A strange question
Pick up a HK$100 banknote. What is it, physically? A piece of cotton paper with some ink on it. That’s all.
If you burned it, nothing special would happen — a tiny fire. But if you handed it to a shopkeeper, they’d give you a whole lunch. Why? Why does ink on paper get you food?
Because everyone agrees it is worth something. Money is a shared story, not a physical thing.
Before money: barter
Long before coins, people traded stuff. This is called barter.
You have 6 chickens, you want a sack of rice. Your neighbour has a sack of rice but wants a goat. Your other neighbour has a goat but wants fish. Now you need to find someone with fish who wants chickens… and it’s already sunset.
Barter has a brutal problem: both sides have to want what the other side has, at the same time. Economists call this the double coincidence of wants.
Money fixes this. You sell your chickens to whoever wants them for HK$60. Then you go buy rice. Any rice, from anyone. Done.
Money has three jobs
A thing counts as money if it can do all three:
1. A way to trade (medium of exchange)
You hand it over, you get stuff.
2. A way to measure value (unit of account)
“This bike costs HK$500” lets you compare prices. Without money, how would you say the price of a bike? In chickens? The answer changes with the season.
3. A way to save (store of value)
Today’s money should still have value next month. Food rots; money doesn’t. You can save HK$100 for later.
If something does all three, it’s money. If it only does one or two, it’s almost money.
What has been money?
Throughout history, people have used:
- Seashells (cowries) — Pacific islands, coastal China, West Africa
- Salt — paid Roman soldiers; this is where “salary” comes from
- Cattle — widespread before coins
- Big stone disks — the island of Yap
- Cigarettes — inside prisoner-of-war camps in WW2
- Gold coins — almost everywhere, for thousands of years
- Paper notes — since ~700 AD in China, everywhere now
- Numbers on a computer — today, most of your family’s money
It doesn’t have to be pretty or rare. It just has to be something most people agree to accept.
Hong Kong’s money
The Hong Kong dollar (HK$) is the currency here. But it has a curious feature: HK dollars are issued by private banks, not directly by a central bank!
HSBC, Standard Chartered, and Bank of China print the banknotes you see every day. That’s why HK$100 bills from different banks look different, but they’re all worth the same.
And HK$ is pegged to the US dollar at roughly US$1 ≈ HK$7.80. That peg has held since 1983. The government promises to swap HK$ for US$ at that rate, which keeps the price stable.
Most other places — the UK, Japan, China — have a single central bank that prints all the money.
Money today is mostly digital
Here’s the wild part: most money in the world is not paper. It’s numbers in computers.
When you tap a card to pay HK$50, no paper moves. A bank’s computer reduces your number by 50 and increases the shop’s number by 50. That’s it.
In total, less than 10% of “money” is physical. The rest is just agreements between computers.
Practice
What is the 'double coincidence of wants'?
The core barter problem: you can only trade if both sides happen to want exactly what the other has, at exactly the same time. Money solves this.
Which is NOT one of the three jobs of money?
Money does three things: lets you trade, lets you compare prices, and holds value over time. It does not, sadly, grow plants.
Why has salt been used as money in history?
Salt was scarce before refrigeration (needed to preserve food), portable, divisible, and durable. It hit all the money criteria. Roman soldiers were sometimes paid in salt — hence 'salary'.
About what fraction of 'money' in the world is physical cash?
Most money — over 90% — exists only as numbers in bank computers. Paper and coins are the tiny visible tip.