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 the number “50,000” on a check, 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 can be compared to “car title” loans in the present day. If a person uses a car title loan when purchasing a car, the bank pays the dealer the price of the car. Instead of paying the dealer, the buyer pays the bank in monthly installments until the price of the car is covered. The bank, however, also has the right to repossess the car if any payment isn’t made. Not only is the buyer paying for the car with the bank’s money, but the bank expects money back that the buyer might not even have. This should sound familiar; after all, the larger stone discs used by the Yap stayed in the front yard of the original owner no matter who it belonged to. The future recipients of the discs (the bank), had to trust the people purchasing with the discs (buyers), to tell the truth about whether they owned the discs or not.
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. The major difference, however, between credit spending and fei is that every month, credit companies check up on spenders to make sure they actually have the money they claim to have. The Yap’s system would have caused chaos if it involved such a process. Most of the time, the money being spent wasn’t even physically possessed, so what would’ve stopped a clever Yap islander from abusing this system with money that didn’t exist? The Yap did not have the technology to handle a credit system, so they had to rely on trust.
So how different are our fancy VISA cards from the Yap’s 500 year old monetary system? If stripped down to its basic principles of expectations and trust, not so 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.