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Jason Malan's blog. A collection of pictures, music, videos and thoughts.

#Boxing at #Wits.

#Boxing at #Wits.

Amazed how small the discs are in proportion to the wheel-well. #car

Amazed how small the discs are in proportion to the wheel-well. #car

Some #geese by the pool at the #Johannesburg Country Club.

Some #geese by the pool at the #Johannesburg Country Club.

What gives currency its value?

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The 20th century was one of the most extraordinary periods in human history. With two World Wars and rapid technological advancement, the world progressed more in a period of 100 years than it had in the previous 1000 years.

Many economic changes occurred in the 20th century but one of the most interesting changes was in the definition of currency.

Pre-World War II most countries backed their currency with gold. Basically, a currency’s value was underwritten by a store of gold bullion. This is known as The Gold Standard and it is applied in three different ways.

The gold specie standard associates the value of currency with gold coins that are in circulation. Less valuable metals like silver are also used to create smaller denominations of a currency.

The gold bullion standard does not have any gold in circulation as currency. Instead every bit of currency in circulation is backed by gold bullion (actual pieces of gold). So, to print $10 worth of currency, a government would have to acquire $10 worth of gold.

Finally, the gold exchange standard is derivative of the previous two systems. In this standard, a currency, such as the British Pound, is traded at a fixed value to another currency, such as the U.S. Dollar, which is underlined by either the gold specie standard or the gold bullion standard.

The gold exchange standard became the international implementation of the gold standard after World War II. All currencies were traded at a fixed rate to the U.S. Dollar and the U.S. dollar was underlined by gold bullion and could be exchanged for gold by governments.

The gold exchange standard made it far easier to trade currency, because they did not actually have to ship pieces of gold across the world. Instead countries would peg their currency’s value to the U.S. Dollar and trade for other currencies in relation to their fixed price.

On the 15th of August 1971 this system was unexpectedly put on hold, when the U.S. president Nixon announced that the U.S. Dollar would not be directly convertible for gold bullion.

This was meant to be a temporary system. Over 40 years later the gold standard has not been restored and subsequently not a single country in the world still uses the gold standard.

So, why did the U.S. abolish the gold standard? Simply, the U.S. was continually running a budget deficit. It was spending more money than it was generating and basically running into debt. Countries no longer had faith that the dollar was being backed by the equivalent amount of gold bullion by which the U.S. said it was backed.

The U.S. overspending was causing high levels of U.S. inflation and a loss of faith in the dollar. Nixon put the gold standard on hold to stabilise the dollar and fight U.S. inflation.

To fund its budget deficit the U.S. began selling federal bonds (similar to loans) to countries that were running a budget surplus. Since the U.S. has run a budget deficit for the majority of the past 40 years, it has had to continue selling larger and larger federal bonds, to pay off the interest on previous bonds and loan more money.

Countries like China, Japan and Brazil, who run budget surpluses, continue to buy these bonds, because they do not want their currencies to strengthen against the U.S. Dollar.

Net exporters like China and Saudi Arabia need their currencies to be weak in relation to the U.S. dollar to keep their export goods cheap enough to sustain international demand.

Back to the value of currency. If a currency is not underlined by something physical that has value, what defines its value? The straight answer is sentiment defines its value. Sentiment is nothing more than an opinion, feeling or attitude towards something. Currencies now fluctuate in value based on sentiment and that sentiment is generally based on peoples faith in the government of the currency.

A country’s currency is only worth something because people generally believe that it is worth something. It costs very little to make physical currency and more and more currency is becoming virtual these days, which has no direct production cost at all. 

Is this system (called a fiat system) a bad thing? In my opinion it is. The fundamental problem is that the United States is going to continue running a budget deficit and selling bonds to sustain that deficit and maintain the U.S. Dollar’s value.

In essence the United States is just getting into larger and larger quantities of debt that it will never pay back. Nowhere in the world can a company continue to amass more and more debt without going into liquidation.

If someday the United States is unable to sell its federal bonds to other countries, it would see a large increase in domestic inflation, caused by the weakening of the U.S. dollar. 

Every single currency in the world would be affected. The value of many financial goods would drop substantially and millions of people would become poorer. It’s a time bomb that’s just being delayed by countries maintaining the status quo for the sake of stability. 

Some say, I may have a problem. #Nokia

Some say, I may have a problem. #Nokia

Some facts from the Brazil versus Germany game.
Klose broke Ronaldo’s record for most goals scored at World Cups with 16 goals in 23 matches.
Thomas Müller‬ got into double figures in this game with 10 goals scored in two World Cups. Miroslav Klose was the first player to do this with 5 goals in the 2002 World Cup and 5 goals in the 2006 World Cup.
Klose is also Germany’s all time top goal scorer with 70 goals in 135 matches.
The last time Brazil conceded 5 goals in a World Cup match was in 1938 against Poland. They won the game 6-5.
‪Germany exceeded Brazil’s record for most goals scored in all World Cup games with 223 goals.
Brazil suffer their worst ever defeat with a 7-1 score line. Uruguay also beat Brazil by 6-0 in 1920.‪
The last time Brazil lost at home was in 1975 against Peru.

Some facts from the Brazil versus Germany game.

  • Klose broke Ronaldo’s record for most goals scored at World Cups with 16 goals in 23 matches.
  • Thomas Müller‬ got into double figures in this game with 10 goals scored in two World Cups. Miroslav Klose was the first player to do this with 5 goals in the 2002 World Cup and 5 goals in the 2006 World Cup.
  • Klose is also Germany’s all time top goal scorer with 70 goals in 135 matches.
  • The last time Brazil conceded 5 goals in a World Cup match was in 1938 against Poland. They won the game 6-5.
  • ‪Germany exceeded Brazil’s record for most goals scored in all World Cup games with 223 goals.
  • Brazil suffer their worst ever defeat with a 7-1 score line. Uruguay also beat Brazil by 6-0 in 1920.‪
  • The last time Brazil lost at home was in 1975 against Peru.
Finally got to meet Amanda Stone in person. (at Room Five)

Finally got to meet Amanda Stone in person. (at Room Five)

The Lumia 630 on the left and Lumia 930 on the right. The 630 will be available in South Africa in July. (at Room Five)

The Lumia 630 on the left and Lumia 930 on the right. The 630 will be available in South Africa in July. (at Room Five)

I’ve just met the one and only Aki Anastasiou. (at Room Five)

I’ve just met the one and only Aki Anastasiou. (at Room Five)

I’m at a Microsoft event and I speculate that the #Lumia930 and #Lumia630 are going to be announced for #SouthAfrica. (at Room Five)

I’m at a Microsoft event and I speculate that the #Lumia930 and #Lumia630 are going to be announced for #SouthAfrica. (at Room Five)

#Sunset in #CapeTown. #Mountain #Landscape #Dusk

#Sunset in #CapeTown. #Mountain #Landscape #Dusk

Been playing around with #Photoshop. #Selfie

Been playing around with #Photoshop. #Selfie

This is my #doge.

This is my #doge.

My #SpaceSelfie. #Selfie

My #SpaceSelfie. #Selfie

Man popping out of a can. #ForcedPerspective #Coke

Man popping out of a can. #ForcedPerspective #Coke