftx-6828447">allegations of fraud in cases like the FTX scandal</a>. At its peak, FTX had one million users and was the third-largest cryptocurrency exchange in terms of volume.</p>
<p>Experts agree that the aftershocks of its collapse have hit investors hard and will likely slow the pace of crypto asset adoption <a href="https://www.cnbc.com/2022/12/19/three-ways-the-ftx-disaster-will-reshape-crypto.html">for the next few years</a>. </p>
<hr>
<p>
<em>
<strong>
À lire aussi :
<a href="https://theconversation.com/investir-dans-les-cryptoactifs-voici-comment-limiter-le-risque-detre-expose-a-une-fraude-182835">Investir dans les cryptoactifs : voici comment limiter le risque d’être exposé à une fraude</a>
</strong>
</em>
</p>
<hr>
<p>As an expert in the field of cryptocurrencies, I will try to answer the following question: are cryptocurrencies really here to stay, or are they just a fad?</p>
<h2>Speculation and extreme volatility</h2>
<p>Cryptoassets include tokens that can be used for digital currency purposes (i.e. cryptocurrencies such as Bitcoin and Ethereum). They are also used for investment in an entity (a <a href="https://www.bitpanda.com/academy/en/lessons/what-is-the-difference-between-utility-tokens-and-security-tokens">“security token,”</a> which entitles the holder to ownership of a portion of an entity), or for products or services (a <a href="https://www.bitpanda.com/academy/en/lessons/what-is-the-difference-between-utility-tokens-and-security-tokens">“utility token,”</a> which entitles the holder to a product once it has been produced, for example).</p>
<p><a href="https://blog.bitpanda.com/en/what-are-stablecoins">Stablecoins</a>, which are supposed to be associated with lower volatility, are unique in that they are backed by a currency (e.g. the U.S. dollar), a commodity (e.g. gold) or a financial instrument (e.g. a stock or a bond). This is to keep the value of the digital currency stable.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="man shows the screen of his phone on which his cryptocurrency balance can be seen" src="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478155/original/file-20220808-7938-ivi7mn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Erich García, a 33 year-old programmer and YouTuber, poses with his bitcoin wallet, at his home in Havana, Cuba, in March 2021.</span>
<span class="attribution"><span class="source">(AP Photo/Ramon Espinosa)</span></span>
</figcaption>
</figure>
<p>Bitcoin’s plunge is followed in the <a href="https://www.nbcnews.com/tech/crypto/bitcoin-plunge-breaks-24000-200-billion-wipe-crypto-market-weekend-rcna33234">headlines</a> on a daily basis. While this is not the first time it has fallen, it is particularly noteworthy as it is the biggest drop in value <a href="https://www.cnbc.com/2022/05/12/bitcoin-btc-price-falls-below-27000-as-crypto-sell-off-intensifies.html">since late 2020</a>. The collapse is partly due to rising interest rates and the flight of investors from these risky investments. Although it is recovering, Bitcoin is still a long way from the heights it once reached.</p>
<p>This media coverage raises many questions about the sustainability of these cryptoassets. Indeed, the latter are marked by extreme volatility in their <a href="https://news.harvard.edu/gazette/story/2021/09/regulating-the-unregulated-cryptocurrency-market/">unregulated markets</a> in addition to being associated with <a href="https://medium.com/wolverineblockchain/the-surprising-similarities-between-cryptocurrencies-tulips-4c4ab5a1bea1">speculation by many players in the financial world</a>.</p>
<p>Indeed, the BBC recently reported that cryptocurrency laundering <a href="https://www.bbc.com/news/technology-60072195">rose 30 per cent in 2021</a>. The <a href="https://www.ftc.gov">U.S. Federal Trade Commission</a>, which aims to protect U.S. consumers, reported that in 2021, fraud schemes cost investors <a href="https://www.ftc.gov/business-guidance/blog/2022/06/reported-crypto-scam-losses-2021-top-1-billion-says-ftc-data-spotlight">more than $1 billion in cryptocurrencies</a>. Needless to say, very few of the defrauded investors have recovered their money.</p>
<h2>One billion users by 2022</h2>
<p>Yet we are seeing a slow but sure increase in the adoption of cryptocurrencies by companies. In an ongoing study of the impact of cryptocurrency adoption by public companies on their social responsibility, I noted that many of them, such as Starbucks and McDonald’s, have started to accept Bitcoin as a form of payment. This is particularly the case in their branches in El Salvador, following that country’s adoption of <a href="https://globalnews.ca/news/8171521/el-salvador-adopts-bitcoin-legal-tender/">Bitcoin as legal tender</a>.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1487634924865740804"}"></div></p>
<p>Others, such as Japanese online retail giant <a href="https://www.rakuten.ca/">Rakuten</a>, have chosen to accept cryptocurrencies even if their country is not pushing to adopt Bitcoin as a currency. They say they are driven by a desire to offer more payment options to their customers.</p>
<p>The user base for cryptocurrencies is growing year on year. For example, Crypto.com, an exchange platform, estimated that about 295 million people had entered the cryptocurrency market as of <a href="https://assets.ctfassets.net/hfgyig42jimx/5i8TeN1QYJDjn82pSuZB5S/85c7c9393f3ee67e456ec780f9bf11e3/Cryptodotcom_Crypto_Market_Sizing_Jan2022.pdf">December 2021</a>. The platform expected the number of users to cross the one billion mark by December 2022.</p>
<p>Cryptocurrencies also allow people with unreliable or insecure banking systems to access a parallel banking system that is independent of the traditional banking system. Offering a less affluent part of the population access to a different form of banking system is one of the reasons the President of El Salvador gave <a href="https://www.nytimes.com/2022/07/05/world/americas/el-salvador-bitcoin-national-currency.html">for making Bitcoin legal tender in the country</a>.</p>
<h2>A healthy fluctuation</h2>
<p>The growing interest in <a href="https://www.cnbc.com/2021/06/18/whats-defi-crypto-based-decentralized-finance-explained.html">decentralized finance (DeFi)</a>, as well as the development of the metaverse, are also factors that influence the sustainability of cryptocurrencies. Decentralized finance often relies on stablecoins for its operation. Meanwhile, the metaverse, a <a href="https://theconversation.com/what-is-the-metaverse-and-what-can-we-do-there-179200">universe of 3D virtual worlds</a>, also allows the use of cryptocurrencies to purchase goods or services, creating an immersive world.</p>
<p>Experts in the sector believe that, despite the debacle that the cryptoasset market has experienced recently, decentralized finance — particularly via products backed by cryptoassets — <a href="https://www.cnbc.com/2022/06/03/crypto-firms-say-thousands-of-digital-currencies-will-collapse.html">is here to stay</a>. This is because there is a market and players willing to participate.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="person holds a Bitcoin coin in front of a screen" src="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/478162/original/file-20220808-7938-udt4nr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Cryptocurrencies can be used for transactional purposes in the metaverse.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Moreover, they argue that while this sharp decline in cryptocurrency-related markets does remove some players, this is a welcome change. By the admission of <a href="https://www.youtube.com/watch?v=H1FYJlaxlOg">Raoul Ullens</a>, co-founder of <a href="https://blockchainweek.be/">Brussels Blockchain Week</a> (an annual conference devoted to blockchain and cryptocurrencies):</p>
<blockquote>
<p>it is healthy, for the adoption, the maturation of these Web3 technologies, to skim, to rebalance the sector. […] An unhealthy ecosystem will not attract the masses.</p>
</blockquote>
<p>According to these players, such a drop in the cryptoasset markets is not only necessary, but also healthy, contributing as it does to rebalancing the valuation of cryptocurrencies.</p>
<h2>Cryptocurrencies are here to stay</h2>
<p>The launch of cryptocurrencies by central banks, via central bank digital currencies (CBDCs), also lends weight to the argument that cryptoassets are here to stay. Indeed, the Bank of Canada is currently working on the <a href="https://www.bankofcanada.ca/research/digital-currencies-and-fintech/projects/central-bank-digital-currency/">creation of a CBDC</a>. According to the institution, a CBDC issued by the Bank of Canada would be an “official digital currency (that) would retain its face value in Canadian dollars because it is issued by the <a href="https://www.bankofcanada.ca/research/digital-currencies-and-fintech/projects/central-bank-digital-currency/?_gl=1*11n5guo*_ga*NTA4MDM3MDQwLjE2NzM1NTYyOTg.*_ga_D0WRRH3RZH*MTY3MzU1NjI5Ny4xLjAuMTY3MzU1NjI5Ny4wLjAuMA..&_ga=2.93130141.106029617.1673556298-508037040.1673556298">Bank of Canada</a>, just like bank notes.”</p>
<p>Other nations in the world have already issued such a currency, including the <a href="https://www.ndtv.com/business/here-are-the-timelines-and-status-of-central-bank-digital-currencies-in-some-countries-2820164">Bahamas (Sand Dollar) and Nigeria (eNaira)</a>. One reason CBDCs are different from privately issued digital currencies (such as Bitcoin or Ethereum) is that their intended use is for transaction purposes only, not for investment or speculation. They offer the same possibilities of use as cash. </p>
<p>CBDCs also aim to promote the financial inclusion of a part of the population that has little or no access to the traditional banking system, and to simplify the implementation of monetary and fiscal policy in the issuing countries.</p>
<p>Developments in the world of digital currencies, whether in the metaverse or with the arrival of the CBDC, and the craze that they continue to generate, mean cryptocurrency is here to stay.</p>
<p>This durability means the form of cryptoassets take will continue to evolve and transform with the technologies that support them (notably, blockchains) and the variation in demand from users and/or investors.</p><img src="https://counter.theconversation.com/content/197777/count.gif" alt="La Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Annie Lecompte has received funding from the Fondation des CPA du Québec.</span></em></p>An expert in the field of cryptocurrencies answers the question: Is crypto really here to stay or is it just a fad?Annie Lecompte, Assistant prof - Audit, Université du Québec à Montréal (UQAM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1918772022-10-10T07:37:49Z2022-10-10T07:37:49ZGhana and the IMF: debt restructuring must go hand-in-hand with managing finances better<figure><img src="https://images.theconversation.com/files/488725/original/file-20221007-14-cp946.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ghana is engaging the IMF over a bailout</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p>Ghana is struggling with managing its <a href="https://theconversation.com/ghanas-return-to-the-imf-within-three-years-underscores-its-deeper-economic-problems-187041">debt</a>, 20-year high inflation, a weak currency, and rising inequality.
For example, <a href="https://statsghana.gov.gh/cpigraph.php?graphindicators=MTI0MDM5Njc1Ny42OTU1/cpigraph/n1r7pr567p">inflation</a> rose to 33.9% in August 2022 from 9.7% a year earlier, while the cedi has <a href="https://www.google.com/finance/quote/GHS-USD?sa=X&ved=2ahUKEwi_gMry88T6AhVoSEEAHfAVAoAQmY0JegQIAxAb&window=YTD">depreciated</a> by 41% year-to-date against the US dollar. These vulnerabilities have been worsened by the aftershocks of the ongoing Russia–<a href="https://theconversation.com/ukraine-war-how-ghana-is-vulnerable-and-what-can-be-done-178528">Ukraine war</a> and the COVID-19 pandemic.</p>
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Read more:
<a href="https://theconversation.com/ghanas-return-to-the-imf-within-three-years-underscores-its-deeper-economic-problems-187041">Ghana’s return to the IMF within three years underscores its deeper economic problems</a>
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<p>These challenges have forced Ghana’s government to <a href="https://mofep.gov.gh/press-release/2022-09-26/ghana-starts-imf-negotiations">approach</a> the International Monetary Fund (IMF) for an economic support package. Part of the engagement will involve a new <a href="https://www.imf.org/external/pubs/ft/dsa/">assessment</a> of the sustainability of the country’s debt. </p>
<p>Debt sustainability analysis <a href="https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/16/39/Debt-Sustainability-Framework-for-Low-Income-Countries">classifies</a> countries into four bands: low risk, moderate risk, high risk, and in debt distress. This is based on certain thresholds for key public debt indicators. Ghana’s last <a href="https://documents.worldbank.org/en/publication/documents-reports/documentdetail/973971632340489819/ghana-joint-world-bank-imf-debt-sustainability-analysis">analysis</a>, conducted in mid-2021, classified the country as being at high risk of external debt distress and overall debt distress. The assessment was carried out jointly by the IMF and the World Bank. </p>
<p>If the new assessment concludes Ghana’s debt levels aren’t sustainable, the country will have to take steps to restructure its debt to qualify for IMF assistance. The Fund <a href="https://www.imf.org/en/About/FAQ/sovereign-debt">states</a> that it won’t lend to countries that have unsustainable debts unless the member takes steps to restore debt sustainability, which can include debt restructuring.</p>
<p>Recently, Zambia had to <a href="https://www.theguardian.com/global-development/2022/sep/02/crisis-hit-zambia-secures-13bn-imf-loan-to-rebuild-stricken-economy">negotiate</a> with all its external lenders, including bilateral and commercial creditors, as a pre-condition for accessing IMF funding. The process lasted almost two years.</p>
<p>Ghana needs to address its current crisis by tackling two issues. </p>
<p>Firstly, the restructuring of its debt. Here a good option would be to restructure its external debt as well as some limited domestic debt restructuring. </p>
<p>And secondly, it needs urgently to take six steps on the domestic front to get its financial house in order. This includes putting an end to <a href="https://imaniafrica.org/wp-content/uploads/2022/05/2ND-IMANI-FISCAL-RECKLESSNESS-INDEX-2020.pdf">profligacy</a> in government spending and ensuring it lives within its means.</p>
<h2>Ghana’s public debt dynamics</h2>
<p>A country’s debt dynamics includes both external and domestic debt, and debt accruing to <a href="https://www.imf.org/en/Publications/fandd/issues/2020/09/what-is-debt-sustainability-basics">state-owned enterprises</a> and its maturity structure. All need to be considered when considering any debt restructuring. </p>
<p>Ghana’s total public debt as of June 2022 was US$54.4 billion (GHS393 billion or 78.3% of GDP) from US$32.3 billion (GHS143 billion or 55.5% of GDP) in 2017, according to <a href="https://www.bog.gov.gh/wp-content/uploads/2022/08/Summary-of-Economic-and-Financial-Data-July-2022_1.pdf">central bank</a> and <a href="https://mofep.gov.gh/sites/default/files/reports/economic/2021-Annual-Public-Debt-Report.pdf">finance ministry</a> data. </p>
<p>Of this, external debt was US$28.1 billion (GHS203.4 billion or 40.5% of GDP), while domestic debt issued in cedis was US$26.3 billion (GHS190 billion or 37.8% of GDP). </p>
<p>Regarding external debt, the portfolio includes debt owed to multilaterals such as the IMF and World Bank, bilaterals, commercial loans such as Eurobonds, and other export credits. The external debt also comprises of fixed (86.5%), variable (13.1%) rate and some interest-free (0.4%) debt. As of 2021, about 72% of the external debt was also dollar-denominated.</p>
<p>In 2021, the government <a href="https://mofep.gov.gh/sites/default/files/reports/economic/2021-Annual-Public-Debt-Report.pdf">spent</a> US$2.2 billion in total external debt service, including principal repayments, interest payments and charges.</p>
<p>Of the domestic debt, Ghana’s government sourced as much as 85% of its domestic debt in 2021 via the market. This included financial securities and instruments traded on the secondary market. This means that Ghanaian banks, individuals and institutional investors, such as pension funds, buy and sell government securities such as treasury bills and other fixed deposits. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/488031/original/file-20221004-16-l3wqpl.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/488031/original/file-20221004-16-l3wqpl.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=178&fit=crop&dpr=1 600w, https://images.theconversation.com/files/488031/original/file-20221004-16-l3wqpl.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=178&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/488031/original/file-20221004-16-l3wqpl.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=178&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/488031/original/file-20221004-16-l3wqpl.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=223&fit=crop&dpr=1 754w, https://images.theconversation.com/files/488031/original/file-20221004-16-l3wqpl.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=223&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/488031/original/file-20221004-16-l3wqpl.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=223&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">Theo Acheampong</span></span>
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<p>In 2021, Ghana’s banking sector cumulatively held 50% of the total domestic debt stock comprising commercial banks (30%) and the Bank of Ghana (20%). The non-bank sector comprised firms and institutions (22.6%), individual investors (9.2%), rural banks (1.1%), insurance companies (0.6%) and the Social Security and National Insurance Trust (0.3%). Foreign investors held 16% of the remaining domestic debt.</p>
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<img alt="" src="https://images.theconversation.com/files/488033/original/file-20221004-12-xljudb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/488033/original/file-20221004-12-xljudb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=233&fit=crop&dpr=1 600w, https://images.theconversation.com/files/488033/original/file-20221004-12-xljudb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=233&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/488033/original/file-20221004-12-xljudb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=233&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/488033/original/file-20221004-12-xljudb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=292&fit=crop&dpr=1 754w, https://images.theconversation.com/files/488033/original/file-20221004-12-xljudb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=292&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/488033/original/file-20221004-12-xljudb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=292&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">Theo Acheampong</span></span>
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<h2>Restructuring ideas</h2>
<p>There have been <a href="https://www.bloomberg.com/news/articles/2022-09-20/ghana-set-to-start-debt-restructuring-talks-for-local-bonds?srnd=premium-africa">suggestions</a> that Ghana would prioritise restructuring its domestic debt. But this begs the question: what does a debt restructuring entail and where does the burden fall especially if <a href="https://www.investopedia.com/terms/h/haircut.asp">haircuts</a> – which can include a reduction in outstanding interest payments – are part of the policy mix?</p>
<p>Ghana’s commercial banks held about <a href="https://mofep.gov.gh/sites/default/files/reports/economic/2021-Annual-Public-Debt-Report.pdf">30%</a> of the domestic debt and 31% of the total <a href="https://www.bog.gov.gh/wp-content/uploads/2022/08/Summary-of-Economic-and-Financial-Data-July-2022_1.pdf">banking sector assets</a> in 2021. Thus, any attempt to restructure the domestic debt without a compensating policy action could leave the banking sector highly vulnerable to further distress. </p>
<p>Restructuring domestic debt focused solely on haircuts would severely affect asset quality and increase non-performing loans much higher than the <a href="https://www.bog.gov.gh/wp-content/uploads/2022/08/Summary-of-Economic-and-Financial-Data-July-2022_1.pdf">current</a> 14.1%. </p>
<p>It would also reduce private sector lending, already under severe strain from 20-year high inflation. Pensions and other institutional investments are also likely to suffer.</p>
<p>When it comes to external debt, Ghana must first seek to restructure it under the principles of the <a href="https://saiia.org.za/research/africas-covid-19-recovery-challenge-how-the-g20-can-bridge-the-development-financing-gap/">G20 Common Framework</a>. Ghana delayed in applying to join the Framework during the pandemic for <a href="https://academic.oup.com/book/38922/chapter-abstract/338098258?redirectedFrom=fulltext">fears</a> of losing market access. </p>
<p>The country was eventually locked out of the international capital markets anyway after several <a href="https://www.fitchratings.com/research/sovereigns/common-framework-access-could-lead-to-sovereign-debt-default-16-02-2021">sovereign</a> rating downgrades. </p>
<p>Ghana has an opportunity to remedy this and offer a collaborative and constructive platform to engage on external debt restructuring. </p>
<p>Zambia’s recent restructuring <a href="https://www.atlanticcouncil.org/blogs/econographics/zambia-a-template-for-debt-restructuring/">exercise</a> offers valuable <a href="https://jubileedebt.org.uk/wp-content/uploads/2022/02/Zambia-debt-restructuring-needs-calculation_02.22.pdf">lessons</a>. All creditors must be treated evenly as any hints of arbitrary treatment will delay the process, as <a href="https://odi.org/en/insights/four-lessons-from-zambias-emerging-debt-default/">happened</a> in this case. </p>
<h2>Way forward</h2>
<p>There are six steps Ghana must urgently take to get government finances in order.</p>
<p>Firstly, it must enforce the <a href="http://ir.parliament.gh/bitstream/handle/123456789/1831/FISCAL%20RESPONSIBILITY%20ACT%2c%202018%20%28ACT%20982%29.pdf?sequence=1&isAllowed=y">law</a> when it comes to fiscal responsibility and impose hard sanctions on the finance minister and other ministries who flout it. Ultimately, Ghana must ensure that it lives within its means and hold politicians to account to provide funding plans for their <a href="https://blogs.worldbank.org/africacan/will-procyclicality-override-ghanas-new-fiscal-responsibility-law">political</a> campaign promises. </p>
<p>Secondly, Ghana must implement the Integrated Financial Management System as part of the broader public financing management reforms and ensure that every transaction is fully captured in the main accounting system. Media <a href="https://www.myjoyonline.com/auditor-generals-reports-are-hollow-bright-simons/">reports</a> indicate that only about a third of government transactions are fully captured. This creates many avenues for collusion and corruption.</p>
<p>Thirdly, the government must limit borrowing from the domestic market to compensate for the lack of access to the international capital markets. </p>
<p>Fourthly, President Nana Akufo-Addo must cut down the size of the government through a reshuffle to remove many of those who are not performing and reduce public expenditure. The President does not need to tell Ghanaians that his ministers are <a href="https://citinewsroom.com/2022/08/my-ministers-have-been-outstanding-akufo-addo-shoots-down-calls-for-reshuffle/">“outstanding”</a>, as the citizens would know it if cost of living is indeed improving.</p>
<p>Fifth, the government must urgently convene a broader national stakeholder forum on the economy with all key representative groups including labour, civil society, inter-faith groups, political parties, and business associations, among others.</p>
<p>In 2014 the then opposition <a href="https://www.graphic.com.gh/news/politics/npp-boycotts-national-economic-forum.html">ridiculed</a> the idea of a forum. But platforms like this can be valuable for generating new ideas for economic reforms. It will also ensure stakeholder buy-in of any proposed reform programmes.</p>
<p>Lastly, the government must be transparent in its dealings with Ghanaians and the IMF. All data must be fully and transparently disclosed, especially the indebtedness or exposure of the state-owned enterprises and other parastatals.</p><img src="https://counter.theconversation.com/content/191877/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Theophilus Acheampong is affiliated with the IMANI Centre for Policy and Education, Accra, Ghana.</span></em></p>Ghana’s sovereign risk has been downgraded to near junk status by ratings agencies in recent times.Theophilus Acheampong, Associate Lecturer, University of AberdeenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1915482022-10-03T15:00:36Z2022-10-03T15:00:36ZPound recovers but remains at low levels – how to assess the long-term value of sterling<figure><img src="https://images.theconversation.com/files/487769/original/file-20221003-22-xg7pmc.jpg?ixlib=rb-1.1.0&rect=13%2C20%2C4479%2C2977&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The value of the British pound has taken a battering in recent months.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hands-holding-british-pound-coin-small-369962102">Yulia Grigoryeva / Shutterstock</a></span></figcaption></figure><p>The pound has <a href="https://www.reuters.com/markets/europe/antipodean-currencies-advance-ahead-rate-decisions-dollar-edges-lower-2022-10-03/">recovered from a recent record dip</a> after <a href="https://www.reuters.com/markets/europe/sterling-plunges-all-time-low-scathing-appraisal-fiscal-plan-2022-09-26/">the chancellor’s mini-budget</a> announcement. But it is <a href="https://inews.co.uk/news/pound-dollar-sterling-how-gbp-measured-against-usd-past-40-years-1878057">still at low levels</a> versus many other currencies. </p>
<p>The recent decline can be mostly attributed to the tax cuts announced during Chancellor Kwasi Kwarteng’s recent mini-budget. The £45 billion package caused concern among investors by considerably <a href="https://ifs.org.uk/articles/mini-budget-response">increasing future government debt</a>, although Kwarteng has since <a href="https://www.bbc.co.uk/news/live/uk-politics-63114183">announced a U-turn</a> on the £2 billion plans to abolish cuts for the highest earners. More generally, escalating inflation expectations from this increased fiscal expansion, coupled with ongoing <a href="https://www.bbc.co.uk/news/uk-northern-ireland-63112289">rising energy costs</a>, have had a negative impact on the UK economy and therefore the value of sterling.</p>
<p>The weakening of the pound is also part of a global phenomenon. The US dollar has <a href="https://www.ft.com/content/daf5c774-fb7f-4ef3-a4ba-c92e3b373066">appreciated by 12%</a> since the end of 2021 against a broad index of currencies, and by more than 20% against the pound. This broad appreciation is attributed to a tightening of US monetary policy and a shift in the risk appetite of investors towards US dollar assets, currently viewed as more of a safe haven.</p>
<p>Given these underlying pressures, questions about the long-term valuation of pound sterling abound, including whether it will settle at parity with the US dollar. An analysis by Bloomberg has shown financial markets believe there is a <a href="https://www.bloomberg.com/news/articles/2022-09-26/probability-of-pound-sliding-to-parity-this-year-jumps-to-60#xj4y7vzkg">60% probability</a> that sterling will reach dollar parity by the end of 2022. A long-term decline in the valuation of the pound increases the price of imported goods, which can feed into consumer price inflation.</p>
<p>If policy makers want to shore up the currency’s strength, several economic theories suggest they must address high inflation expectations, the impacts of Brexit and the various supply chain issues plaguing the economy at present.</p>
<h2>Comparing burgers with burgers</h2>
<p>Ever heard of the Big Mac Index? Research about <a href="https://www.jstor.org/stable/1991014">long-term movements</a> in exchange rates shows they tend to change in line with relative inflation rates in many countries. This theory, known as purchasing power parity (PPP), uses the price of specific products or baskets of goods to compare currencies and standards of living in different countries.</p>
<p>As such, we can examine the value of the pound compared to other currencies by looking at a single good such as a McDonald’s Big Mac burger. Since this product is the same across countries, the Big Mac can be used to calculate a PPP-implied exchange rate by comparing its price in the UK and the US. In July 2022, the Big Mac Index showed the pound was <a href="https://www.economist.com/big-mac-index">undervalued by around 14%</a>, based on the exchange rate implied by Big Mac prices in the US versus the UK.</p>
<p>Forecasts by the Bank of England put inflation at 14% by the fourth quarter of 2022, however it is <a href="https://www.britishchambers.org.uk/news/2022/09/bcc-economic-forecast-new-pm-must-act-as-uk-economy-set-for-recession-before-year-end">expected to decline to 5% by the end of 2023</a>. The relative fall in UK inflation in 2023 should strengthen the pound, reducing the undervaluation predicted by the Big Mac Index.</p>
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<img alt="McDonald's Big Mac, fries and coke pictured in a McDonald's outlet." src="https://images.theconversation.com/files/487770/original/file-20221003-22-qm218l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/487770/original/file-20221003-22-qm218l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/487770/original/file-20221003-22-qm218l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/487770/original/file-20221003-22-qm218l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/487770/original/file-20221003-22-qm218l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/487770/original/file-20221003-22-qm218l.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/487770/original/file-20221003-22-qm218l.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Comparing the price of the same product in different countries can help explain currency values.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bangkok-thailand-july-26-2020-tasty-1785057680">KULLAPONG PARCHERAT / Shutterstock</a></span>
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<p>Another theory that can help us understand the long-term value of the pound is the link between the sustainability of public debt, sovereign risk and exchange rates. A large increase in the ratio of government debt to gross domestic product (GDP) can trigger a weakening of the currency as <a href="https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2021.4115">financial markets expect more risk</a>, that is, concerns increase about the government being able to repay this debt. </p>
<p>Before the second world war, when sterling was the world’s reserve currency, the government could borrow at low cost. Present-day sterling no longer has the same privileges, however, particularly in recent weeks when <a href="https://www.ft.com/content/ab59b572-acc2-4ad8-989d-a6e5a4ca4c1a">sterling has even been compared to emerging market currencies</a>. This theory would dictate that the debt-to-GDP ratio and corresponding sovereign risk must decrease for sterling to recover its value.</p>
<p>Long-term exchange rate movements can also be assessed by comparing productivity differences across countries. Known as the <a href="https://www.nber.org/reporter/2014number4/real-exchange-rates-and-balassa-samuelson-effect-revisited">Balassa-Samuelson hypothesis</a>, this theory links productivity slowdowns in a country’s tradeable sector – the industries that produce items that are traded internationally – to a weakening in its real exchange rate (that is, after accounting for differences in inflation). </p>
<p>This theory would therefore link supply chain disruptions resulting from Brexit and the war in Ukraine with fundamental declines in the UK’s productivity, causing the long-term value of the pound to depreciate. </p>
<h2>Protecting the pound</h2>
<p>Rescuing the pound from long-term parity with the dollar will require action from policy makers. The Bank of England oversees monetary policy – using interest rates, among other tools to control the supply of money to the economy – and has a mandate from the government to tackle price stability by using interest rate increases to bring down inflation. Futures markets forecast an interest rate <a href="https://www.ft.com/content/3a78f11d-eb99-473b-9169-2685048f8d2b">increase of 4% to 6.25% by May 2023 </a>, showing an expectation that the Bank will continue to hike rates to tackle inflation.</p>
<p>The government takes care of fiscal policy – spending and taxation decisions – and recommendations from markets and organisations such as the <a href="https://www.ft.com/content/06962055-6b3d-4712-814f-acea3cb9e082">International Monetary Fund point towards a need for more prudence and fiscal restraint</a> in light of current inflationary pressures. The UK government will announce a <a href="https://www.gov.uk/government/news/update-on-growth-plan-implementation">medium-term fiscal plan on November 23 </a> that should aim to address the government debt to GDP ratio and shore up investor confidence in the economy. </p>
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Read more:
<a href="https://theconversation.com/why-imf-comments-on-the-uk-economy-spooked-traders-and-investors-191619">Why IMF comments on the UK economy spooked traders and investors</a>
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<p>Perhaps the most difficult challenge, however, will be tackling structural change as a result of the recent productivity slowdown due to Brexit and pandemic-related supply chain disruptions. Facilitating post-Brexit trade relations with the European Union could provide the necessary support to the UK’s tradeable sector to help boost the pound.</p>
<p>Without firm plans on these issues, the outlook for the long-term valuation of the pound remains uncertain. While global factors like the risk appetite of investors may continue to keep the dollar strong, domestic factors could mitigate these effects. Monetary tightening, fiscal consolidation and structural reform of the tradeable sector will all contribute to a revaluation of the pound, providing a route for policy makers to shore up its value on the international stage.</p><img src="https://counter.theconversation.com/content/191548/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ganesh Viswanath-Natraj does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What’s the long-term outlook for pound sterling?Ganesh Viswanath-Natraj, Assistant professor, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1885022022-09-26T12:29:40Z2022-09-26T12:29:40ZWhy does money exist?<figure><img src="https://images.theconversation.com/files/481362/original/file-20220826-10690-nguhqg.jpg?ixlib=rb-1.1.0&rect=224%2C71%2C5766%2C3574&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cash is pretty convenient.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/full-frame-shot-of-multi-colored-paper-currencies-royalty-free-image/1189523318?adppopup=true">Dilok Klaisataporn/EyeEm via Getty Images</a></span></figcaption></figure><figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=368&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=368&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=368&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption"></span>
</figcaption>
</figure>
<p><em><a href="https://theconversation.com/us/topics/curious-kids-us-74795">Curious Kids</a> is a series for children of all ages. If you have a question you’d like an expert to answer, send it to <a href="mailto:curiouskidsus@theconversation.com">curiouskidsus@theconversation.com</a>.</em></p>
<hr>
<blockquote>
<p><strong>Why do money and trading exist? – Vanessa C., age 10, Gilbert, Arizona</strong></p>
</blockquote>
<hr>
<p>Imagine a world without money. With no way to buy stuff, you might need to produce everything you wear, eat or use unless you could figure out how to swap some of the things you made for other items.</p>
<p>Just making a chicken sandwich would require spending months raising hens and growing your own lettuce and tomatoes. You’d need to collect your own seawater to make salt.</p>
<p>You wouldn’t just have to bake the bread for your sandwich. You’d need to grow the wheat, mill it into flour and figure out how to make the dough rise without store-bought yeast or baking powder.</p>
<p>And you might have to build your own oven, perhaps fueled by wood you chopped yourself after felling some trees. If that oven broke, you’d probably need to fix it or build another one yourself.</p>
<p>Even if you share the burden of getting all this done with members of your family, it would be impossible for a single family to internally produce all the goods and provide all the services everyone is used to enjoying. </p>
<p>To maintain anything like today’s standard of living, your family would need to include a farmer, a doctor and a teacher. And that’s just a start.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/URvWSsAgtJE?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">This account of making a sandwich ‘completely from scratch’ in six months required a lot of machines built by others.</span></figcaption>
</figure>
<h2>Specializing and bartering</h2>
<p><a href="https://scholar.google.com/citations?user=XGnYNjsAAAAJ&hl=en">Economists like me</a> believe that using money makes it a lot easier for everyone to specialize, focusing their work on a specific activity.</p>
<p>A farmer is better at farming than you are, and a baker is probably better at baking. When they earn money, they can pay others for the things they don’t produce or do.</p>
<p>As <a href="https://www.investopedia.com/terms/c/comparativeadvantage.asp">economists have known</a> since <a href="https://www.investopedia.com/terms/d/david-ricardo.asp">David Ricardo’s</a> work in the 19th century, there are gains for everyone from exchanging goods and services – even when you end up paying someone who is less skilled than you. By making these exchanges easy to do, money makes it possible to consume more.</p>
<p>People have traded goods and services with one kind of money or another, whether it was trinkets, shells, coins and paper cash, for <a href="https://theconversation.com/when-and-why-did-people-first-start-using-money-78887">tens of thousands of years</a>.</p>
<p>People have always obtained things without money too, <a href="https://www.investopedia.com/terms/b/barter.asp">usually through barter</a>. It involves swapping something, such as a cookie or a massage, for something else – like a pencil or a haircut.</p>
<p>Bartering sounds convenient. It can be fun if you enjoy haggling. But it’s hard to pull off.</p>
<p>Let’s say you’re a carpenter who makes chairs and you want an apple. You would probably find it impossible to buy one because a chair would be so much more valuable than that single piece of fruit. And just imagine what a hassle it would be to haul several of the chairs you’ve made to the shopping mall in the hopes of cutting great deals through barter with the vendors you’d find there.</p>
<p>Paper money is far easier to carry. You might be able sell a chair for, say, $50. You could take that $50 bill to a supermarket, buy two pounds of apples for $5 and keep the $45 in change to spend on other stuff later. Another advantage money has over bartering is that you can use it more easily to store your wealth and spend it later. Stashing six $50 bills takes up less room than storing six unsold chairs.</p>
<p>Nowadays, of course, many people pay for things without cash or coins. Instead, they use credit cards or make online purchases. Others simply wave a smartwatch at a designated device. Others use bitcoins and other cryptocurrencies. But all of these are just different forms of money that don’t require paper.</p>
<p>No matter what form it takes, money ultimately helps make the trading of goods and services go more smoothly for everyone involved.</p>
<hr>
<p><em>Hello, curious kids! Do you have a question you’d like an expert to answer? Ask an adult to send your question to <a href="mailto:curiouskidsus@theconversation.com">CuriousKidsUS@theconversation.com</a>. Please tell us your name, age and the city where you live.</em></p><img src="https://counter.theconversation.com/content/188502/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>M. Saif Mehkari does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Paying for the stuff you want with currency is way easier than relying on chairs you made or chickens you raised.M. Saif Mehkari, Associate Professor of Economics, University of RichmondLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1739012022-07-03T19:53:32Z2022-07-03T19:53:32ZCryptocurrencies are great for gambling – but lousy at liberating our money from big central banks<figure><img src="https://images.theconversation.com/files/468917/original/file-20220615-21-pd9tyr.jpg?ixlib=rb-1.1.0&rect=0%2C155%2C6470%2C3250&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The dream that decentralised finance – or “<a href="https://theconversation.com/what-is-defi-and-why-is-it-the-hottest-ticket-in-cryptocurrencies-144883">DeFi</a>” – can free the monetary system from the clutches of governments and banks has helped launch 20,000 cryptocurrencies.</p>
<p>But with 2022 proving to be more of a crypto-nightmare – including for the vaunted “stablecoins” that held the most promise as rivals to central bank-issued currencies – questions are now being asked as to whether DeFi really has any future.</p>
<p>There are predictions the cryptocurrency market, having lost more than half its value in the first six months of 2022, could collapse further – or be on the point of a rebound. This speaks to that fact that crypto is great for gambling, but still lousy as usable currency. It lacks other useful attributes too. </p>
<p>To assess DeFi’s prospects, it is useful to consider how finance became centralised in the first place. </p>
<h2>Origins of money</h2>
<p>Money is a feature of increasingly sophisticated human networks. When we lived as bands of hunter-gatherers there was little need for it. One could keep an informal tally of favours owed.</p>
<p>With the greater complexity of settled communities, in which people specialised in activities matching their skills and preferences, the barter system became the norm. </p>
<p>But barter required a double coincidence of wants. Someone who had excess food and wanted help building a home had to find a hungry builder. They then needed to haggle over how many hours labour was a fair exchange for a meal.</p>
<p>So “money” was invented. </p>
<p>Money could be shells or some useful storable good. It could be a tally of debts safely recorded somewhere (the earliest forms of writing, dating from 3000 BC, were <a href="https://www.archaeology.org/issues/213-1605/features/4326-cuneiform-the-world-s-oldest-writing">cuneiform</a> financial records). Then came human-made tokens, which led to coins <a href="http://rg.ancients.info/lion/article.html">of rare metals</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/438152/original/file-20211216-15-9tevib.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/438152/original/file-20211216-15-9tevib.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=333&fit=crop&dpr=1 600w, https://images.theconversation.com/files/438152/original/file-20211216-15-9tevib.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=333&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/438152/original/file-20211216-15-9tevib.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=333&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/438152/original/file-20211216-15-9tevib.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=418&fit=crop&dpr=1 754w, https://images.theconversation.com/files/438152/original/file-20211216-15-9tevib.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=418&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/438152/original/file-20211216-15-9tevib.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=418&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">So-called ‘spade money’, a hybrid between weeding tools used for barter and stylised objects used as money, emerged in ancient China about 3,000 years ago.</span>
<span class="attribution"><span class="source">Davidhartill/Wikimedia Commons</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Banking’s origins</h2>
<p>Money meant people could save the rewards of their labour, and lend it to others. But bringing together lenders with borrowers, and assuring the lenders the borrowers would repay, was a challenge. This is why banks developed. </p>
<p>Banks didn’t just issue a convenient form of money in the form of coins and notes. They also provided four basic banking services:</p>
<ul>
<li><p><strong>bundling:</strong> by gathering a lot of small deposits, they could make large loans</p></li>
<li><p><strong>diversification:</strong> by lending to a range of borrowers, one default mattered much less</p></li>
<li><p><strong>risk assessment:</strong> specialised skills in assessing trustworthiness reduced defaults </p></li>
<li><p>maturity transformation: they could offer loans for longer periods than most depositers wanted to keep their money in the bank.</p></li>
</ul>
<p>The oldest bank still operating today is Italy’s <a href="https://www.gruppomps.it/en/about-us/history.html">Monte dei Paschi di Siena</a>, founded in 1472. </p>
<figure class="align-center ">
<img alt="The headquarters of the Banca Monte dei Paschi di Siena, in Siena, Italy." src="https://images.theconversation.com/files/468887/original/file-20220615-17-mupsdz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/468887/original/file-20220615-17-mupsdz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/468887/original/file-20220615-17-mupsdz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/468887/original/file-20220615-17-mupsdz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/468887/original/file-20220615-17-mupsdz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/468887/original/file-20220615-17-mupsdz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/468887/original/file-20220615-17-mupsdz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The headquarters of the Banca Monte dei Paschi di Siena, in Siena, Italy.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Addressing problems with banks</h2>
<p>But private banks with their own currencies was not a stable system. So-called “bank runs” occurred when depositors lost confidence in a bank and sought to withdraw their funds. When a bank was unable to redeem all the banknotes or deposits demanded, panic ensued. </p>
<p>Bank runs were often contagious. People found it hard to distinguish whether a bank had an idiosyncratic problem (such as a fraudulent manager) or was suffering from a general problem (such as an economic downturn leading to bad debts). A run on one bank would often trigger runs on others. </p>
<figure class="align-center ">
<img alt="Police keep order during a run on the Adolf Mandel Bank in New York City, February 16 1912." src="https://images.theconversation.com/files/471987/original/file-20220701-5543-3m5byj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/471987/original/file-20220701-5543-3m5byj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=432&fit=crop&dpr=1 600w, https://images.theconversation.com/files/471987/original/file-20220701-5543-3m5byj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=432&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/471987/original/file-20220701-5543-3m5byj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=432&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/471987/original/file-20220701-5543-3m5byj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=543&fit=crop&dpr=1 754w, https://images.theconversation.com/files/471987/original/file-20220701-5543-3m5byj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=543&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/471987/original/file-20220701-5543-3m5byj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=543&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Police keep order during a run on the Adolf Mandel Bank in New York City, February 16 1912.</span>
<span class="attribution"><span class="source">Everett Collection/Shutterstock</span></span>
</figcaption>
</figure>
<p>In the 20th century most countries resolved these problems by having a government-owned central bank issue currency and regulating private banks to assure depositors of their solvency. These regulations included requiring banks to keep a minimum proportion of their assets available for withdrawals and to take out deposit insurance. </p>
<h2>The movement for decentralised finance</h2>
<p>This process of bank centralisation has not been universally applauded, however. Libertarians are suspicious of the system’s reliance on government-issued monopolies and licensed banks. They dislike banks almost as much as they do governments. They regard centralised finance as both inefficient and coercive. </p>
<p>Their dream: decentralised (or disintermediated) finance, enabling transactions directly, without the need for banking intermediaries. By cutting out the “middle man”, their pitch has been, transaction costs will be lower and the power of the state over individuals curbed. </p>
<p>With the internet and block-chain technology, these dreams have launched more than <a href="https://coinmarketcap.com/">20,000 cryptocurrencies</a>, with the first, and still largest, <a href="https://www.schwab.com/learn/story/cryptocurrencies-what-are-they">being Bitcoin</a>. </p>
<figure class="align-center ">
<img alt="A Bitcoin conference in San Francisco in 2019." src="https://images.theconversation.com/files/471989/original/file-20220701-16-qael5c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/471989/original/file-20220701-16-qael5c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/471989/original/file-20220701-16-qael5c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/471989/original/file-20220701-16-qael5c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/471989/original/file-20220701-16-qael5c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/471989/original/file-20220701-16-qael5c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/471989/original/file-20220701-16-qael5c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A Bitcoin conference in San Francisco in 2019.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>The ‘decentralisation illusion’</h2>
<p>But as the massive losses within the cryptocurrency markets in recent months demonstrate, DeFi has yet to prove it’s a viable alternative to the centralised banking system. It remains unclear how the four banking services discussed above can be delivered without trusted financial intermediaries.</p>
<p>Indeed, <a href="https://www.bis.org/publ/qtrpdf/r_qt2112b.pdf">according to economists</a> with the Bank of International Settlements (the central bank of central banks):</p>
<blockquote>
<p>While the main vision of DeFi’s proponents is intermediation without centralised
entities, we argue that some form of centralisation is inevitable. As such, there is a “decentralisation illusion”. </p>
</blockquote>
<h2>Few uses other than speculation</h2>
<p>As the BIS economists note, decentralised finance still has few real-economy uses. Mostly it has facilitated speculation. But what attracts speculators – wildly fluctuating prices – makes for a bad currency. </p>
<p>A salutary lesson comes from the experience of two (former) top ten cryptocurrencies, TerraUSD and its stablemate Luna. TerraUSD was supposed to a “stablecoin”, with its value pegged at US$1. That was true up to the beginning of May. By the end of May it was trading at less than 3 US cents. Over the same period Luna’s price dropped from <a href="https://coinmarketcap.com/historical/20220501/">$82</a> to <a href="https://coinmarketcap.com/historical/20220515/">0.02 US cents</a>.</p>
<p>These examples illustrate how cryptocurrencies such as Bitcoin, <a href="https://worldfinancialreview.com/what-is-bitcoins-fundamental-value/">lacking any fundamental value</a>, are speculative gambles.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-is-bitcoins-fundamental-value-thats-a-good-question-171387">What is Bitcoin's fundamental value? That's a good question</a>
</strong>
</em>
</p>
<hr>
<p>So central bank currencies still really have no rivals for the everyday business of buying and selling things, and are still far safer stores of value than crypto, even with inflation eroding their purchasing power.</p><img src="https://counter.theconversation.com/content/173901/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins formerly worked in the Reserve Bank of Australia and the Bank for International Settlements. </span></em></p>To assess the prospects of cryptocurrencies, it’s useful to consider how money was invented and became centralised in the first place.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1780632022-03-06T08:21:29Z2022-03-06T08:21:29ZGhana’s Cedi is under stress: some long, medium, and short term solutions<figure><img src="https://images.theconversation.com/files/449746/original/file-20220303-23-13d1lw3.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Ghanaian currency is facing its worst run of depreciation in years</span> <span class="attribution"><span class="source">MaxpIxel/Wikimedia Commons</span></span></figcaption></figure><p>An economy with strong fundamentals is one that is resilient, has a well-developed exports base, is industrialised, and creates jobs. That kind of economy can mobilise resources domestically, without much reliance on external support, and can even borrow at a lower cost. The citizens of this kind of economy have good roads, good transportation, good health, and good educational systems. They are well-resourced and free from civil unrest.</p>
<p>For decades, African countries have chalked up successes but these have not been significant enough to transform their economies. Most countries on the continent are still far from achieving these indicators of an economy with strong fundamentals. They often export primary commodities and import finished products.</p>
<p>The Ghanaian economy is no exception. It is still very much the Guggisberg economy. Sir Gordon Guggisberg was a British empire colonial administrator in what was then Gold Coast (1919-1927). He designed an economy to focus on the export of raw materials and importation of finished goods. Hence the moniker. </p>
<p>A century later, cocoa and gold are still Ghana’s major exports. Ghana is Africa’s <a href="https://www.forbes.com/sites/greatspeculations/2021/06/23/updated-top-10-gold-producing-countries/?sh=122bfca2ce2e">top gold exporter</a> at 138.7 tonnes. It has since added oil and gas, and some non-traditional commodities. </p>
<p>Ghana’s reliance on exporting raw materials and importing finished products contributed to the country’s persistent demand for, and less supply of, foreign currencies. This is why, for a long time, Ghana’s cedi has been depreciating against the other major trading currencies.</p>
<h2>Why is the cedi depreciating so fast?</h2>
<p>Ghana is an import-dependent economy. Because of this, the country continues to buy foreign currency to meet its import demands, with less supply of foreign exchange from its exports. Sometimes, the country records a net gain with exports earnings exceeding import costs, but these are paper gains. The actual money is repatriated by the foreign companies that operate in the country. The retention law is not effective to restrain them from repatriating all their profits.</p>
<p>The depreciation of the cedi has always been seasonal. It’s at its worst between February to March. This is the period during which Ghana-based multinationals repatriate profits. Also, local businesses that had imported goods on credit ahead of the Christmas season settle their debts. These are the major causes of the cedi depreciation. </p>
<p>And the fundamentals have not improved significantly over the years.</p>
<p>The exchange rate was quite stable, especially during the peak of the COVID-19 period (2020-2021), because imports slowed due to border closures by most countries. But as of 28th February 2022, the Ghanaian cedi was the worst performing currency among 15 top currencies in Africa, depreciating by 7.6% within the first two months of 2022.</p>
<h2>So what has sped up the decline?</h2>
<p>The first reason for the recent depreciation is the increased demand for foreign currencies since most businesses in Ghana are now recovering from the COVID-19 shock. This is not limited to Ghana. Most businesses globally are recovering and getting into serious production.</p>
<p>The second reason is the country’s inability to borrow from the international capital market. Because Ghana isn’t able to generate enough foreign exchange through exports, successive governments have tried to manage the depreciation of the cedi through borrowing from the international capital market, issuing dollar-denominated domestic bonds, and depleting the country’s foreign exchange reserves.</p>
<p>Whenever Ghana’s sovereign bond is no longer profitable and there are not enough reserves to shore up the Cedi, the currency depreciates. The events of March 2019 provide a perfect picture. That month the US Federal Reserve increased its interest rate making it more profitable to attract investors. Investors responded by selling sovereign bonds of developing countries like Ghana.</p>
<p>The world economy is bouncing back after the pandemic, pushing global inflation up. Inflation has moved from 3.1% in 2020 to 3.8% in 2022. The US inflation has risen from 1.35% in December 2021 to 7.46% in February 2022. The US Federal Reserve has responded by increasing the interest rate, making US sovereign bonds very attractive. Many investors are now selling their bonds in developing countries like Ghana to purchase those of advanced-economies like the US. </p>
<h2>Effects of the depreciation</h2>
<p>Depreciation of any currency makes its imports more expensive and exports cheaper. Some countries intentionally devalue their currencies to make their exports cheaper. However, because Ghana‘s export sector is not significantly developed, the country is not able to take advantage of the Cedi’s depreciation by exporting more and earning more foreign exchange. The effect of currency depreciation has been an increase in the cost of imported goods. Most of the imported goods are intermediate goods that are used for local production. This has led to rising inflation.</p>
<p>For example, the ex-pump prices of fuel depend a lot on the exchange rate since a greater part of the refined fuel is imported. Currently, there is increased global demand for crude oil as most industries are now recovering from the effects of COVID. At the same time, the supply of crude oil has slowed down after the <a href="https://theconversation.com/russia-invades-ukraine-5-essential-reads-from-experts-177815">Russian invasion of Ukraine</a>. The international crude oil price is expected to continue increasing for some time. </p>
<p>The combined effect of cedi depreciation and increases in international crude oil prices means that the ex-pump price of fuel in Ghana is expected to keep rising, at least until the end of the year 2022. </p>
<p>In response to high inflation, the Bank of Ghana will increase its policy rate in an attempt to control the growth of credit. This will lead to an increase in the cost of borrowing. Higher borrowing costs will eventually lead to increased costs of production, which will further increase inflation. </p>
<h2>Solutions</h2>
<p>The long-term solution is for the country to industrialise, add value to its exports, increase local production and cut down on imports so that there will be enough foreign exchange in the country. The government’s policy of modernising agriculture, and the one-district-one-factory should be improved to speed up the process of industrialisation.</p>
<p>The medium-term solution is for the government to be able to raise more domestic revenue to be able to service its debts, and finance its development without a heavy reliance on borrowing.</p>
<p>The short-term solution is for the government to borrow externally and bring foreign currency into the country. This can only happen after the government demonstrates to the investment community its ability to mobilise domestic revenue to service debt. </p>
<p>As a matter of urgency, the government must revise the design of the electronic levy (e-levy) and pass it within the shortest possible time to access Eurobonds. According to the international credit rating agencies, the passage of the e-levy and the reversal of the 50% benchmark values at the ports will signal to international investors that government of Ghana is on the fiscal consolidation path and that it can raise domestic revenue to service its debt. </p>
<p>In the short term, government can also demonstrate its ability to mobilise domestic revenue by paying attention to other sources of revenue such as property tax, tax exemptions, and natural resources.</p><img src="https://counter.theconversation.com/content/178063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adu Owusu Sarkodie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Ghanaian currency is facing structural hurdles.Adu Owusu Sarkodie, Lecturer, Department of Economics, University of GhanaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1781262022-03-01T01:59:25Z2022-03-01T01:59:25ZOrdinary Russians are already feeling the economic pain of sanctions over Ukraine invasion<figure><img src="https://images.theconversation.com/files/449050/original/file-20220228-15-167v14t.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C7221%2C4806&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As the ruble crumbles, are the wheels falling off the Russian economy?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/EURussiaUkraineWarDiplomaticNewDawn/23a92e38afde40eab10646dd2d00c88d/photo?Query=russia%20line&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=now-24h&totalCount=7&currentItemNo=0">AP Photo/Pavel Golovkin</a></span></figcaption></figure><p>The daily life of ordinary Russians – not just the country’s political elite or super rich oligarchs – is already being impacted by <a href="https://theconversation.com/just-short-of-nuclear-the-latest-financial-sanctions-will-cripple-russias-economy-178000">economic measures</a> imposed by the international community in response to the invasion of Ukraine.</p>
<p>As a <a href="https://www.wesleyan.edu/academics/faculty/prutland/profile.html">scholar of Russia’s political economy</a>, I was surprised by the speed and severity of the Western economic response to the invasion of Ukraine. Whereas the sanctions that the West <a href="https://www.nato.int/docu/review/articles/2015/07/13/sanctions-after-crimea-have-they-worked/index.html">imposed after the annexation of Crimea in 2014</a> were <a href="https://jordanrussiacenter.org/news/economic-sanctions-on-russia-and-their-effects-part-i/#.Yh07O5ZOkcR">generally quite ineffective</a> – at best slowing Russian gross domestic product growth by 1% a year – this time they appear to be having an immediate impact. Just days into the conflict, we are seeing images of <a href="https://www.pbs.org/newshour/world/russians-line-up-at-banks-as-currency-plummets-in-face-of-sanctions">long lines of Russians</a> attempting to get cash out of bank ATMs.</p>
<p>In the past few days, the U.S. has frozen the assets of the Russian central bank in Western jurisdictions – an unexpected move – and excluded most Russian banks from the <a href="https://theconversation.com/us-eu-sanctions-will-pummel-the-russian-economy-two-experts-explain-why-they-are-likely-to-stick-and-sting-177896">SWIFT bank clearing system</a>, which processes trillions of dollars’ worth of transactions every day. </p>
<p>This means Russian individuals and businesses will not be able to access any foreign bank accounts that they have. The Central Bank of Russia has tried to reassure the public, <a href="https://www.cbr.ru/press/event/?id=12729">stating</a> that the national bank transfer system can handle domestic transactions and that credit cards issued by Russian affiliates of Western banks should work inside Russia.</p>
<p>But the package of sanctions is seen by economists such as <a href="https://novayagazeta.ru/articles/2022/02/28/s-golym-torsom-na-parovoz">Sergei Aleksashenko</a> and <a href="https://meduza.io/feature/2022/02/28/voyna-stoit-rossiyanam-dorogo-i-budet-stoit-esche-dorozhe">Sergei Guriev</a> as unprecedented in its scope.</p>
<h2>Prices head north as ruble heads south</h2>
<p>As news of the sanctions filtered out, Russians <a href="https://www.ft.com/content/424d8ed3-34ce-4729-8d9c-eebf0c7f5d4d">rushed to withdraw cash</a> from ATMs and to dump rubles for other currencies, fearing a further depreciation of the national currency. A classic bank run appears to be underway, with the ruble losing 29% of its value and exchange booths offering <a href="https://www.cbr.ru/press/event/?id=12729">100 rubles</a> to the dollar. Russia’s central bank is doing <a href="https://www.cbr.ru/press/event/?id=12729">everything it can</a> to shore up the value of the ruble. </p>
<p>The falling ruble pushes up the price of imports, which make up over half the consumer basket. Inflation in Russia was already a sensitive issue prior to the invasion of Ukraine, running at <a href="https://www.cbr.ru/eng/">8.7%</a>. In 2021, global food prices rose <a href="https://www.washingtonpost.com/world/2022/01/28/ukraine-grain-exports-russia-threat/">28%</a>, and Russia <a href="https://www.ft.com/content/07378501-0ab9-4eef-ad13-eb72adff1838">imposed price caps</a> and export duties on some basic food items. </p>
<p>The new sanctions will severely impact the living standard of ordinary Russians. A <a href="https://tass.com/society/1314425">survey conducted</a> in July 2021 found that around 75% of Russians spent around half their income or more on food, and that was before the recent price surge.</p>
<p>To try to protect the ruble, Russian President Vladimir Putin on Feb. 28, 2022, <a href="https://www.reuters.com/markets/europe/russian-central-bank-scrambles-contain-fallout-sanctions-2022-02-28/">ordered a ban</a> on sending cash abroad, and exporters must convert 80% of their earnings into rubles. The Central Bank of Russia also hiked its base interest rate from 9.5% to 20%. This should help stabilize the ruble but will make borrowing more expensive for businesses and thus increase the chance of a deep recession.</p>
<p>Russia’s foreign bonds are trading at 30 cents on the dollar and have been downgraded to <a href="https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-02-26/card/russia-cut-to-junk-rating-by-s-p-ukraine-s-rating-lowered-grtPacmpCwsqrmnfKa2A">junk status</a> by Standard & Poor’s and Fitch ratings. This will make it harder for Russian businesses to raise money to invest, meaning less growth and employment in the medium to long term.</p>
<h2>Goods disappearing from shelves</h2>
<p>Russia hasn’t been completely excluded from the international financial system. The new sanctions do allow certain Russian banks that handle oil and gas exports to continue transactions in an attempt to limit the impact on European energy consumers. </p>
<p>As it is, the general uncertainty caused by the war has caused the world oil price to <a href="https://www.cnn.com/2022/02/24/energy/gas-prices-russia-ukraine/index.html">surge above $100 a barrel</a> to levels not seen since 2014, and grain prices are spiking due to the disruption of shipments from Russia and Ukraine – which together account for around <a href="https://www.nytimes.com/2022/02/24/business/ukraine-russia-wheat-prices.html">one quarter of global grain exports</a>.</p>
<p>Even before the invasion, grain prices had <a href="https://www.ft.com/content/a4439155-197b-4e63-baee-b4fa3229ac67">risen 50%</a> over the past year, leading Russia to ban fertilizer exports to help secure a good harvest this year. While Russian exporters benefit from high oil and gas prices, Russian consumers, along with consumers all around the world, will be paying more for fuel and food in future months. </p>
<p>The sanctions also bar the export of certain key technologies to Russia. Russia is <a href="https://www.kommersant.ru/doc/5230512">unable to manufacture</a> the latest generation of microchips due to a lack of manufacturing expertise. Taiwan, source of about <a href="https://www.cnbc.com/2021/03/16/2-charts-show-how-much-the-world-depends-on-taiwan-for-semiconductors.html">60% of the world’s chips</a>, has agreed to join the sanctions. That means a broad range of goods, from smartphones to automobiles, <a href="https://novayagazeta.ru/articles/2022/02/28/za-chto-budem-platit-i-stoit-li-ono-togo">could disappear</a> from Russian stores. </p>
<p>Similarly, <a href="https://www.thepharmaletter.com/article/russia-registers-steady-growth-of-drug-imports-so-far-this-year">about 66%</a> of medicines are imported, and it is not yet known if a mechanism will be created to enable Russians to pay for imports of medicines. </p>
<h2>Whom will Russians blame for economic pain?</h2>
<p>Any sanctions regime can be evaded by smuggling imports through third parties. However, the U.S. has become adept at tracking such transactions and <a href="https://meduza.io/feature/2022/02/28/voyna-stoit-rossiyanam-dorogo-i-budet-stoit-esche-dorozhe">going after sanctions breakers</a>. In any account, the risks involved push up the price considerably. </p>
<p>[<em>Over 140,000 readers rely on The Conversation’s newsletters to understand the world.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-140ksignup">Sign up today</a>.]</p>
<p>All in all, this amounts to a grim scenario for Russian consumers and businesses. The economy is likely to <a href="https://news.yahoo.com/russia-economy-poised-to-plunge-into-recession-warns-jp-morgan-120344770.html">plunge into recession</a>, and many Russians are already experiencing the effects of the sanctions.</p>
<p>Revenue from oil and gas exports will continue to flow, and that will provide Putin with enough funds to maintain the state’s security apparatus and put down popular unrest. However, worsening personal economic circumstances might affect how Russians view the war. In the past, Putin has tried to pass the blame for economic pain on to the West, but there is a chance that this time around, Russians might hold him to account.</p><img src="https://counter.theconversation.com/content/178126/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Rutland does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Soaring inflation and a run on the banks signal that punishing sanctions resulting from the invasion of Ukraine are already inflicting economic pain.Peter Rutland, Professor of Government, Wesleyan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1763152022-02-09T14:01:03Z2022-02-09T14:01:03ZNFTs: WWF tried raising money with digital art but backtracked – environmental charities should follow suit<figure><img src="https://images.theconversation.com/files/445049/original/file-20220208-19-152bnp2.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C6000%2C3997&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/bored-ape-nft-blockchain-non-fungible-2103908738">GGG999/Shutterstock</a></span></figcaption></figure><p>Most online images are just a right-click away from being in someone’s personal collection. They’re free, pretty much. So it’s tough for charities to fundraise with them. That is, until 2017 when <a href="https://theconversation.com/nfts-why-digital-art-has-such-a-massive-carbon-footprint-158077">non-fungible tokens</a>, or NFTs, came along. Unlike regular pieces of digital media, NFTs can’t be so easily copied. And for as long as they have existed, there have been conservation charities using them for fundraising.</p>
<p>A cartoon drawing of a cat-turtle named Honu <a href="https://doi.org/10.1016/j.marpol.2020.103873">raised US$25,000</a> (£18,485) for ocean conservation charities in 2018. Rewilder is a non-profit organisation <a href="https://apnews.com/article/technology-business-beeple-philanthropy-7741a0266f9c0ff2bb8464d5481af1b3">using NFT auctions</a> to raise funds to buy land for reforestation. The charity claims to have raised US$241,700. </p>
<p>There have been various cartoon apes <a href="https://www.theblockcrypto.com/post/114030/nft-project-bored-ape-yacht-club-has-donated-850000-to-an-orangutan-charity">sold for US$850,000</a>, with the money going to orangutan conservation charities. The most expensive NFT to date, a picture of some small grey balls, sold to multiple buyers <a href="https://news.artnet.com/market/pak-nft-91-8-million-2044727">for US$92 million</a> in December 2021. </p>
<p>With many UK charities in <a href="https://www.theguardian.com/society/2020/nov/12/devastating-loss-funds-uk-charities-count-cost-covid">dire straits</a>, it’s no surprise some want a piece of the crypto action too. </p>
<p>Recently, WWF UK joined the NFT circus with its <a href="https://opensea.io/collection/tokens-for-nature">Tokens for Nature</a> collection. But before the fundraiser had even started, the <a href="https://www.euronews.com/green/2022/02/03/wwf-decision-to-sell-nfts-labelled-astonishingly-stupid-by-environmentalists">project sparked a backlash</a> from environmentalists online who worried about its carbon footprint. Within just a few days, the <a href="https://www.wwf.org.uk/updates/nft-statement">sale was terminated</a>. </p>
<p>The NFAs (or Non-Fungible Animals) project aimed to raise lots of money and awareness about endangered animals. The number of rare animal images available for sale corresponded to the estimated number left in the wild. There were 290 Giant ibis NFAs, for example. An ibis jpeg would have raised <a href="https://www.wwf-nfa.com/en/">about US$400</a> through a single sale .</p>
<h2>‘Eco-friendly’ NFTs?</h2>
<p>According to one estimate, NFTs generate more <a href="https://digiconomist.net/ethereum-energy-consumption/">carbon emissions than Singapore</a> as a result of their energy consumption.</p>
<p>Most NFT creators use a technology called Ethereum, which is a blockchain system similar to Bitcoin that involves an <a href="https://theconversation.com/bitcoin-isnt-getting-greener-four-environmental-myths-about-cryptocurrency-debunked-155329">energy-intensive</a> computer function called mining. Specialist mining computers take turns validating transactions while guessing the combination of a long string of automatically generated digits. The computer that correctly guesses the combination first wins a reward paid in a cryptocurrency called ether. </p>
<p>Unlike regular NFTs though, WWF claimed that its NFAs were “<a href="https://twitter.com/wwf_uk/status/1488800080819802116">eco-friendly</a>”. In its sustainability statement, the charity suggested the sale of all 8,000 or so NFAs would have a <a href="https://ambcrypto.com/wwf-uk-gets-backlash-over-eco-friendly-nfts-launching-on-polygon/">similar carbon footprint</a> to a pint of milk, or a half-dozen eggs. The reason for this negligible impact they claimed was a clever blockchain application called Polygon, which would have allowed WWF’s project fewer direct interactions with the Ethereum blockchain. WWF wouldn’t then need to take as much responsibility for its share of Ethereum’s <a href="https://theconversation.com/nfts-why-digital-art-has-such-a-massive-carbon-footprint-158077">monstrous carbon footprint</a>. </p>
<figure class="align-center ">
<img alt="Shelves of computer servers strewn with cables and lit by green and blue lights." src="https://images.theconversation.com/files/445056/original/file-20220208-14-1v1ied2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/445056/original/file-20220208-14-1v1ied2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/445056/original/file-20220208-14-1v1ied2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/445056/original/file-20220208-14-1v1ied2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/445056/original/file-20220208-14-1v1ied2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/445056/original/file-20220208-14-1v1ied2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/445056/original/file-20220208-14-1v1ied2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Crypto mining consumes vast quantities of energy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bitcoin-miners-large-farm-asic-mining-2023647059">Artie Medvedev/Shutterstock</a></span>
</figcaption>
</figure>
<p>So why the Twitter tantrums?</p>
<p>WWF’s assumption was a tricky one. That’s because Polygon depends on Ethereum contracts to <a href="https://digiconomist.net/the-carbon-footprint-of-polygon/">carry out essential services</a>, such as moving assets between Ethereum and Polygon and creating checkpoints between the two. According to Alex de Vries of the cryptocurrency monitoring website, Digiconomist, the footprint of WWF’s project was actually around <a href="https://digiconomist.net/the-carbon-footprint-of-polygon/">2,100 times more</a> (12,600 eggs) than the estimate provided by the charity. </p>
<p>There are also second-order effects to consider. Ethereum’s carbon emissions are not related directly to the number of transactions occurring on the network. PoW mining is what gives Ethereum <a href="https://doi.org/10.1016/j.erss.2021.102394">its dirty reputation</a>. By pumping up the hype around NFT markets, the collection could <a href="https://www.independent.co.uk/life-style/gadgets-and-tech/ethereum-price-latest-prediction-nft-metaverse-b1949757.html">drive up the price</a> of Ethereum. This would encourage more PoW mining, increasing the network’s overall carbon footprint. </p>
<p>Initial buyers of NFAs would purchase them from WWF’s <a href="https://nft.wwf.org.uk/marketplace">dedicated website</a>. But buyers can <a href="https://nft.wwf.org.uk/faq">relist</a> their artwork on the popular NFT marketplace, OpenSea. OpenSea is currently the <a href="https://ambcrypto.com/wwf-uk-gets-backlash-over-eco-friendly-nfts-launching-on-polygon/">number one gas guzzler</a> on the Ethereum network, responsible for nearly 20% of actions on the blockchain.</p>
<h2>Blockchain backlash</h2>
<p>WWF is not the first charity to reevaluate its position on crypto-giving. In 2021, Greenpeace <a href="https://fortune.com/2021/05/21/greenpeace-bitcoin-carbon-footprint/#:%7E:text=Greenpeace%20will%20no%20longer%20accept%20Bitcoin&text=Environmental%20group%20Greenpeace%20has%20stopped,removed%20from%20the%20Greenpeace%20Website.">stopped accepting bitcoin donations</a> after seven years. <a href="https://www.ft.com/content/1aecb2db-8f61-427c-a413-3b929291c8ac">Friends of the Earth</a> soon followed. The WWF furore forced the wildlife charity, <a href="https://www.internationalanimalrescue.org/get-involved/cryptocurrency">International Animal Rescue</a> to park its NFT fundraising plans indefinitely. Internet nonprofits <a href="https://www.coindesk.com/business/2022/01/12/wikipedia-faces-pressure-to-stop-accepting-crypto-donations-on-environmental-grounds/">Mozilla and Wikipedia</a> have also reconsidered their crypto-giving strategies on climate change grounds. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1488912763854458890"}"></div></p>
<p>There are multiple <a href="https://branch.climateaction.tech/issues/issue-2/a-guide-to-ecofriendly-cryptoart-nfts/">NFT-friendly blockchains</a> that don’t cause carbon headaches. Even so, <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/nml.21452">research shows</a> it’s difficult for charities to fundraise using NFTs without getting their hands dirty. </p>
<p>Charities should be mindful of <a href="https://www.theatlantic.com/technology/archive/2022/02/crypto-nft-web3-internet-future/621479/">growing public disapproval</a> of blockchain projects. <a href="https://yesterweb.org/no-to-web3/index.html">Some argue</a> the technology is driven by predatory marketing tactics. Others claim blockchain is a <a href="https://jacobinmag.com/2022/01/cryptocurrency-scam-blockchain-bitcoin-economy-decentralization">platform for Ponzi schemes</a>, grift, and multi-level-marketing arrangements. <a href="https://futurism.com/the-byte/nft-marketplace-fraud-scams">According to OpenSea</a>, 80% of the NFTs minted through its site are spam, scams, or otherwise fraudulent. </p>
<p><a href="https://onlinelibrary.wiley.com/doi/full/10.1002/nml.21452">Research also shows</a> cryptocurrencies can restrict the work of conservation charities. In 2018, WWF partnered with blockchain developers, <a href="https://irishtechnews.ie/wwf-now-accepting-donations-on-the-blockchain-thanks-to-aidcoin-welcoming-the-new-era-of-transparent-giving/">AidChain</a>. To improve transparency in the donor tracking process, AidChain encouraged WWF to pay their service providers in a cryptocurrency called AidCoin. Using an Ethereum smart contract, donors could then track and manage how funds were spent. </p>
<p><a href="https://www.coindesk.com/markets/2021/01/13/the-downside-of-crypto-donations/">Platforms like this</a> can allow non-expert crypto donors to encode concrete conditions to their donations. Break the conditions – lose the funds. Great for the donor. Lousy for the charity’s conservation experts.</p>
<p>Before reacting to crypto-giving hype, conservation charities such as WWF need to do their homework. Animal jpegs and cryptocurrencies may seem a harmless way to fundraise. But mindlessly jumping on the blockchain bandwagon could tie their hands while longstanding donors take their support elsewhere.</p>
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<img alt="Imagine weekly climate newsletter" src="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p class="fine-print"><em><span>Peter Howson currently receives funding from The British Academy.</span></em></p>The premise of ‘eco-friendly’ non-fungible tokens is shaky at best.Peter Howson, Senior Lecturer in International Development, Northumbria University, NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1747632022-02-04T13:08:06Z2022-02-04T13:08:06ZCryptocurrency-funded groups called DAOs are becoming charities – here are some issues to watch<figure><img src="https://images.theconversation.com/files/443913/original/file-20220201-13-1rhm2ib.jpg?ixlib=rb-1.1.0&rect=426%2C74%2C5756%2C3290&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Kimbal Musk, Elon's brother, has launched one of these new kinds of nonprofits.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/kimbal-musk-attends-the-los-angeles-premiere-of-the-game-news-photo/1172393340">Michael Kovac/Getty Images for 'The Game Changers'</a></span></figcaption></figure><p><a href="https://www.politico.com/news/2022/01/31/crypto-wyoming-arizona-tax-payments-00003910">Cryptocurrency</a> is becoming a <a href="https://techcrunch.com/2022/01/07/regulating-crypto-could-create-american-super-apps/">more familiar way to pay for things</a>.</p>
<p>One option is as part of a crowd, through a <a href="https://www.investopedia.com/tech/what-dao/">decentralized autonomous organization</a>. In this relatively new kind of group, also called a DAO, decisions and choices are governed by holders of one kind of cryptocurrency token, such as ethereum or bitcoin. DAOs also use “<a href="https://www.coindesk.com/learn/what-is-a-dao/">smart contracts</a>” that make decisions through online votes by all participants who wish to weigh in and other forms of automation.</p>
<p>DAOs are essentially clubs that harness both crowdfunding and cryptocurrency to operate in arenas from <a href="https://decrypt.co/88894/11-most-interesting-daos-of-2021">art to sports</a>. They are also cropping up in <a href="https://medium.com/@chriswjnr/a-charity-dao-structure-226e7dc9aaf6">philanthropy</a>.</p>
<p>One good example is the <a href="https://dao.biggreen.org/">Big Green DAO</a>. Launched in late 2021, it’s tied to a <a href="https://projects.propublica.org/nonprofits/organizations/275083595">decade-old</a> food justice charity that had revenue in excess of US$9 million in 2019.</p>
<p>Big Green’s founder is <a href="https://www.coindesk.com/tech/2021/11/30/kimbal-musks-big-green-dao-is-a-big-step-for-web-3/">Kimbal Musk</a>, who is Elon Musk’s brother and a member of Tesla’s board. The DAO version of his nonprofit promises to “<a href="https://dao.biggreen.org/">disrupt philanthropic hierarchies</a>” by reducing <a href="https://theconversation.com/nonprofits-that-scrimp-on-overhead-arent-necessarily-better-than-those-spending-more-111700">overhead spending</a> and shaving other expenses.</p>
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<h2>New terrain</h2>
<p>Based on my <a href="https://scholar.google.com/citations?hl=en&user=UsFwZekAAAAJ">research regarding crypto-assets</a>, I believe that there are <a href="https://medium.com/@chriswjnr/a-charity-dao-structure-226e7dc9aaf6">several considerations</a> that donors and charities should keep in mind as these arrangements emerge.</p>
<p>First, DAOs have little if any formal infrastructure. Some states simply require one individual to be designated as the agent of record. <a href="https://www.wyoleg.gov/2021/Introduced/SF0038.pdf">Wyoming passed a law in 2021</a> – the first of its kind in the United States – that legally recognizes DAOs as legal entities. It still requires the DAO to be organized as a Wyoming-based <a href="https://www.investopedia.com/terms/l/llc.asp">limited liability company</a>, with an individual identified as the registered agent. </p>
<p><a href="https://www.coindesk.com/tech/2021/11/30/kimbal-musks-big-green-dao-is-a-big-step-for-web-3/">In theory</a>, at least, when combined with the quick nature of how DAO decisions are made, this means that nonprofits can achieve more and respond more quickly to changing circumstances, while spending less on administrative staff and other kinds of overhead.</p>
<h2>Legal questions</h2>
<p>Until now, most <a href="https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=6540">cryptocurrency donations to charities</a> simply <a href="https://www.cnbc.com/2021/12/24/what-to-know-about-making-cryptocurrency-donations-to-charity.html">provided capital to eligible organizations</a> that operate like any other standard nonprofit.</p>
<p>For tax purposes, <a href="https://thegivingblock.com/resources/faq/?">donating cryptocurrency</a> is like giving away stocks, bonds or other property, rather than donating money. This means, typically, that cryptocurrency donations actually provide donors with a <a href="https://theconversation.com/how-elon-musk-can-save-big-on-taxes-by-giving-away-a-ton-of-his-tesla-stock-172036">larger tax benefit</a> versus cash donations. If a donor were to instead liquidate their cryptocurrency prior to making a gift, they would first have to pay <a href="https://taxbit.com/blog/understanding-the-cryptocurrency-tax-rate">capital gains taxes</a>, and they would have less money to give away. </p>
<p>However, <a href="https://www.zenledger.io/blog/what-is-a-dao">it’s unclear</a> <a href="https://nonprofitlawblog.com/dao-what-is-it-what-does-it-mean-for-nonprofits/">whether funds can legally</a> flow to, through and out of a charitable decentralized autonomous organization.</p>
<p>Nonprofits are subject to regulatory enforcement and need to be chartered in a particular state. So far, it’s unclear how regulators, such as the <a href="https://www.irs.gov/charities-and-nonprofits">Internal Revenue Service</a> or <a href="https://www.irs.gov/charities-non-profits/state-links">state charity offices</a>, will be able to monitor or audit these groups.</p>
<p>It’s also unclear whether the very nature of DAOs is compatible with charitable donations.</p>
<p>In most, if not all, instances of for-profit DAOs – or even DAOs organized for a specific one-time purpose, such as <a href="https://www.constitutiondao.com/">attempting to purchase an original copy of the U.S. Constitution</a> – cash or appreciated property that is contributed to the organization is exchanged for <a href="https://www.coindesk.com/learn/what-is-a-governance-token/">governance tokens</a>. The tokens essentially represent a fractional form of collective ownership.</p>
<p>This could be problematic. When donors make charitable contributions, they relinquish the money or asset they just gave to the charity. A <a href="https://www.pgdc.com/pgdc/story/rev-rul-86-63">basic condition</a> for having a donation be eligible for favorable tax treatment by the authorities is that the <a href="https://www.charitynavigator.org/index.cfm?bay=content.view&cpid=31">donor gets nothing of value in return</a>. </p>
<p>The authorities may eventually determine that the distribution of virtual tokens to donors, even if those tokens aren’t used for anything outside the scope of the nonprofit, violates this precondition.</p>
<h2>Wild rides</h2>
<p>The clearest risk with those gifts is probably their volatility. </p>
<p>Overall, the cryptocurrency’s total market value sank to <a href="https://www.tradingview.com/markets/cryptocurrencies/global-charts/">$1.6 trillion on Feb. 3, 2022</a>, down from $2.85 trillion three months earlier.</p>
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<p>Charities either need to convert these donations into U.S. dollars right away, <a href="https://www.cfoselections.com/perspective/accounting-and-reporting-for-stock-gift-donations-to-nonprofits">as they do with donated stocks</a>, or gamble regarding their future value.</p>
<p>Despite all the operational, financial and legal obstacles nonprofit DAOs face, I’m excited about the opportunities with these crowd-managed charities funded by cryptocurrency donations because of their potential for a high degree of transparency paired with low overhead.</p>
<p>[<em>Get the best of The Conversation, every weekend.</em> <a href="https://memberservices.theconversation.com/newsletters/?nl=weekly&source=inline-weeklybest">Sign up for our weekly newsletter</a>.]</p><img src="https://counter.theconversation.com/content/174763/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>I own positions in several cryptocurrencies, and am on the Advisory Board of Gilded, a crypto-accounting and crypto-payment organization </span></em></p>As decentralized autonomous organizations with philanthropic aims begin to form, it’s unclear whether they can operate without breaking IRS rules.Sean Stein Smith, Assistant Professor of Economics and Business, Lehman College, CUNYLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1757172022-02-03T13:13:52Z2022-02-03T13:13:52ZWhy are people calling Bitcoin a religion?<figure><img src="https://images.theconversation.com/files/443516/original/file-20220131-124991-gt2h4m.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5636%2C3463&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some Bitcoin evangelists see the currency as an answer to problems that plague society.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/the-social-solidarity-economy-messiah-royalty-free-illustration/1309244426?adppopup=true">mustafa akman/iStock via Getty Images</a></span></figcaption></figure><p>Read enough about Bitcoin, and you’ll inevitably come across people who refer to the cryptocurrency as a religion.</p>
<p>Bloomberg’s <a href="https://www.bloomberg.com/news/newsletters/2021-01-04/five-things-you-need-to-know-to-start-your-day">Lorcan Roche Kelly</a> called Bitcoin “the first true religion of the 21st century.” Bitcoin promoter <a href="https://medium.com/the-bitcoin-times/the-passion-of-the-believers-bf26f3b46315">Hass McCook</a> has taken to calling himself “The Friar” and wrote a series of Medium pieces comparing Bitcoin to a religion. There is a <a href="https://churchofbitcoin.org/">Church of Bitcoin</a>, founded in 2017, that explicitly calls legendary Bitcoin creator Satoshi Nakamoto its “prophet.”</p>
<p>In Austin, Texas, <a href="https://austonia.com/crypto-billboards-austin">there are billboards</a> with slogans like “Crypto Is Real” that weirdly mirror the ubiquitous <a href="https://cdn.christianaidministries.org/wp-content/uploads/2018/08/Houston-Texas.jpg">billboards about Jesus</a> found on Texas highways. Like many religions, Bitcoin even has <a href="https://www.vice.com/en/article/ne74nw/inside-the-world-of-the-bitcoin-carnivores%22%20%5Ct%20%22_blank">dietary restrictions</a> associated with it.</p>
<h2>Religion’s dirty secret</h2>
<p>So does Bitcoin’s having prophets, evangelists and dietary laws make it a religion or not?</p>
<p><a href="https://scholar.google.com/citations?user=4EKx-aoAAAAJ&hl=en">As a scholar of religion</a>, I think this is the wrong question to ask.</p>
<p>The dirty secret of religious studies is that there is no universal definition of what religion is. Traditions such as Christianity, Islam and Buddhism certainly exist and have similarities, but the idea that these are all examples of religion is relatively new.</p>
<p><a href="https://womrel.sitehost.iu.edu/Rel433%20Readings/SearchableTextFiles/Smith_ReligionReligionsReligious.pdf">The word “religion”</a> as it’s used today – a vague category that includes certain cultural ideas and practices related to God, the afterlife or morality – arose in Europe around the 16th century. Before this, many Europeans understood that there were only three types of people in the world: Christians, Jews and heathens. </p>
<p>This model shifted after the Protestant Reformation when a <a href="https://www.google.com/books/edition/Early_Modern_Europe/t6TXB9RbwbYC?hl=en&gbpv=0">long series of wars</a> began between Catholics and Protestants. These became known as “wars of religion,” and religion became a way of talking about differences between Christians. At the same time, Europeans were encountering other cultures through exploration and colonialism. Some of the traditions they encountered shared certain similarities to Christianity and were also deemed religions.</p>
<p>Non-European languages have historically not had a direct equivalent to the word “religion.” What has counted as religion has changed over the centuries, and there are always political interests at stake in determining whether or not something is a religion.</p>
<p>As religion scholar <a href="https://religion.ua.edu/wp-content/uploads/2017/05/mccutchmtsr2007.pdf">Russell McCutcheon</a> argues, “The interesting thing to study, then, is not what religion is or is not, but ‘the making of it’ process itself – whether that manufacturing activity takes place in a courtroom or is a claim made by a group about their own behaviors and institutions.”</p>
<h2>Critics highlight irrationality</h2>
<p>With this in mind, why would anyone claim that Bitcoin is a religion?</p>
<p>Some commentators seem to be making this claim to steer investors away from Bitcoin. Emerging market fund manager <a href="https://www.cnbc.com/2021/11/03/crypto-is-a-religion-not-an-investment-investor-mark-mobius-says.html">Mark Mobius</a>, in an attempt to tamp down enthusiasm about cryptocurrency, said that “crypto is a religion, not an investment.” </p>
<p>His statement, however, is an example of a <a href="https://owl.excelsior.edu/argument-and-critical-thinking/logical-fallacies/logical-fallacies-false-dilemma/">false dichotomy fallacy</a>, or the assumption that if something is one thing, it cannot be another. There is no reason that a religion cannot also be an investment, a political system or nearly anything else. </p>
<p>Mobius’ point, though, is that “religion,” like cryptocurrency, is irrational. This criticism of religion has been around since the Enlightenment, <a href="https://www.google.com/books/edition/Discovering_World_Religions_at_24_Frames/UVa2KtlPHocC?hl=en&gbpv=1">when Voltaire wrote</a>, “Nothing can be more contrary to religion and the clergy than reason and common sense.”</p>
<p>In this case, labeling Bitcoin a “religion” suggests that bitcoin investors are fanatics and not making rational choices.</p>
<h2>Bitcoin as good and wholesome</h2>
<p>On the other hand, some Bitcoin proponents have leaned into the religion label. McCook’s articles use the language of religion to highlight certain aspects of Bitcoin culture and to normalize them. </p>
<p>For example, “<a href="https://www.nasdaq.com/articles/stacking-sats%3A-how-small-weekly-investments-can-offer-decent-returns-2021-03-30">stacking sats</a>” – the practice of regularly buying small fractions of bitcoins – sounds weird. But McCook refers to this practice as a religious ritual, and more specifically as “<a href="https://medium.com/the-bitcoin-times/the-passion-of-the-believers-bf26f3b46315">tithing</a>.” Many churches practice tithing, in which members make regular donations to support their church. So this comparison makes sat stacking seem more familiar.</p>
<p>While for some people religion may be associated with the irrational, it is also associated with what religion scholar <a href="https://bulletin.equinoxpub.com/2013/11/why-atheism-matters/">Doug Cowan</a> calls “the good, moral and decent fallacy.” That is, some people often assume if something is really a religion, it must represent something good. People who “stack sats” might sound weird. But people who “tithe” could sound principled and wholesome.</p>
<figure class="align-center ">
<img alt="Hands emerging from clouds holding a bitcoin token." src="https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Associating Bitcoin with religion could add a sheen of morality.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/funny-cartoon-modern-illustration-on-bitcoin-royalty-free-illustration/1346610226?adppopup=true">Takoyaki Tech/Getty Images</a></span>
</figcaption>
</figure>
<h2>Using religion as a framework</h2>
<p>For religion scholars, categorizing something as a religion can pave the way for new insights.</p>
<p>As religion scholar <a href="https://womrel.sitehost.iu.edu/Rel433%20Readings/SearchableTextFiles/Smith_ReligionReligionsReligious.pdf">J.Z. Smith writes</a>, “‘Religion’ is not a native term; it is created by scholars for their intellectual purposes and therefore is theirs to define.” For Smith, categorizing certain traditions or cultural institutions as religions creates a comparative framework that will hopefully result in some new understanding. With this in mind, comparing Bitcoin to a tradition like Christianity may cause people to notice things that they didn’t before.</p>
<p>For example, many religions were founded by <a href="https://www.baylorisr.org/wp-content/uploads/2019/10/Charismatic-Leadership.pdf">charismatic leaders</a>. Charismatic authority does not come from any government office or tradition but solely from the relationship between a leader and their followers. Charismatic leaders are seen by their followers as superhuman or at least extraordinary. Because this relationship is precarious, leaders often remain aloof to keep followers from seeing them as ordinary human beings. </p>
<p>Several commentators have noted that Bitcoin inventor Satoshi Nakamoto resembles a sort of prophet. Nakamoto’s true identity – or whether Nakamoto is actually a team of people – <a href="https://www.cnbc.com/2017/10/27/bitcoins-origin-story-remains-shrouded-in-mystery-heres-why-it-matters.html">remains a mystery</a>. But the intrigue surrounding this figure is a source of charisma with consequences for bitcoin’s economic value. Many who invest in bitcoin do so in part because they regard Nakamoto as a genius and an economic rebel. In Budapest, artists even erected a <a href="https://www.euronews.com/next/2021/09/17/hungary-s-bitcoin-fans-unveil-faceless-statue-of-mysterious-crypto-founder-satoshi-nakamot">bronze statue</a> as a tribute to Nakamoto.</p>
<figure class="align-center ">
<img alt="Bust with gold face wearing a hooded sweatshirt." src="https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=482&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=482&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=482&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=606&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=606&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=606&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A bust of Satoshi Nakamoto in Budapest, Hungary.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Bust_of_Satoshi_Nakamoto_in_Budapest.jpg">Fekist/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>There’s also a connection between Bitcoin and <a href="https://oxfordre.com/religion/view/10.1093/acrefore/9780199340378.001.0001/acrefore-9780199340378-e-125">millennialism</a>, or the belief in a coming collective salvation for a select group of people. </p>
<p>In Christianity, millennial expectations involve the return of Jesus and the final judgment of the living and the dead. Some Bitcoiners believe in an inevitable coming “<a href="https://medium.com/the-bitcoin-times/the-passion-of-the-believers-bf26f3b46315">hyperbitcoinization</a>” in which bitcoin will be the only valid currency. When this happens, the “Bitcoin believers” who invested will be justified, while the “no coiners” who shunned cryptocurrency will lose everything.</p>
<h2>A path to salvation</h2>
<p>Finally, some Bitcoiners view bitcoin as not just a way to make money, but as the answer to all of humanity’s problems.</p>
<p>“Because the root cause of all of our problems is basically money printing and capital misallocation as a result of that,” <a href="https://cointelegraph.com/magazine/2021/07/29/is-bitcoin-a-religion-if-not-it-soon-will-be">McCook argues</a>, “the only way the whales are going to be saved, or the trees are going to be saved, or the kids are going to be saved, is if we just stop the degeneracy.”</p>
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<p>This attitude may be the most significant point of comparison with religious traditions. In his book “<a href="https://www.amazon.com/God-Not-One-World-Differences-ebook/dp/B003F1WMAC/ref=sr_1_1?keywords=prothero+god+is+not+one&qid=1643235046&sprefix=Prothero+god+%2Caps%2C99&sr=8-1">God Is Not One</a>,” religion professor <a href="https://www.bu.edu/religion/people/faculty/bios/prothero/">Stephen Prothero</a> highlights the distinctiveness of world religions using a four-point model, in which each tradition identifies a unique problem with the human condition, posits a solution, offers specific practices to achieve the solution and puts forth exemplars to model that path.</p>
<p>This model can be applied to Bitcoin: The problem is fiat currency, the solution is Bitcoin, and the practices include encouraging others to invest, “stacking sats” and “<a href="https://www.investopedia.com/terms/h/hodl.asp">hodling</a>” – refusing to sell bitcoin to keep its value up. The exemplars include Satoshi and other figures involved in the creation of blockchain technology.</p>
<p>So does this comparison prove that Bitcoin is a religion? </p>
<p>Not necessarily, because theologians, sociologists and legal theorists have many different <a href="https://www2.kenyon.edu/Depts/Religion/Fac/Adler/Reln101/definitions.pdf">definitions of religion</a>, all of which are more or less useful depending on what the definition is being used for. </p>
<p>However, this comparison may help people understand why Bitcoin has become so attractive to so many people, in ways that would not be possible if Bitcoin were approached as a purely economic phenomenon.</p><img src="https://counter.theconversation.com/content/175717/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joseph P. Laycock does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With mantras, a mysterious founder and promises of societal salvation, there are echoes of religious traditions in the cryptocurrency.Joseph P. Laycock, Assistant Professor of Religious Studies, Texas State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1670992021-09-02T15:31:52Z2021-09-02T15:31:52ZBitcoin is now ‘legal tender’ in El Salvador – here’s what that means<figure><img src="https://images.theconversation.com/files/418921/original/file-20210901-14-ofx949.jpg?ixlib=rb-1.1.0&rect=309%2C165%2C4212%2C3342&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's all legal tender.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/open-wallet-with-credit-cards-and-one-dollar-bill-royalty-free-image/108000156">Steven Puetzer/The Image Bank via Getty Images</a></span></figcaption></figure><p>On Sept. 7, 2021, <a href="https://www.cia.gov/the-world-factbook/countries/el-salvador/">El Salvador</a> became the <a href="https://www.wsj.com/articles/el-salvador-becomes-first-country-to-approve-bitcoin-as-legal-tender-11623234476?mod=article_inline">first country</a> to <a href="https://theconversation.com/bitcoin-el-salvadors-grand-experiment-162382">make bitcoin legal tender</a>.</p>
<p>The government even went a step further in promoting the cryptocurrency’s use by <a href="https://www.bloomberg.com/news/articles/2021-06-25/el-salvador-offers-30-of-bitcoin-to-citizens-to-boost-its-use">giving US$30 in free bitcoins to citizens who sign up</a> for its national digital wallet, known as “Chivo,” or “cool” in English. Foreigners who invest three bitcoins in the country – <a href="https://www.coinbase.com/price/bitcoin">currently about $140,000</a> – will be granted residency.</p>
<p><a href="https://www.coindesk.com/markets/2021/06/16/panama-to-present-crypto-related-bill-in-july/">Panama is considering following</a> El Salvador’s lead. </p>
<p>Does making bitcoin legal tender mean every store and merchant in El Salvador will now have to accept digital payments? If more countries do the same thing, what will this mean for consumers and businesses around the world?</p>
<p>As an <a href="https://www.bu.edu/questrom/profile/jay-zagorsky/">economist</a> who <a href="http://businessmacroeconomics.com/">studies wealth and money</a>, I believe that briefly explaining what legal tender is will help answer these questions. </p>
<figure class="align-center ">
<img alt="A closeup of the $2 bill and the words 'this note is legal tender for all debts, public and private'" src="https://images.theconversation.com/files/418929/original/file-20210901-12-fwh8b9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/418929/original/file-20210901-12-fwh8b9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/418929/original/file-20210901-12-fwh8b9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/418929/original/file-20210901-12-fwh8b9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/418929/original/file-20210901-12-fwh8b9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/418929/original/file-20210901-12-fwh8b9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/418929/original/file-20210901-12-fwh8b9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The $2 bill may be out of widespread circulation, but it’s still legal tender.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/two-dollar-bill-royalty-free-image/1277682164">Douglas Sacha/Moment via Getty Images</a></span>
</figcaption>
</figure>
<h2>What is legal tender?</h2>
<p>Legal tender refers to money – typically coins and banknotes – <a href="https://www.merriam-webster.com/dictionary/legal%20tender">that must be accepted</a> if offered in payment of a debt.</p>
<p>The front of every U.S. banknote states “This note is legal tender for all debts public and private.” This statement has been enshrined <a href="https://www.law.cornell.edu/uscode/text/31/5103">in federal law</a> in various forms since the late 1800s.</p>
<p>The greenback is not legal tender in just the U.S. El Salvador, for example, <a href="https://www.forbes.com/sites/rogerhuang/2021/06/27/an-economic-history-of-el-salvadors-adoption-of-bitcoin">switched from the colon, its previous currency, to the U.S. dollar in 2001</a>. <a href="https://www.usnews.com/opinion/blogs/eric-schnurer/2014/05/02/why-ecuador-and-other-states-dont-use-their-own-money">Ecuador</a>, <a href="https://www.businesspanama.com/tourism-in-panama/facts-for-travelers/money-matters/38/c/">Panama</a>, <a href="https://peacekeeping.un.org/en/mission/past/etimor/untaetPU/currency.pdf">East Timor</a> and the <a href="https://www.investopedia.com/articles/forex/040915/countries-use-us-dollar.asp">Federated States of Micronesia</a> also all use the dollar as legal tender. </p>
<h2>Do merchants have to accept legal tender?</h2>
<p>But despite the definition above, legal tender doesn’t mean all businesses must accept it in payment for a good or service. </p>
<p>That requirement applies only to debts owed to creditors. The ability for a store to refuse cash or other legal tender is made explicit on the websites of both the <a href="https://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx">U.S. Treasury</a>, which is in charge of <a href="https://www.moneyfactory.gov/">printing paper money</a> and <a href="https://www.usmint.gov/">minting coins</a>, and the <a href="https://www.federalreserve.gov/faqs/currency_12772.htm">Federal Reserve</a>, which is in charge of distributing currency to the nation’s banks. </p>
<p>This is why many companies such as <a href="https://www.latimes.com/archives/la-xpm-2010-jan-24-la-fi-lazarus24-2010jan24-story.html">airlines</a> accept payments <a href="https://www.usatoday.com/story/news/factcheck/2020/09/16/fact-check-cashless-businesses-banned-only-some-local-state-laws/3330804001/">exclusively by credit card</a>, and many small retailers <a href="https://www.thebalance.com/why-stores-dont-take-credit-cards-315228">take only cash</a>. </p>
<p>As the U.S. <a href="https://www.treasury.gov/resource-center/faqs/Currency/Pages/legal-tender.aspx">Treasury points out</a>, there is “no federal statute mandating that a private business, a person or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise.”</p>
<p>And this would be no different if the U.S. made bitcoin legal tender. Private businesses would not be required to accept it.</p>
<p>There is clearly some confusion in El Salvador over the issue, however. Its original bitcoin law, passed in June 2021, <a href="https://twitter.com/nayibbukele/status/1402446890466217985/photo/2">states that</a> “every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service.” </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1402446890466217985"}"></div></p>
<p>This <a href="https://www.euronews.com/next/2021/08/28/bitcoin-protests-break-out-in-el-salvador-as-central-american-neighbours-wait-to-see-its-s">led to protests</a> and <a href="https://www.wsj.com/articles/bitcoin-law-el-salvador-freedom-crypto-11625668728">resulted in skepticism</a> from <a href="https://www.theguardian.com/world/2021/aug/30/scepticism-grows-in-el-salvador-over-pioneering-bitcoin-gamble">economists and others</a>. As a result, El Salvador President <a href="https://twitter.com/nayibbukele/status/1429620348216090627">Nayib Bukele tweeted</a> in August that businesses did not have to accept bitcoin.</p>
<figure class="align-center ">
<img alt="A man in Tamanique, El Salvador, makes a purchase at the opening of a small store that has a sign that says it accepts bitcoin." src="https://images.theconversation.com/files/418767/original/file-20210831-24-qgkhmy.jpg?ixlib=rb-1.1.0&rect=97%2C75%2C4914%2C3261&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/418767/original/file-20210831-24-qgkhmy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/418767/original/file-20210831-24-qgkhmy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/418767/original/file-20210831-24-qgkhmy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/418767/original/file-20210831-24-qgkhmy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/418767/original/file-20210831-24-qgkhmy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/418767/original/file-20210831-24-qgkhmy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Will bitcoin catch on in El Salvador?</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/ElSalvadorBitcoinBeach/3bd6436b3e60421f9ca7e692b088cb8e/photo?Query=bitcoin%20el%20salvador&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=13&currentItemNo=9">AP Photo/Salvador Melendez</a></span>
</figcaption>
</figure>
<h2>Why did El Salvador make bitcoin legal tender?</h2>
<p>El Salvador is betting that being the first to open its doors completely to bitcoin will help <a href="https://www.coindesk.com/policy/2021/06/23/why-bitcoin-could-be-good-for-el-salvador/">boost its economy</a>.</p>
<p>President Bukele said he believes this will encourage investors with cryptocurrency to <a href="https://www.forbes.com/sites/carlieporterfield/2021/06/06/heres-why-el-salvador-wants-to-be-the-first-country-to-formally-adopt-bitcoin">spend more of it in his country</a>. He even has a plan to have El Salvador’s state-run geothermal utility <a href="https://www.npr.org/2021/06/11/1005231250/el-salvador-plans-to-use-electricity-generated-from-volcanoes-to-mine-bitcoin">use energy from the country’s volcanoes to mine bitcoin</a>.</p>
<p><a href="https://theconversation.com/how-do-you-mine-bitcoin-and-is-it-still-worth-it-55977">Creating, or mining, bitcoin</a> <a href="https://www.bbc.com/news/technology-56012952">takes a lot of energy</a>, so mining makes sense only in places with cheap electricity.</p>
<p>The $30 given to every citizen who joins the cryptocurrency craze will temporarily stimulate the economy. However, the overall impact will likely be a short-term boost. The impact of similar payments in other countries, like <a href="https://www.marketwatch.com/story/stimulus-checks-spark-2-4-surge-in-consumer-spending-and-boost-economy-in-early-2021-11614347500">COVID-19 stimulus payments</a>, appear to end after <a href="https://www.doi.org/10.1257/aer.103.6.2530">people have spent the money</a>. Moreover, it’s unclear El Salvador’s <a href="https://www.imf.org/en/Countries/SLV#ataglance">increasingly indebted government</a> can even afford it.</p>
<p>[<em>Insight, in your inbox each day.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=insight">You can get it with The Conversation’s email newsletter</a>.]</p>
<p>And the widespread adoption of bitcoin will likely take years. El Salvador has been <a href="https://www.business-standard.com/article/international/el-salvador-readies-bitcoin-rollout-with-200-atms-for-conversion-121082500046_1.html">installing 200 bitcoin ATMs</a> to allow people to convert cryptocurrency into dollars.</p>
<p>Since just <a href="https://globalfindex.worldbank.org/">30% of the Central American country’s population even has a bank account</a>, I believe the U.S. dollar will still be used in El Salvador for a long time, even if its president wants to move toward bitcoin.</p><img src="https://counter.theconversation.com/content/167099/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The country became the first to make bitcoin a formal part of its payments system, but whether it’ll catch on is another story.Jay L. Zagorsky, Senior Lecturer, Questrom School of Business, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1663632021-09-01T14:42:51Z2021-09-01T14:42:51ZSmall seashells tell a big story of slavery and transoceanic trade 500 years ago<figure><img src="https://images.theconversation.com/files/418451/original/file-20210830-19-19k2jae.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Money cowries (Monetaria moneta) retrieved from the São Bento.</span> <span class="attribution"><span class="source">Mudzunga Munzhedzi (2019). KwaZulu-Natal Museum</span></span></figcaption></figure><p>In the archaeology storerooms of the <a href="https://www.nmsa.org.za/">KwaZulu-Natal Museum</a> in Pietermaritzburg, South Africa, lie two boxes filled with seashells.</p>
<p>The shells form a bright and shiny mass that makes a satisfying, almost metallic sound when you run your fingers through them. The entire sample weighs 18.7 kg and comprises approximately 16,500 individual shells.</p>
<p>They are money cowries, from <em>Monetaria moneta</em>, a species of sea snail native to the tropical waters of the Indian Ocean. </p>
<p>Money cowries are natural objects – each shell is a trace of an animal’s life. They were also, as their common name suggests, <a href="https://www.citeco.fr/10000-years-history-economics/the-origins/cowry-shells-a-form-of-currency">circulated widely</a> as a kind of currency. </p>
<p>The KwaZulu-Natal Museum specimens were found among the remains of a sunken ship lying at the mouth of the Mzikaba river in what is today South Africa’s Eastern Cape province.</p>
<p>The remains were long thought to be of the <a href="https://collections.rmg.co.uk/collections/objects/148344.html">Grosvenor</a>, wrecked in 1782. But in the early 1980s they were <a href="https://www.sahumanities.org/index.php/sah/article/view/43">identified</a> as the wreck of the São Bento, a 16th century Portuguese vessel. The São Bento sailed from Portugal to India in 1553, where it loaded a new cargo to take on its journey homeward. It departed from the port of Cochin in February 1554 with goods destined for trade into Europe and West Africa.</p>
<p>The ship encountered rough and stormy conditions and was probably too heavily laden – greed and risk played a significant role in the Portuguese trading venture. By April the São Bento was struggling around the south-eastern corner of Africa. It drifted onto a reef-and-island cluster adjacent to the shoreline and broke up in the rough surf.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/418230/original/file-20210827-17822-wsut8j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/418230/original/file-20210827-17822-wsut8j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/418230/original/file-20210827-17822-wsut8j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=418&fit=crop&dpr=1 600w, https://images.theconversation.com/files/418230/original/file-20210827-17822-wsut8j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=418&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/418230/original/file-20210827-17822-wsut8j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=418&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/418230/original/file-20210827-17822-wsut8j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=526&fit=crop&dpr=1 754w, https://images.theconversation.com/files/418230/original/file-20210827-17822-wsut8j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=526&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/418230/original/file-20210827-17822-wsut8j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=526&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Mzikaba estuary, showing Mzikaba island, beyond which is the reef where the cannons were found. KwaZulu-Natal Museum photographic archive. Photographer unrecorded (1986).</span>
<span class="attribution"><span class="source">KwaZulu-Natal Museum</span></span>
</figcaption>
</figure>
<p>It would be centuries before the wreck was investigated; in the late 1960s, divers formed an amateur salvage and research group to explore what remained. Numerous items were accessioned into the KwaZulu-Natal Museum’s archaeology collection, including beach finds such as ceramic sherds and carnelian beads, and bronze cannons recovered from beyond the reef. </p>
<p>The cache of money cowries was found during conservation work in the deepest recesses of the barrel of one of the cannons. The shells were packed tightly into the barrel, as if stashed there in secret. They probably represent a small (possibly pilfered) fraction of a much larger shipment that would have been swept away by the current after the accident.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/418232/original/file-20210827-15869-warw6z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/418232/original/file-20210827-15869-warw6z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=389&fit=crop&dpr=1 600w, https://images.theconversation.com/files/418232/original/file-20210827-15869-warw6z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=389&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/418232/original/file-20210827-15869-warw6z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=389&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/418232/original/file-20210827-15869-warw6z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=489&fit=crop&dpr=1 754w, https://images.theconversation.com/files/418232/original/file-20210827-15869-warw6z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=489&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/418232/original/file-20210827-15869-warw6z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=489&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The large muzzle-loading cannon from the São Bento that the cowries were lodged in for over four centuries (far left). KwaZulu-Natal Museum archaeology collection. Photograph: Justine Wintjes (2020).</span>
<span class="attribution"><span class="source">KwaZulu-Natal Museum</span></span>
</figcaption>
</figure>
<p>Their presence, as I have outlined <a href="https://www.tandfonline.com/doi/full/10.1080/23277408.2020.1826849">in my research</a>, tells a richly layered, unavoidably dark story about the West African slave trade. Through the story of the cowries, at least some small part of this history may become more tangible.</p>
<h2>“Human-cowrie conversion”</h2>
<p>Money cowries were used for thousands of years as currency across the Indo-Pacific world, but introduced into Atlantic commercial networks relatively late. The Maldives was a major source, with its <a href="http://mrc.gov.mv/en/publications/show/commercial-exploitation-reef-resources-examples-of-sustainable-and-non-sustainable-utilization-from-">large-scale, sustainable money cowrie industry</a>. </p>
<p>In the 1550s cowries were still a relatively new commodity for Europeans, and they were destined primarily for trade with West Africa. The Atlantic market picked up swiftly and billions of money cowries from the Indian Ocean were shipped to the Bight of Benin on the West African coast between the 16th and 19th centuries. </p>
<p>Cowries were exchanged directly for slaves throughout all centuries of the sea-borne trade of slaves out of West Africa. Nigerian archaeologist, anthropologist and historian Akinwumi Ogundiran <a href="https://www.jstor.org/stable/3097620">describes</a> this trade in terms of a “human-cowry conversion”. </p>
<p>Exact numbers are impossible to calculate, but at a possible rate of around 6 kg of cowries (5000–6000 shells) for one slave, the São Bento cache could have been used to purchase three slaves.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/a-long-view-sheds-fresh-light-on-the-history-of-the-yoruba-people-in-west-africa-162776">A long view sheds fresh light on the history of the Yoruba people in West Africa</a>
</strong>
</em>
</p>
<hr>
<p>The São Bento cowries had another intimate association with slaves: according to the <a href="https://books.google.co.za/books?id=NpYcAAAAMAAJ&pg=PA218">report</a> by survivor and chronicler Manuel de Mesquita Perestrelo, slaves made up around two-thirds of the ship’s 470 passengers. This mention is intriguing because little is known of the transport of slaves around the southern tip of Africa in the 16th century. The Indian Ocean slave trade is far older than the Atlantic system, but it is a neglected area of history. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/exploring-the-indian-ocean-as-a-rich-archive-of-history-above-and-below-the-water-line-133817">Exploring the Indian Ocean as a rich archive of history – above and below the water line</a>
</strong>
</em>
</p>
<hr>
<p>Early Portuguese shipwrecks with oriental cargoes like the São Bento could contribute to our understanding of this deeper history of slavery, and the relationship between the two ocean worlds.</p>
<h2>Entanglement</h2>
<p>More research might determine where the São Bento slaves came from, and even what it meant to be a slave in this context. Whatever the specific situation for the São Bento slaves, the sinking of the ship might have opened other options up for them. Ultimately only 23 people were rescued by a Portuguese ivory-trading vessel at the end of a gruelling 800 km walk from the wreck site to Delagoa Bay on the southeast coast of Mozambique. Just three of them were slaves.</p>
<p>Despite its sinking, then, the entanglement between slaves and cowries was so fundamental that the São Bento still effected a kind of human-cowrie conversion: three surviving slaves shipped out of Delagoa Bay half a year after the accident for three slaves’ worth of salvaged cowries bequeathed to a museum over four centuries later.</p>
<p>There’s another kind of entanglement at play, too. Cowries were not just currency: they began to serve as a raw material in West Africa for making art. Among the Yoruba, <a href="https://www.artsbma.org/collection/shrine-ile-ori-or-house-of-the-head/">Ori shrines</a> which facilitate the realisation of self-hood came to be constructed from large numbers of cowries. Even in this re-purposed context, the confluence with Ori bound cowries to a person’s destiny.</p>
<h2>A vast legacy</h2>
<p>Now as museum objects in South Africa, the brightness of the São Bento cowries in their boxes seems at odds with the heaviness they carry from their historical association with human slavery. This unsettling lightness is amplified by the sinister elusiveness of the specifics of this story, reminiscent of histories of slavery more generally. Irrecoverable, hidden, unspoken, and yet such a vast legacy.</p><img src="https://counter.theconversation.com/content/166363/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Justine Wintjes works at the KwaZulu-Natal Museum, where the São Bento cowries are housed and some are on display. The research this article is based on arose from the workshop 'Ilha de Moçambique: Thinking Oceanically / Pensando a Partir do Oceano' hosted by Oceanic Humanities for the Global South and Kaleidoscopio in 2019. </span></em></p>Money cowries were used for thousands of years as currency across the Indo-Pacific world but introduced into Atlantic commercial networks relatively late.Justine Wintjes, Curator, KwaZulu-Natal MuseumLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1623482021-06-13T20:06:16Z2021-06-13T20:06:16ZCan Bitcoin be a real currency? What’s wrong with El Salvador’s plan<figure><img src="https://images.theconversation.com/files/405800/original/file-20210611-18-1ooewxl.jpg?ixlib=rb-1.1.0&rect=0%2C308%2C5020%2C2502&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Salvador Melendez/AP</span></span></figcaption></figure><p>Nayib Bukele, president of El Salvador, has got himself a pair of laser eyes – on his Twitter profile at least. </p>
<p>Laser eyes are something social media users give themselves to show they love cryptocurrency – and Bukele proved his crypto-enthusiasm last week by having El Salvador become the world’s first nation to make Bitcoin legal tender.</p>
<p>El Salvador’s parliament passed Bukele’s proposed legislation on June 9, after he announced his plan just a few days earlier. The law will take effect in September.</p>
<p>Some Bitcoin fans have leapt on this as a step towards <a href="https://www.cnbc.com/2021/06/08/bitcoin-2021-el-salvador-adoption-could-be-huge-for-cryptocurrency.html">much broader acceptance</a>. But the changes in Bitcoin’s market value since Bukele announced his plan gives crypto-sceptics reason for doubt. </p>
<figure class="align-right ">
<img alt="Nayib Bukele's Twitter profile image." src="https://images.theconversation.com/files/405840/original/file-20210611-17-1jhlyzz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/405840/original/file-20210611-17-1jhlyzz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/405840/original/file-20210611-17-1jhlyzz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/405840/original/file-20210611-17-1jhlyzz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/405840/original/file-20210611-17-1jhlyzz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/405840/original/file-20210611-17-1jhlyzz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/405840/original/file-20210611-17-1jhlyzz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Nayib Bukele’s Twitter profile image.</span>
<span class="attribution"><a class="source" href="https://twitter.com/nayibbukele">Twitter</a></span>
</figcaption>
</figure>
<p>Over the past week Bitcoin’s value was as high as US$38,200 (about A$49,000) and as low as US$31,428. Over the past month it has fallen from more than US$58,000. This isn’t the type of price volatility any government generally wants to see in a currency. </p>
<p>Such fluctations show Bitcoin’s weakness as a viable alternative to central bank currencies – good only for transactions you don’t want traced and as a speculative investment.</p>
<p>So what is Bukele thinking in wanting to make Bitcoin legal tender for the small central American nation (population about 6.5 million) whose economy accounts for less than 0.05% of global GDP? </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/el-salvadors-facade-of-democracy-crumbles-as-president-purges-his-political-opponents-161781">El Salvador's façade of democracy crumbles as president purges his political opponents</a>
</strong>
</em>
</p>
<hr>
<h2>What does ‘legal tender’ mean?</h2>
<p>Before we get to that, let’s clarify what making Bitcoin legal tender means. </p>
<p>Using Bitcoin is already legal in El Salvador, as it is in most countries. If you want to pay for something in bitcoins, and the recipient is willing to accept them, it’s all good.</p>
<p>Making bitcoins legal tender mean a payee will have to accept them. As the new legislation <a href="https://twitter.com/nayibbukele/status/1402446890466217985/photo/2">states</a>, “every economic agent must accept Bitcoin as payment when offered to him by whoever acquires a good or service”. </p>
<p>El Salvador making this move isn’t as significant as it would be for most nations, because it is one of about a dozen countries – most of them micro-states such as Andorra and Nauru – without its <a href="https://www.bis.org/publ/bppdf/bispap17c.pdf">own currency</a> (or a common currency such as the Euro). </p>
<p>El Salvador abandoned its own currency (the “colon”, named after Christopher Columbus) in 2001 and adopted the US dollar as its legal tender. This process of “official dollarisation” was seen as a reform that would <a href="https://www.latimes.com/archives/la-xpm-2007-aug-04-fi-dollarize4-story.html">curb inflation</a> and increase trade with the US (by far its major trading partner). </p>
<p>So El Salvador has less to lose than other nations in adopting a second currency as legal tender. There is no controversy about losing sovereignty and monetary policy autonomy. There will be no loss of “seignorage” – the profit made on issuing currency that’s worth a lot more than the cost of making it. </p>
<h2>Highly volatile</h2>
<p>But having two legal tenders will complicate matters – particularly when one of those currencies is subject to wild swings in its value. </p>
<p>Consider the provision in the new law that “all obligations in money expressed in USD, existing before the effective date of this law, may be paid in bitcoin”. </p>
<p>Even that is complicated. How, and by whom, will the amount of bitcoins necessary to pay a debt be determined? Will it be based on the Bitcoin price at the time the debt was incurred, or when the debt falls due? </p>
<p>The difference of even a few days could be significant. </p>
<p>If the expectation is the price of Bitcoin is going to rise, why would you want to buy things with it? Why not wait? If the expectation is the price is going to fall, why would you want to accept it? For most transactions, using US dollars will still make the most sense. </p>
<p>So making Bitcoin legal tender could help destabilise El Salvador’s economy. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/bitcoin-this-year-i-stand-to-make-200-million-more-than-elon-musk-155469">Bitcoin: this year I stand to make $200 million more than Elon Musk</a>
</strong>
</em>
</p>
<hr>
<h2>Increasing El Salvador’s GDP</h2>
<p>Things would have been simpler if El Salvador had adopted a “stablecoin” whose price is fixed at one US dollar – such as Tether, the third-largest cryptocurrency. </p>
<p>But that would have not been nearly so newsworthy, and would have defeated the apparent reason Bukele has championed this move.</p>
<p>Bukele’s reasoning, delivered via Twitter on June 6, is that Bitcoin has “a market cap of US$680 billion” and:</p>
<blockquote>
<p>If 1% of it is invested in El Salvador, that would increase our GDP by 25%.</p>
</blockquote>
<p>This argument – which appears to be the only “analysis” Bukele has made public – seems very confused. </p>
<figure class="align-right ">
<img alt="El Salvador President Bukele explains his Bitcoin plan on Twitter" src="https://images.theconversation.com/files/405818/original/file-20210611-19-1vw8eh0.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/405818/original/file-20210611-19-1vw8eh0.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/405818/original/file-20210611-19-1vw8eh0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/405818/original/file-20210611-19-1vw8eh0.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/405818/original/file-20210611-19-1vw8eh0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/405818/original/file-20210611-19-1vw8eh0.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/405818/original/file-20210611-19-1vw8eh0.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Bukele explains his Bitcoin plan on Twitter.</span>
<span class="attribution"><span class="source">Twitter</span></span>
</figcaption>
</figure>
<p>Market capitalisation typically refers to a listed company’s valuation, based on multiplying the share price by the number of shares. The $US680 billion Bitcoin market cap Bukele referred to represents the currency’s market value multiplied by the number of bitcoins created so far. (For comparison, the market cap of Tether’s 63 billion coins in circulation is US$63 billion.)</p>
<p>But it is flawed logic to think Bitcoin’s total market value equals money bitcoin owners around the globe are looking to invest anywhere. </p>
<p>In very few cases do people buy bitcoins to invest in other things. Bitcoins are their investment. Neither major funds nor average punters holding bitcoins are likely to want to start investing in El Salvador. </p>
<p>Nor is foreign investment a component of GDP (which is the value of market transactions in an economy). Foreigners using bitcoins to buy assets such as land in El Salvador would bid up its price but not necessarily increase GDP. A surge in foreign investment into new infrastructure and businesess that increase productive capacity would contribute to GDP, but there’s no reason to think giving Bitcoin legal tender status will make this more likely.</p>
<h2>Facilitating remittances</h2>
<p>A second reason given by Bukele is that Bitcoin “will have 10 million potential new users” and is “the fastest growing way to transfer 6 billion dollars a year in remittances”. </p>
<p>This apparently refers to both the population of El Salvador (about 6.5 million) and Salvadorans living abroad, many of whom send money home to help their families. In 2020 these remittances totalled US$5.9 billion, or <a href="https://apnews.com/article/san-salvador-coronavirus-pandemic-el-salvador-1623416c0ddc7aa238911f8a422b6c8b">23% of El Salvador’s GDP</a>. </p>
<p>While any cryptocurrency can well facilitate more efficient transfers (without the charges banks impose), the significance of remittances to the Salvadoran economy points to another issue. El Salvador is a poor country, with one of the lowest rates of internet use in the Americas – 33% in 2017, according to <a href="https://data.worldbank.org/indicator/IT.NET.USER.ZS?locations=SV">World Bank data</a>. </p>
<p>How many vendors, street hawkers or farmers are equipped to handle cryptocurrency transactions? US dollars will more than likely remain the default currency.</p>
<p>The benefits of making Bitcoin legal tender are far from clear. El Salvador is already facing higher interest rates as international investors are <a href="https://www.reuters.com/technology/el-salvador-presidents-bitcoin-push-casts-shadow-over-imf-efforts-2021-06-07/">worried about the move</a>. There are concerns wider use of Bitcoin will facilitate the black economy and make tax avoidance easier.</p>
<p>So this is a <a href="https://theconversation.com/bitcoin-el-salvadors-grand-experiment-162382">great experiment</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/bitcoin-el-salvadors-grand-experiment-162382">Bitcoin: El Salvador's grand experiment</a>
</strong>
</em>
</p>
<hr>
<p>For the sake of El Salvador’s people, let’s hope it is successful. But the odds are on it being further evidence of the cryptocurrency’s unsuitability for use as a real currency – confirmation that Bitcoin is nothing more than a speculative gamble.</p><img src="https://counter.theconversation.com/content/162348/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins formerly worked for the Bank for International Settlements and two central banks,</span></em></p>El Salvador has become the first nation in the world to make Bitcoin legal tender. So what exactly is President Nayib Bukele thinking?John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society and NATSEM, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1591172021-05-03T12:02:50Z2021-05-03T12:02:50ZWhat happened to Confederate money after the Civil War?<figure><img src="https://images.theconversation.com/files/395369/original/file-20210415-14-1sgnlx5.jpg?ixlib=rb-1.1.0&rect=26%2C40%2C4442%2C1862&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Confederate currency had images of enslaved people, historical figures and mythical deities.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/elycefeliz/6691305563">elycefeliz/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=368&fit=crop&dpr=1 754w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=368&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/281719/original/file-20190628-76743-26slbc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=368&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p><em><a href="https://theconversation.com/us/topics/curious-kids-us-74795">Curious Kids</a> is a series for children of all ages. If you have a question you’d like an expert to answer, send it to <a href="mailto:curiouskidsus@theconversation.com">curiouskidsus@theconversation.com</a>.</em></p>
<hr>
<blockquote>
<p><strong>What happened to Confederate money after the Civil War? – Ray G., 12, Arlington, Virginia</strong></p>
</blockquote>
<hr>
<p>At the time the Civil War began in 1861, the United States government did not print paper money; it only minted coins. As a <a href="https://scholar.google.com/citations?user=SsoLG_0AAAAJ&hl=en&oi=ao">historian of the American Civil War</a>, I study how the Confederate government used a radical idea: printing paper money.</p>
<p>In 1861, 11 states tried to leave the United States and form a new country, causing a four-year war. Wars cost a lot of money so the new country, called the Confederate States of America, printed money as a way to pay its bills. </p>
<p>But this money was more like a promise – in technical terms, a “promissory note” – because its certificates were really pledges to give the currency’s holder a specific amount of gold or silver, but only if the Confederacy won the war. </p>
<p>Bills issued earlier in the war said right on them, “Six months after the ratification of a treaty of peace between the Confederate States and the United States, the Confederate States of America will pay” the bill’s amount to the person holding it. Later currency delayed the promised payout until two years after a peace treaty.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/395370/original/file-20210415-24-oeuf77.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A Confederate $1 bill" src="https://images.theconversation.com/files/395370/original/file-20210415-24-oeuf77.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/395370/original/file-20210415-24-oeuf77.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=281&fit=crop&dpr=1 600w, https://images.theconversation.com/files/395370/original/file-20210415-24-oeuf77.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=281&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/395370/original/file-20210415-24-oeuf77.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=281&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/395370/original/file-20210415-24-oeuf77.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=353&fit=crop&dpr=1 754w, https://images.theconversation.com/files/395370/original/file-20210415-24-oeuf77.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=353&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/395370/original/file-20210415-24-oeuf77.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=353&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This Confederate $1 bill was issued in 1864 in Richmond, Va., the Confederacy’s capital.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/File:CSA-T71-$1-1864.jpg">National Numismatic Collection, National Museum of American History via Wikimedia Commons</a></span>
</figcaption>
</figure>
<p>The notes were commonly called “graybacks,” after Confederate soldiers, who wore gray uniforms. The bills were <a href="https://en.wikipedia.org/wiki/File:CSA-T71-%241-1864.jpg">decorated with a variety of images</a>, including depictions of mythological gods or goddesses, like the goddess of liberty. Other graybacks bore images of important people in Southern history like George Washington, Andrew Jackson and Jefferson Davis. Some of the bills depicted enslaved Americans working in the fields, or featured pictures of cotton or trains.</p>
<p>But these images often weren’t very good quality, because the Confederacy didn’t have many engravers who could make the detailed plates to print the money.</p>
<p>When the South started losing the war, the value of Confederate money dropped. In addition, <a href="https://eh.net/encyclopedia/money-and-finance-in-the-confederate-states-of-america/">prices for food, clothing and other necessities rose</a> because many items were scarce during the war. Graybacks became almost worthless.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/395372/original/file-20210415-23-iuhfnb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A man in glasses looks at stacks of Confederate currency" src="https://images.theconversation.com/files/395372/original/file-20210415-23-iuhfnb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/395372/original/file-20210415-23-iuhfnb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=470&fit=crop&dpr=1 600w, https://images.theconversation.com/files/395372/original/file-20210415-23-iuhfnb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=470&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/395372/original/file-20210415-23-iuhfnb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=470&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/395372/original/file-20210415-23-iuhfnb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=591&fit=crop&dpr=1 754w, https://images.theconversation.com/files/395372/original/file-20210415-23-iuhfnb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=591&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/395372/original/file-20210415-23-iuhfnb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=591&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This is what 1 million Confederate dollars looked like, in a photo from 1962.</span>
<span class="attribution"><a class="source" href="https://catalog.archives.gov/id/12170228">U.S. National Archives</a></span>
</figcaption>
</figure>
<p>In late 1864, a few months before the war’s end, <a href="https://www.investopedia.com/terms/c/confederate-dollar.asp">one Confederate dollar was worth just three cents</a> in U.S. currency.</p>
<p>When the Confederate army surrendered in April 1865, graybacks lost any remaining value they might have had. The Confederacy no longer existed, so there was nobody who would exchange its paper money for gold or silver.</p>
<p>Today, though, Confederate dollars have value as a collectible item. Just like people will pay money to own a Civil War hat or musket, they will pay money to own Confederate money. Some rare Confederate bills are now <a href="https://www.liveauctioneers.com/news/be-smart/confederate-currency-strong-dollar/">worth 10 times more than they were in 1861</a>.</p>
<hr>
<p><em>Hello, curious kids! Do you have a question you’d like an expert to answer? Ask an adult to send your question to <a href="mailto:curiouskidsus@theconversation.com">CuriousKidsUS@theconversation.com</a>. Please tell us your name, age and the city where you live.</em></p>
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<p class="fine-print"><em><span>Robert Gudmestad does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Confederate paper money was a promise to exchange the bill for gold or silver, but only after the Confederacy won the war.Robert Gudmestad, Professor and Chair of History Department, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1551632021-02-12T15:33:15Z2021-02-12T15:33:15Z50 years since decimalisation: the UK’s currency change was not driven by ‘Europeanisation’<figure><img src="https://images.theconversation.com/files/383823/original/file-20210211-23-1lco9cv.jpg?ixlib=rb-1.1.0&rect=24%2C30%2C4065%2C2691&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Children marvel at the new decimal 50 pence coin, the world's first seven sided coin.</span> <span class="attribution"><span class="source">PA</span></span></figcaption></figure><p>It’s 50 years since the UK replaced its centuries-old £sd coinage with a new, streamlined decimal currency. The shift away from a currency that divided the pound into 20 shillings, each of which was further subdivided into 12 pence, directly affected everyone in the country – from school children to pensioners. </p>
<p>Over the years, many people in Britain have sought to paint the move to decimal currency as an early sign of the UK’s identity being subsumed by Europe. The UK’s non-decimal system was virtually unique, so abandoning it in favour of the type of currency prevalent in Europe and the rest of the world was a dramatic change. </p>
<p>On the 40th anniversary of decimalisation in 2011, historian Dominic Sandbrook argued in the <a href="https://www.dailymail.co.uk/debate/article-1351563/The-day-Britain-lost-soul-How-decimalisation-signalled-demise-proudly-independent-nation.html">Daily Mail</a> that the switch to a decimal system similar to that already in place in most of the world signalled:</p>
<blockquote>
<p>the end of a proud history of defiant insularity and the beginning of the creeping Europeanisation of Britain’s institutions.</p>
</blockquote>
<p>In similar vein, author Stephen Bayley, writing in the <a href="https://www.telegraph.co.uk/comment/personal-view/8317759/Decimalisation-Day-Forty-years-ag%20o-we-lost-the-rich-and-beautiful-poetry-in-our-pockets.html">Daily Telegraph</a>, referred to:</p>
<blockquote>
<p>a politically mandated purge of the old order… richly symbolic of a yearning to be modern… drawn by the compelling gravitational force of Euro-normality.</p>
</blockquote>
<p>But picturing decimalisation as part of a wider European project and a departure from British exceptionalism is wide of the mark.</p>
<p>As a modernising measure it was decidedly traditional. Some of the benefits of decimalisation were diluted by retaining the pound at its existing value for reasons of tradition and prestige. Because the pound was now divided into 100 pence, rather than 240 in the pre-decimal currency, this meant that an inconvenient halfpenny coin would be needed. </p>
<h2>Changes in the Commonwealth</h2>
<p>A key stimulus for the UK’s decision to abandon decades of splendid isolation as the last major economy with non-decimal coinage was the decision by other Commonwealth countries to abandon £sd for decimalised systems. By the beginning of the 1960s, South Africa had already decided to replace the £sd system with a decimalised rand. Australia and New Zealand were actively considering following suit.</p>
<p>Following consultation with his opposite numbers in Australia and New Zealand, the Conservative chancellor Selwyn Lloyd, in December 1961, set up a committee of enquiry, chaired by the eminent scientist Tony Halsbury, tasked not with recommending whether to decimalise, but to set out how it should be done.</p>
<p>The committee quickly concluded that the choice lay between retaining and decimalising the existing pound or following the antipodean example of replacing it with a major unit of half the value (the so called ten-shilling system), divided into 100 cents. In the event, reporting in late 1963, Halsbury’s committee decided in favour of the former option. </p>
<p>Jim Callaghan, the Labour chancellor who had since replaced Lloyd, eventually accepted this recommendation. He announced in March 1966 that the new currency, retaining the pound but divided into 100 new pence, <a href="http://news.bbc.co.uk/onthisday/hi/d%20%20%20%20%20%20%20%20%20ates/stories/march/1/newsid_2513000/2513943.stm">would be introduced in 1971</a>.</p>
<p>What is striking about both the Halsbury committee’s conclusions, and the government’s subsequent adoption of its recommendation, is how little consideration was given to harmonising with Europe. In the mid-1960s the major currencies of Europe such as the deutschmark and the French franc had values approximately equivalent to one-tenth of a pound or two shillings, known colloquially as a “florin”. It might have been expected that Halsbury would give serious consideration to a major unit of similar value, by using the existing florin as the basis for the currency. But the committee’s report dismissed this European option as having “no great significance”.</p>
<p>By way of contrast, in the Irish Republic there was a significant body of opinion arguing for a florin-based currency. This was supported both within government, and by the Federation of Irish Industry, which resulted in the government delaying its decision by two years to follow the UK’s lead and keep the pound.</p>
<h2>Halfpennies and compromises</h2>
<p>So why did the UK follow neither the examples of its Commonwealth partners or European neighbours in its choice of the pound as the major unit? Despite not ultimately recommending it, Halsbury acknowledged that the Australian/New Zealand system was more relatable to the previous coinage and avoided the need for an inconvenient halfpenny coin. The ten-shilling option, as implemented in Australia and New Zealand, was overwhelmingly supported by retail and consumer interests. </p>
<p>But the committee was swayed by the arguments of the City of London which thought it necessary to maintain a high value, “heavy” currency for reasons of prestige, and to negate any international perception that the currency was being devalued. </p>
<p>In current parlance a “world-beating” currency unit was required. For this reason the committee opted to retain the pound, and, with it, the problematic halfpenny coin.</p>
<p>This prestige argument chimed with Callaghan’s traditionalist instincts, as illustrated by this exchange with the BBC’s Graham Turner on the day the decision to decimalise was announced:</p>
<blockquote>
<p>Callaghan: Speaking for myself I think there’s a lot to be said for the pound. Every one of us in Britain is familiar with it, we know what it stands for, abroad they know what it stands for.</p>
<p>Turner: Why have you decided not to use the word ‘cent’?</p>
<p>Callaghan: Oh, I much prefer ‘penny’, why should we go American – penny is a good, it is indeed the oldest coin in Britain, it was originally a silver coin. I see no reason why we should adopt ‘cent’, it’s a miserable-sounding word by comparison with penny.</p>
</blockquote>
<p>The result was a very British modernisation. It sacrificed the potential benefits of having a fully decimalised system (such as being able to avoid the fiddly halfpenny) in the name of tradition and prestige. Creeping Europeanisation played no part at all.</p><img src="https://counter.theconversation.com/content/155163/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew John Cook does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The idea that Britain was giving up ‘glorious individualism’ to fit in with European neighboursAndrew John Cook, Visiting Research Fellow, History Department, University of HuddersfieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1474932020-10-14T03:59:20Z2020-10-14T03:59:20ZIndonesia and China inked a deal to promote the use of the Yuan and Rupiah. The political and economic implications are huge<figure><img src="https://images.theconversation.com/files/362916/original/file-20201012-17-1en9srd.jpg?ixlib=rb-1.1.0&rect=4%2C4%2C2991%2C1985&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A man looks at foreign currency exchange rates on an electronic panel in Jakarta, Indonesia</span> <span class="attribution"><span class="source">FOTO ANTARA/Rosa Panggabean/ed/mes/11</span></span></figcaption></figure><p>Last month, China and Indonesia <a href="http://www.xinhuanet.com/english/2020-09/30/c_139410036.htm">signed</a> an agreement to promote the use of local currencies — Chinese Yuan (RMB) and Indonesian Rupiah (Rp) — in trade and investment transactions between the two countries.</p>
<p>Yuan has actually penetrated Indonesia since China’s massive infrastructure project, the Belt and Road Initiatives (BRI), began in 2012. It is <a href="https://money.kompas.com/read/2019/07/25/143300726/10-persen-perdagangan-indonesia-telah-gunakan-mata-uang-yuan-china">reported</a> that currently, around 10% of Indonesia’s global trade uses Yuan. In 2018, the value of Yuan reached 201.2 billion RMB (US$29 billion) or about 63% of the entire Indonesian market. </p>
<p>The agreement marks a key milestone in strengthening bilateral financial cooperation between the world’s largest exporter, China, and Southeast Asia’s largest economy, Indonesia.</p>
<p>The agreement would also affect the political relationship between the two countries. </p>
<h2>Economic implications</h2>
<p>The recent agreement would reduce China and Indonesia’s dependence on the US Dollar as the world’s main currency in their international transactions.</p>
<p>For China, throwing away the US dollar <a href="https://www.cnbc.com/2019/10/31/de-dollarization-russia-china-eu-are-motivated-to-shift-from-using-usd.html">means</a> avoiding the prospect of being subject to US jurisdiction.</p>
<p>This could also help China secure <a href="https://www.globaltimes.cn/content/1153147.shtml">one of its major goals</a>: to dominate international trade as the world’s largest producer. </p>
<p>Meanwhile, Indonesia’s central bank hopes the agreement would help the country’s reduce its risk against fluctuation in the US dollar.</p>
<p>The US dollar <a href="https://republika.co.id/berita/ekonomi/keuangan/17/12/11/p0sphk383-94-persen-transaksi-perdagangan-indonesia-pakai-dolar-as">accounts for</a> about 90% of Indonesia’s foreign transactions. </p>
<p>The use of local currencies could help Indonesia maintain financial stability amid global financial market uncertainty caused by the pandemic and the US-China trade war.</p>
<p>The financial dispute between the US and China <a href="https://www.nytimes.com/2019/06/18/business/economy/global-economy-trade-war.html">has weakened</a> global economic growth because reduced trade activity has increased global uncertainty, especially for an emerging market such as Indonesia. </p>
<p>Responding to its dispute with China, the US’ Fed increased the very rates that make the US dollar attractive, forcing investors to pull money from the Indonesian market. That led to depreciation in the Rupiah. Rupiah <a href="https://www.cnbc.com/2018/09/03/indonesia-rupiah-falls-to-weakest-level-in-more-than-20-years.html">experienced</a> the biggest drop in 20 years, to Rp 14,777 against the US dollar.</p>
<p>During the COVID-19 pandemic, the Rupiah <a href="https://www.cnbcindonesia.com/market/20200912111947-17-186291/kisah-rupiah-terkapar-lawan-dolar-as-gara-gara-psbb-total">declined</a> again to Rp 15,000 against the greenback.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/363316/original/file-20201014-20-ucccpd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/363316/original/file-20201014-20-ucccpd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/363316/original/file-20201014-20-ucccpd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/363316/original/file-20201014-20-ucccpd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/363316/original/file-20201014-20-ucccpd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/363316/original/file-20201014-20-ucccpd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/363316/original/file-20201014-20-ucccpd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Indonesia’s currency Rupiah with the US dollar in the background.</span>
<span class="attribution"><span class="source">ANTARA FOTO/Puspa Perwitasari/kye/18</span></span>
</figcaption>
</figure>
<p>Meanwhile, the Rupiah exchange rate against Yuan remains stable at between Rp 1,900 and Rp 2,100 against Yuan. Therefore, transactions using Yuan would be cheaper. </p>
<p>The agreement is also crucial for Indonesia because Indonesia’s international trade with China — and the flow of Chinese foreign investment to Indonesia from Asian countries in general — has increased significantly. </p>
<p>Before the pandemic, China <a href="https://www.bps.go.id/pressrelease/2020/01/15/1734/ekspor-desember-2019-mencapai-us-14-47-miliar--sedangkan-nilai-impor-mencapai-us-14-50-miliar.html">was</a> the largest trading partner for Indonesia’s non-oil and gas products. </p>
<p>In 2019, China was <a href="https://jakartaglobe.id/business/indonesia-posts-largest-trade-surplus-since-2011-as-coronavirus-disrupts-imports-from-china/">Indonesia’s biggest export destination country</a>, with a value of US$ 25.8 million — around 16.68% of total exports. In the same year, China was <a href="https://jakartaglobe.id/business/indonesia-posts-largest-trade-surplus-since-2011-as-coronavirus-disrupts-imports-from-china/">the largest importer for Indonesia</a>, worth US$44.5 million, equivalent to 29.95% of Indonesia’s total imports.</p>
<p>Also, Chinese investment in Indonesia has <a href="https://www.bkpm.go.id/images/uploads/file_siaran_pers/Paparan_Bahasa_Indonesia_Press_Release_TW_IV_2019.pdf">rocketed</a> in the last five years. </p>
<p>In 2019, China was the second-largest investor with a total investment worth US$4.7 billion, equivalent to 17% of total investment. The increase in Chinese investment into Indonesia has begun to shift the dominance of Singapore as Indonesia’s top investor. </p>
<p>Despite having China as one of its main trade partners and top investor, Indonesia rarely uses Yuan in its transactions. The Indonesian Employers Association chairman Hariyadi Sukamdani said only 10% of Indonesia-China trade <a href="https://tirto.id/apindo-usul-yuan-gantikan-dolar-as-di-transaksi-perdagangan-ri-cina-da7g">used</a> the Yuan in 2018.</p>
<p>However, the Chinese government’s tendency to <a href="https://www.investopedia.com/trading/chinese-devaluation-yuan/">devalue its currency</a> means Indonesia faces some risks if it turns to Yuan.</p>
<p>In recent years, China often <a href="https://www.investopedia.com/trading/chinese-devaluation-yuan/">devalues</a> its currency to make it more responsive to market forces. In 2019, for example, Beijing <a href="https://www.nytimes.com/2019/08/05/business/economy/us-china-yuan-renminbi-trump.html">devaluated</a> the Yuan to make Chinese goods more competitive as the impacts of the trade war with the US began to bite.</p>
<p>If the Yuan is devalued, Chinese products will be cheaper and more competitive in the international market. </p>
<p>If Indonesia uses Yuan, Indonesian imports from China may soar, which would hit the domestic market. </p>
<p>Recently, Indonesian textile product entrepreneurs were <a href="https://www.cnbcindonesia.com/news/20200812110846-4-179176/ngamuk-lagi-gempuran-tekstil-impor-china-acak-acak-pasar">furious</a> to see rising textile imports entering the domestic market.</p>
<h2>Political implications</h2>
<p>Indonesia and China’s currency agreement will also strengthen China’s growing foothold in Indonesia.</p>
<p>China is Indonesia’s <a href="https://www.investindonesia.go.id/en/article-investment/detail/here-are-5-countries-with-biggest-foreign-direct-investment-in-indonesia">second biggest</a> source of foreign direct investment (after Singapore) and one of its major trading partners.</p>
<p>China has also <a href="https://thediplomat.com/2019/04/chinese-culture-gradually-penetrates-indonesia/">expanded</a> its cultural efforts through various events and initiatives, and <a href="https://indonesiaatmelbourne.unimelb.edu.au/chinas-confucius-institutes-in-indonesia-walking-a-fine-line/">established</a> Confucius Institutes across Indonesia.</p>
<p>China is also reportedly <a href="https://theconversation.com/why-china-may-want-a-military-base-in-indonesia-and-why-indonesia-is-right-to-reject-the-idea-146209">hoping</a> to establish a military base in Indonesia.</p>
<p>The agreement would mean make China not only has significant economic, cultural, and military influences in the country, but also a currency foothold in Southeast Asia’s largest economy.</p>
<h2>What’s next</h2>
<p>Indonesia must set the rules of the game to ensure the widening use of Yuan benefits both parties — not just China.</p>
<p>At the same time, Indonesia needs to make sure China’s devaluation policy will not harm the former’s economy in the future. One strategy would be to diversify Indonesia’s imports from countries other than China. Another is to encourage investments in agricultural sectors that will reduce imports.</p>
<p>Indonesia could also diversify its partners by establishing local currency settlements with other countries. </p>
<p>To date, Indonesia has signed local currency settlements with <a href="https://www.indonesia-investments.com/finance/financial-columns/local-currency-settlement-framework-indonesia-malaysia-thailand/item8414">Thailand</a>, <a href="https://www.indonesia-investments.com/finance/financial-columns/local-currency-settlement-framework-indonesia-malaysia-thailand/item8414">Malaysia</a> and <a href="https://www.liputan6.com/bisnis/read/4221034/ri-dan-korsel-setuju-penyelesaian-transaksi-dagang-lewat-mata-uang-lokal">South Korea</a>. To reduce its reliance on China, Jakarta could also establish local currency settlements with its non-traditional partners such as the EU and Gulf states.</p>
<p><em>Dendy Indramawan, an analyst at the Indonesian Banking Association, contributed to this article.</em></p><img src="https://counter.theconversation.com/content/147493/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Muhammad Zulfikar Rakhmat tidak bekerja, menjadi konsultan, memiliki saham, atau menerima dana dari perusahaan atau organisasi mana pun yang akan mengambil untung dari artikel ini, dan telah mengungkapkan bahwa ia tidak memiliki afiliasi selain yang telah disebut di atas.</span></em></p>The agreement marks a key milestone in strengthening bilateral financial cooperation between the world’s largest exporter, China, and Southeast Asia’s largest economy, Indonesia.Muhammad Zulfikar Rakhmat, Lecturer in International Relations, Universitas Islam Indonesia (UII) YogyakartaLicensed as Creative Commons – attribution, no derivatives.