the true story of money

Money was introduced as a language for communicating economic activities. In economics, we talk about money as a means of exchange, a store of value and a unit of account: - these are all communication challenges which money can simplify .

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Unfortunately, over time, we have forgotten exactly what we are trying to communicate, money is now seen as an asset. When separated from real things, it is nothing, can do nothing, will move nothing. For money to matter, it must always convey entitlement -money is what it buys

Why is this important now? Well, when the US government intervenes with $3 trillion to assist economy recovery, some might wonder, where it is coming from? That’s more than 6 times the total economic activities in Nigeria in 2019. And why are we not doing same?

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Money, when issued by the US government, is believed to represent goods & services of same value. Nobody has ever tested this and if it were to happen, the promise won’t stand. The US cannot possibly give value for all the paper dollars it has in circulation.

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Yet it can issue it as a promise. And for as long as people believe they are good for it, it can continue to issue same paper and receive real goods and services in return. And so China has supplied more than $1 trillion worth of goods to the US in exchange for paper.

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Nigeria supplied millions of barrels of crude and got paper in return.

And so, for as long as the papers continue to ease exchange, continue to enable accounting, and most importantly, is deemed to be a store of value, the issuer is wealthy beyond our imagination.

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America (and her dollar) is what happens when you get people to trust your paper money. If they stop trusting her, the dance will end abruptly.

Reserve currencies prior to the dollar were usually capped by gold. This is different, unlimited. How does this end?

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What is value? A house, a car, our roads. Things we need, things we want or desire. And the more of these we produce, the more paper we can issue with people still believing it represents value. Without value, you don’t need a means of exchange, of account or a store.

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Simply put, what are we producing? Farms? Factories? And how are we producing? hoes? Harvesters? Tying it to the size of the intervention, a govt that superintendent the production of valuable goods can issue better paper than one that does not. Planned activities create value.

And the famous question of foreign exchange: what is your Naira worth? Well, it is as valuable as the goods and services produced by those who live in Nairaland. That’s why when your oil is valued at $100 per barrel, your Naira is worth more than when it is $20.

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Or put differently, the value of our money is the difference between the goods we produce locally, some of which is exported and the goods consume, and how much of it we import. If we import / export nothing, our Naira won’t even need an exchange rate.

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What happens if we import a lot and export nothing? Our money will be worthless outside our borders. Why would anyone want your paper if they won’t exchange it for something of value you have? This is how Zimbabwe happens.

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And if we only export goods but import nothing? Well, why would we work hard to produce goods for others when there’s nothing we want in return? The value of our money will infinite, we won’t give it up for useless foreign paper.

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So let’s move away from the over simplification. Imagine that all we need as a country can be produce locally, from food to ventilators, pen to servers, what would stop the government from implementing a US sized intervention?

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I dare say nothing. We are faced with weak demand, which, if addressed will return the economy to health, create jobs and eventually generate tax revenue that will be used to repay the borrowing. Our limit would not be money.

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And why can’t we do that today? Think about it - if we were each given N1m today as covid palliative, what will we buy? Clearly there’s not enough goods for that amount locally so we will end up bidding up prices for goods and for foreign currencies.

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That’s the cap we must acknowledge & deal with - our money is a unit of exchange for their goods, and that’s why are economy remains an appendage to their economy. We are communicating their products, their progress, their value & values.

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And we are unwittingly comparing our options to theirs, measuring our interventions against theirs, judging our economy using their money. I think purchasing power parity is underrated, I know GDP is inadequate, even misleading.

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We must begin to look beyond money, a mere representation of value created by combining our ingenuity (entrepreneurship), our resources, our human capital with a dash of capital (no, not paper money but economic assets). We must see value. Feel it. Deliver it.

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To make things in Nigeria is no less important that the fight for independence, to buy things made in Nigeria is a fight to be free. The most important job of any government in an economic crisis is to enable job creations. Empower employers of labour.

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Our job is to consume local goods and services, to substitute, where possible, all things foreign with things local. If we don’t do so willingly, it will be imposed on us by $20 oil, by declining reserves, by devaluation. If we do, our economy will grow, unemployment will fall.

I have been asked if it is that simple. Yes, continue to consume what you can’t produce and failing to produce something to exchange for it is inevitable ruin. Beginning to produce what you need is common sense, a process assisted by buying local.

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Paper is nothing, production is everything. And productivity, the outcome of the quality of labour, adoption of technology and a government that assist rather than frustrate the entrepreneurship is the kind of everything.

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Let’s not consume our way to penury or regulate our nation to poverty. Instead, let us educate our workforce, let us equip our entrepreneurs, let us convince our bureaucrats that they are better off building rather than holding us back.

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