Money, as we know it today, performs two functions. One is that it acts as currency, meaning it has the ability to purchase different types of goods. Money also acts as wealth, meaning that it has the capacity to store value over time.
The money that we use is technically a fiat currency. It can be represented physically or electronically, but is basically an item of no value that is deemed to have value by government decree. It is possibly the best implementation of a currency that has ever existed. It can be sent anywhere in the world with little more than a thought, and in about as much time. It is immediately exchangeable with other similar currencies around the world. It is finely divisible. It is inexpensive to maintain, especially in electronic form. It moves quickly – and to keep it moving, we ensure that it devalues over time. This is what is called inflation; the Reserve Bank works to maintain a consistent rate of around 3%. Our currency is actively and continuously devalued, to keep it in circulation.
The requirement for ongoing, year after year reduction in value, and its inherent lack of real value make electronic fiat a superb currency. At the same time, these same characteristics make it a poor measure or store of wealth. Logically, if we want to store value, we would only keep a consistent minimum amount of electronic fiat, and the value we wish to store would be kept in some other form. Thus the need to ‘split’ the dollar; the dollar is by nature currency, not wealth, and it thus it is both an inefficient mechanism for storing wealth and an inconsistent measure of wealth.
So the question then arises; what are the characteristics of a efficient and effective store of wealth? And given those characteristics, what are the options available to us?