Debit cards, credit cards and checks: These are three common, yet relatively new forms of spending money. Instead of paying for a brand new SUV with $50,000 in cash, a customer can simply swipe a card or jot down a few amounts to pay such a large amount, despite not having a cent on hand. Certainly this is a modern technological wonder…or is it? Travel back about 500 years, when a tiny island called Yap unknowingly created the basis of the modern banking system. The similarities between the Yap’s currency and the way people spend money today has forced me to rethink how “advanced” the spending system is in the world today.
The currency of the Yap, known as “fei,” consisted of large stone discs. How much each disc was worth depended on size. The bigger the disc, the more it was worth. Some discs could be carried using a pole, but other discs could be too large to carry. Yap didn’t have access to wheeled vehicles, so these giant discs could travel no further than the front yard of their owners. This dilemma was, however, easily solved. The Yap would spend these giant discs on whatever goods or services they desired, but they wouldn’t move them. The ownership of the disc, or whatever part of the disc was spent, would be all that transferred. This way, if the next owner of the disc wanted to spend the same disc on something else, it would be taken for granted that he had ownership, despite possibly not having proof of owning the disc, as it still presides in the original owner’s front yard.
This method of spending money is comparable to the modern banking system. For example, when people use debit cards and checks, they are spending an implied amount of money, rather than physical cash, just like the Yap spent their fei. When someone uses a credit card, the money being spent might not even exist, but it is expected, and once again implied that the money will be there for an automatic transfer by the end of the month. The Yap would expect the people in their community to be honest about the amount of fei that they actually owned, despite not having any physical proof that the money existed.
So how different are our fancy VISA cards from the Yap’s 500 year old monetary system? Besides the stone disc part, not very much. At heart, the spending system we use today is simple and old. I used to think that the banking system was a brand new idea, but after learning about the Yap, I believe our own implied money, in the form of paper sheets and plastic cards, is no more advanced than the implied money that was spent on the island of Yap, half a century ago.