What is money?

There is active discussion of what is money with the advent of crypto currencies. There are also those who see gold and silver as money, given the ability to convert these metals into coins and to trade them.

Money has three main characteristics. It is a means of exchange. It is a unit of account. It is a store of value. Most of our money today takes the form of an entry in an electronic ledger at a bank. We accept transfer of electronic money to our account as payment for our work or pension. We pay for many items by offering an electronic transfer from our bank account to the account of someone selling us the good or service.

Most of us rely on the monopoly fiat currency of the country where we live. We know that we can draw money out of our bank account in the form of bank notes, which are accepted as payment universally in our domestic economy. A bank note or a bank account credit possess the three characteristics of money. We can pay for anything with them. We can keep the notes or ledger entry as a store of value for future purchases. We use the value of the money we own to assess the prices and values of goods and assets we might buy or own. Assets, goods and services are all priced in the local money.

Money depends on trust. We trust UK banks to hold our money because they are large businesses with substantial reserves. We know that the Bank of England regulates them and stands behind them. The Bank of England has the power to create additional money if the system needs more liquidity. Our deposits in commercial banks are backed not just by the bank we use, but by the Bank of England standing behind that bank, and by the UK state and taxpayers who stand behind the financial system. There is a deposit insurance scheme for deposits up to the stated limit.

In some overseas countries trust has been badly damaged in their local money thanks to gross mismanagement. A country which manages its economy and banking system badly can end up with a run on its currency, lowering the external value of it too much. This in turn can lead people to want to be paid in foreign currencies, and even to trade in dollars instead of their local money to create some stability of values. A hyperinflation coupled with a collapse in the external value of money in a country is a destructive process.

Those who distrust all fiat currencies look for some other store of value. Gold has often been their choice. This precious metal has had a volatile past, with periods of large gains in value against paper currencies interspersed with periods of decline. Holding gold entails costs of storage and insurance. To use gold as a payment system normally requires selling the gold and using the proceeds in a paper currency to complete a purchase. Like paper currencies, the efficacy of gold rests on confidence and its popularity with users. It is not widely accepted as direct payment and is not normally used as a unit of account for valuing items.


  1. Richard1
    December 13, 2017

    It’s not being said openly but businesses and the markets are starting to recognise that the real threat to the U.K. economy is a hard left-Marxist Govt under Corbyn and McDonnell. That would surely put the U.K. in the category of countries where people lose confidence in their currency. Anyone thinking of voting Labour can look for examples as to how it will eventually work out in Cuba, Venezuela and Zimbabwe.

    Meanwhile I read that the EU is putting it about that the U.K. will not be able to negotiate or sign trade deals during a transition period. The Govt should state clearly and publicly that this will be a red line & a deal which places such a restriction is unthinkable. Such a restriction would negate one of the main economic benefits of Brexit.

  2. Ian Wragg
    December 13, 2017

    Fiat currencies rely on trust. One of the enduring reasons we will never become a cashless society much as the political class would like.
    We don’t trust you so if you took all the cash out of circulation a script currency would quickly appear.
    Bartering would become widespread and the government tax take would tumble.
    Gideon wanted to get rid of cash until someone with an iota of common sense talked him out of it.

  3. Roy Grainger
    December 13, 2017

    ….and ?

    Ultimately, although Bitcoin is a classic bubble, cryptocurrencies independent of any government are likely to be preferred to national currencies. The multinational companies like Amazon will be the ones controlling them.

    1. Andy
      December 13, 2017

      Apparently BitCoin now out does ‘Tulip mania’ !!

    2. Anonymous
      December 13, 2017

      And no tax paid to government. I’m no statist but this will not end well.

  4. Duncan
    December 13, 2017

    In time the pernicious, manipulative State will come to see ‘money’, once cash is abolished of course, as the main tool of social, economic and political control. At that point our freedoms will become severely curtailed.

    Today, the State (especially in the UK and the US) use minority rights issues as one of the most potent forms of social and political control.

    Totalitarianism is a fait accompli once cash is abolished

    1. Ralph Musgrave
      December 13, 2017

      But how many people, other than those up to no good, do large transactions with cash? Almost none!! I.e. 99.9% of us do large transactions (anything over £200 say) via bank accounts, which the state can have a peek at, if it really wants to.

      1. APL
        December 14, 2017

        Ralph Musgrave: “do large transactions with cash? Almost none!!”

        How do you know?

  5. Denis Cooper
    December 13, 2017

    Off-topic, I’ve just seen Chuka Umunna on TV saying “IF” we leave the EU.

    Not “when”, but “if”, and that is notwithstanding the clear and unambiguous promise in the government’s official referendum leaflet:

    “This is your decision. The Government will implement what you decide.”

    Incidentally, although Theresa May has made a statement and answered questions in the House I don’t believe that MPs have actually voted on the Joint Report, and I wonder whether there are any plans for a further debate with a “meaningful” vote on a motion to either endorse or reject it. If the latter, would Chuka Umunna then expect the Prime Minister to go back and renegotiate it?

    What would he seriously expect to happen if approval needed a full Act and either of the two Houses eventually rejected it, as is very likely to happen with such a massive pro-EU majority among the unelected legislators-for-life in the Lords?

  6. Bert Young
    December 13, 2017

    I doubt the average person really thinks about values and support of currency . Plastic cards have virtually taken over the means by which transactions take place ; as long as they are accepted to complete a purchase they are happy . Last week I stood in a short queue to pay for my daily paper , the woman ahead of me did the same and settled her small debt with a card !.

    As a small boy my sister and I went to the local sweet shop and with our penny per week allowance bought chocolate drops ; of course I wouldn’t expect a young child to be out and about doing this today , but just imagine them doing so with a credit card !. Things are a bit stupid .

    1. Peter Parsons
      December 14, 2017

      Credit card, no, but pre-paid debit card, why not?

  7. Eeyore
    December 13, 2017

    Money’s also a measure of labour – work in a bottle – and thus a measure of time and life. To despise it, as the Labour Party so often seems to, is to despise people’s work and very existence.

    Hard to make, easy to spend . . . it must be tempting for ministers, handling billions as they do, to forget that money is valuable. Every £12 government spends costs some honest worker an hour of their lives. £1m takes a lifetime. Our £30bn bung to the EU to persuade them not to hit us effectively enslaves 30,000 plus their families.

    Perhaps we should just hand over Exeter.

  8. alan jutson
    December 13, 2017

    I always try to keep an official paper record of any investments, just in case computers crash, are hacked, or perhaps even turned off, or programmes destroyed.

    Simply do not trust one line security, will always visit a Bank whilst we have local branches available.

    Yes I know I am an old fashioned dinosaur, but afraid my money has been too hard earned to completely trust others and their systems to keep a record of its existence.

  9. Anonymous
    December 13, 2017

    Bitcoin – It has to be hoarded or its price will drop. Only a small minority of owners can use it before this happens, therefore.

    The rest experience feel good but that is about it.

    Most of it is useless. It becomes a problem when owners of bitcoin use it as security for borrowing fiat. More money printing by commercial banks therefore. More fiat bubbles and funny money in the system.

    They now say bitcoin’s total value is 270bn dollars. No it isn’t. You could not realise it all at that value and if you tried the price would drop to zero.

    Exactly the same as with the UK housing market. ‘Experts’ take the typical value of a house and multiply it over the number of houses in the country to get the value of wealth of the UK in order to work out the sustainability of debt.

    This is to forget that the debt cannot ever be recovered in short time as bringing all the houses to market at the same time would cause a collapse in prices.

    Hoarding is one way of driving an asset price up and that is what is happening with digital currency at the moment.

    Money for nothing.

    1. Anonymous
      December 13, 2017

      Maybe debt for nothing would be more accurate.

  10. Rien Huizer
    December 13, 2017

    Mainstream and well put. Questions though: what about de facto gvt ownership of high street banks, still continuing 10 years after RBS’ Goodwin made his suicidal acquisition (combined with some more home-made problems with the bank) are you sure that this would not happen again, ie that shareholders and uninsured creditors would bear the loss. There are things to say for a government “rescue” (rescue what? making sure credit and payment services continue to function, not entirely freezing deposits, etc OR recusing management, shareholders, parasitic merchant bankers). I liked the old British model: merchant bankers, stock brokers and market makers usually operating like unlimited partnerships or at least having a large part of their own money on the line.

    1. Sir Joe Soap
      December 13, 2017

      We could look back further to 1992 when we were encouraged to be good Europeans and shadow the DM, only for the Germans to drop us like a hot potato when the £ started losing value badly. I seem to remember there being an agreement to keep the £ “aligned” with the DM by buying £. Perhaps this time it’s out turn to drop that hot potato.

      1. Rien Huizer
        December 14, 2017

        And do what? Germany, or the EUR region does not need the support of a country with twin deficits. The other way around is more plausible, unless you think that a weak currency is nice to have.

  11. oldtimer
    December 13, 2017

    It seems we are witnessing a potentially significant development in the international oil trade. China has been striking deals to buy oil and gas priced in yuan not in US$. In parallel it setting up an exchange to sell yuan for gold. China has partnerships with Russia and Iran to pursue this course. If successful it would mark the end of US$ dominance in the oil trade as it had to compete with Chinese yuan. This process will take time – China has massive holdings of US Treasuries – but the direction of travel seems clear. Perhaps the crypto currency bubble is connected to this future development?

    Reply The wish to create the yuan as one of the great trading currencies of the world has no obvious link to cryptocurrencies. The yuan is supported by the Chinese banking system, Central Bank and state in ways they set out.

    1. Mitchel
      December 13, 2017

      Some months ago it was claimed that a considerable amount of Russian hot money was moving into Bitcoin-and out of dollars-to put it outside of US reach with regard to the next round of US sanctions.

      China and Russia have been increasing their gold reserves for some years.Also, Russia’s moves to tie more oil and gas producers into it’s energy network-and at the same time fend off moves,as in Syria,to undermine it’s position- has long had the US worried,particularly as Russia has been at the forefront of the de-dollarisation movement that China is now embracing.

      1. oldtimer
        December 14, 2017

        Some may regard a crypto currency as a better bolt hole than gold, not least because it does not require physical storage and protection. I agree that China, Russia and others are seeking to escape the US grip on the international financial system.

      2. The Watchers
        December 14, 2017

        WW3 then?

        1. Mitchel
          December 14, 2017

          The conundrum of the Thucydides trap!I read recently that the Pope considers a “piecemeal WWIII is already under way”.

          1. SOS
            December 14, 2017

            The pope would know.

            The past 500 years have seen 16 cases in which a rising power threatened to displace a ruling one. Twelve of these ended in war.

  12. forthurst
    December 13, 2017

    “The Bank of England has the power to create additional money if the system needs more liquidity.”

    It can do this either by lending money directly to distressed banks that have been purchasing mortgage-backed derivatives from American banksters based on loans to people with no earning capacity, or they can purchase Treasury notes issued by HM Treasury from banks and other financial institutions and store them in a subsidiary of the Bank (owned by HM Treasury); this is known as quantitative easing. However, the largest source of new money is through bank lending in which banks simply loan new money into existence when making advances, usually against an asset which the bank then owns although the mortgagor has the use of it.

    Many governments with current account surpluses tend to view gold money rather more favourably as a store of value than that issued either by the Bank of England or the private secret FED because they believe that until the Philosopher’s Stone has been unearthed, gold is less vunerable to the inflationary depredations wrought by the printing press, although some bullion has been traded from the US which transpired to have cores made of tungsten, a metal with a similar specific density to gold, but a dissimilar value.

  13. Rien Huizer
    December 13, 2017

    A second question is about the BoE’s capacity to “stand behind” all of the City’s institutions that can cause a systemic problem (clearing houses, very large ( almost exclusively foreign) investment banks highly leveraged investment managers, etc . This especially after a hypothetical (but unlikely) very hard Brexit, where all ties with EU institutions would be cut, apart from some swap agreements with the ECB coinciding with an (equally unlikely) repeat of 2008 with a weak FED chair in charge. My experience with other central banks in similar situations (for instance a large financial centre with a stand alone currency and a small open economy supporting a largely foreign owned financial system*) is that that requires very strict rules, very tough supervision and a lot of capital. Could Treasury credibly support the BoE in such a situation. That seems to be one of the more urgent questions among European central bankers.

    *) while the domestic, non-dynamic portion of the financial system is largely locally owned.

    1. Dennis Zoff
      December 14, 2017

      Maybe we should follow the Deutsche Bank example?

    2. libertarian
      December 17, 2017


      Er financial markets are global, the EU is a backwater of financial services. The BoE is not standing behind every city institution as most of the city is made up of overseas institutions. The Fed stands behind US banks, the BoE stands behind UK banks, interestingly the Bundesbank is lender of last resort in Germany, and Germany is resisting as hard as it can to stop the ECB becoming lender of last resort for the EU

  14. a-tracy
    December 13, 2017

    So what is Bitcoin? I’ve been told its a cyber currency (I don’t know what that means), it’s an on-line trading currency (eh?), real cash it used to buy bitcoins (who gets to keep the real cash?). Why would people buy something that doesn’t exist and isn’t underwritten by our banking system or government and shouldn’t the government issue big warnings that people buy this completely at their own risk who wants bitcoin ppi claims from people who have been led to believe it’s the new pyramid scheme to make them rich.

    1. acorn
      December 13, 2017

      a-tracy. You should read the history of Dutch Tulip Bulb Mania, Bitcoin is a re-run of that. In addition, it is supposed to be mined like gold (by a algorithm) to add to the stock of Bitcoin.

      Modern fiat currencies are driven by taxation. The fundamental difference between a currency issuing government and its currency using non-government counterpart, has to be understood.

      If you live in the Sterling currency area, then you will be required to pay your taxes in Sterling. Hence, you have to sell goods and services to people who have got some Sterling. The government has a bottomless pit full of Pounds Sterling and spends it, brand new, every day, buying stuff from the non-government sector.

      The currency issuing government, takes it all back, eventually, by taxation. The non-government sector has a nasty habit of saving the government’s currency and not spending it so it can be taxed out of the non-government sector. The government’s debt is the non-government sectors savings, to the penny.

      BTW. Taxes don’t pay for anything, they disappear into thin air, when they get back to the currency issuing government. A currency issuing government never runs out of its own currency and never has to borrow it. (But, it can and does pretend to do both, strictly for public manipulation.) Have a read of – The Natural Rate of Interest is Zero by Warren Mosler* and Mathew Forstater**

      1. a-tracy
        December 14, 2017

        I understand most of your explanation, thank you, but what are the individuals or organisations who earn Bitcoins actually doing? I read that they are paid to run hugely complex algorithms on hypercomputer systems or arrays, but what exactly are they being asked to process and should we all be a little concerned? Another concern is Sterling is slurping out of the UK never to return as earnings earned in the UK in greater amounts that are repatriated and spent outside in the EU plus additional child tax credits and working tax credits and you know these are in high amounts otherwise Europe wouldn’t be so insistent that things remain as they are for as long as they can get away with.

        1. Al
          December 14, 2017

          **I read that they are paid to run hugely complex algorithms on hypercomputer systems or arrays, but what exactly are they being asked to process and should we all be a little concerned?**

          Whenever you spend something using a credit card, a small fee is taken by the processor to process the transaction. In the same way when anyone moves bitcoin funds (buying, selling, or transfering) there is a small fee taken for the transaction.

          In the same way a card processing house handles card transactions, the ‘miners’ perform the calculations that prove the transactions are valid and receive the fee in return. As multiple groups have to confirm the transaction independently before it goes through, the fee is divided among them.

          The miners are traceable and normally above board. It’s the people buying and selling it for goods of sometimes dubious legitimacy who can be harder to pin down.

    2. Stephen Berry
      December 13, 2017

      a-tracy: Money is primarily a medium of exchange. As such, most important is that we should be willing to accept it in return for goods. It does not have to be backed by anything, let alone a central bank and government. Many commodities have served as money down the ages. Immediately following World War 2 even cigarettes served as money in some countries in Europe.

      Calling bitcoin a cyber currency is just a fancy way of saying you can use it to trade over the internet. The people who have designed bitcoin have claimed that their technology will limit the number of bitcoins produced. If this is right, over time it should gain in value against fiat currencies which are notoriously prone to inflation. The inflation rate given out today was over 3 per cent. If this were to continue, the value of your money will be halved in less than 25 years. This is the big warning that the government might care to issue, but somehow I don’t think it will.

      “Those who distrust all fiat currencies look for some other store of value,” says our kind host. Yes, if you want to protect the value of your money you could do worse than gold or silver.

    3. Colin
      December 13, 2017

      Okay, basically, bitcoins are electronic tokens which can be used as a form of money. They can be exchanged for goods and services with retailers who choose to accept them, and they can be bought and sold for money in other currencies with people who trade in them. You do this using a piece of software known as a “bitcoin wallet” that keeps a record of how many you have.

      It’s all fiendishly technical “under the bonnet” as it were, but the two key features are that (1) strong electronic encryption techniques are used to verify that your bitcoins are genuine, so they can’t be forged, and (2) bitcoins have to be created using a process known as “mining” (on the analogy of gold and silver money), which involves using a computer to solve very complicated mathematical problems, so that actual work, in the form of computer time, electricity, hardware costs and so on, has to be done to create bitcoins, just as gold and silver have to be mined and processed. Thus no one can simply “print” bitcoins as governments do with fiat currencies. There is built into the system a maximum number of bitcoins that can be created, and the more are mined, the more work is required to mine the next one. This ensures that the currency cannot be debased.

      The idea is that it’s a form of “real” money that doesn’t rely on trusting a government not to debase it, just like old-fashioned gold and silver, but much more readily tradeable electronically. For more details see Wikipedia and the Bitcoin FAQ.

    4. Anonymous
      December 13, 2017

      There are no guarantees with bitcoin. Nor is there with fiat – they just inflate it away. At least bitcoin has built in deflation. Innitially it’s bitcoin miners that get the real money.

    5. Rien Huizer
      December 13, 2017

      Bitcoin is not money. No government stand behind it.

      1. Dennis Zoff
        December 14, 2017

        Wow, so why the hell am I able to buy goods?

  15. Kenneth
    December 13, 2017

    Real money is when the China buys gold mines and hoards gold and then one day demands payment for goods in oil or gold and persuades Russia and Saudi Arabia to do the same

  16. Tim L
    December 13, 2017


    I was hoping you’d go onto mention Bitcoin and the likes as I simply don’t understand them.

    Apparently great returns are being made and several people I know think it’s solved their financial woes, mainly around their lack of pension provision.

    I can’t help worrying that the phrase “if it sounds too good to be true; it probably is” applies in this case and they are in for a shock in the future?

    Reply This is background to Bitcoin. This site does not give investment advice.

    1. Tim L
      December 13, 2017

      Forgive my grammar John. I wasn’t seeking advice, I promise.

      Keep up the good work and I’ll close by wishing you a well deserved merry Christmas.

    2. Anonymous
      December 13, 2017

      If your friends got in early enough then no – they are not in for a shock. They’ve done rather well and no-one knows how far this can go. It’s the kids, you see. They’re brought up with the value of tokens in computer gaming. If the best of that generation say it’s valuable (and their appetite is nowhere near sated) then it *is* valuable.

      I hear of 1m dollars per coin in ten years.

      1. StevenL
        December 14, 2017

        If it’s just a computer game where you trade coins and tokens against one another, and all the players want the ‘price’ of their coins and token to go up, then the ‘price’ probably will go up and the sky is the limit.

        But ‘price’ is not the same as ‘liquidity’. Every dollar one participant removes has to be put in by another. As long as more dollars are flowing in than out participants might be able to cash in their chips. When inflow becomes outflow then *boom*!

  17. NickC
    December 13, 2017

    In principle a fiat currency is a model of the economy it represents. Therefore it must have zero intrinsic value, otherwise it becomes part of the economy it is meant to be modeling. Gold suffers from that flaw – it can’t be both part of the economy (indeed only a small part) and also the measure of the whole economy.

    The problem with fiat currencies comes when the question is asked “well, what backs it?” The only feasible backer is the state, up to the advent of cryptocurrencies. This has made the state over-powerful in my view. One example being that it enables governments to set “inflation targets” which are the equivalent of medieval coin clipping.

    Part of the current value of gold is fiat. That is, gold has a utilitarian price (electronics, jewelry, etc) well below the current c£1000/oz. And gold is not the only store of value. Cryptocurrencies (eg Bitcoin) are the ultimate fiat currency. Their flaws are: no backer of last resort; total trust that the “mine” is limited. Their advantage is they eliminate the currency power of the state.

  18. Epikouros
    December 13, 2017

    Unfortunately fiat money can be used by governments to stealth tax and keeper tighter control over their citizens. Low interest rates, inflation, general taxation and electronic money transfers being some of the tools governments use. Bitcoins and the like were no doubt conceived to overcome these deficiencies. The results have not been as intended as they have become much more a speculative instrument than a currency to thwart government and in any case have not been able to replace fiat money to any meaningful degree. However at the same time as the rise of Bitcoin has come the blockchain an electronic system that may see the demise of government monopoly of currency as it will have a very decentralising effect.

  19. Tad Davison
    December 13, 2017

    I wonder therefore why Voltaire said paper currencies eventually return to their original intrinsic value – nothing at all?

    Lots of paper currencies have fallen by The wayside, mainly because of inflation (so I read). The US dollar for instance has steadily devalued to a fraction of it’s original worth. Maybe we need to take a look at fractional reserve banking and ask why some economists regard it as a ponzi scheme?

    I also wonder why Russia and China have been buying and stockpiling gold in recent years like it is going out of fashion. Could it be they know something we don’t?

    Tad Davison


  20. Lifelogic
    December 13, 2017

    To the UK government money is just yet another form of taxation. Pay people in worthless paper then devalue their money by say 5% pa ( halve its value over 14 years). If they buy assets with it you can then tax their (non real) inflation gains too when they sell at say 28%.

    Who needs Wealth taxes we all ready have plenty of them thanks to Brown, Osborne and Hammond. So lots of the Wealth talant and investment sensibly goes elsewhere.

  21. Mark B
    December 13, 2017

    Good morning

    Money depends on trust.

    Trust is the most valuable commodity on the face of the planet. Because once lost, it rarely can be recovered. Yet those we put our trust in often abuse it. The cost to them once that trust is removed is a long time in opposition. 😉

    Fiat currency is infinite. Gold is finite. That is why gold is much preferred, you simply cannot create it out of nothing.

    Demand and supply. If there is too much currency in an economy and no one wants it, it’s purchasing power against the dollar falls. People struggle to buy basic things and so become poorer.

    Despite the price of oil falling, prices at the pumps remain high. This is in part to government and in part to the fall in Sterling against the US Dollar .

  22. agricola
    December 13, 2017

    Question is what does the monopoly money represent What is it’s volume in circulation measured against. Is it real or just political expediency.

  23. formula57
    December 13, 2017

    A critical characteristic of money that is a feature of fiat currency is that demand for it is created and assured by the requirement to use it to settle tax liabilities. Crypto-currencies not issued by governments do not share that characteristic so demand for same is discretionary and hence very much less certain and I think that adds material risk.

    As for “We trust UK banks to hold our money because they are large businesses with substantial reserves”, my trust depends wholly on the FSCS guarantee.

  24. bigneil
    December 13, 2017

    Money is what I don’t get a full pension of despite working more than 40 years ( 20 – 60 ) at one place here in the UK. For some reason they say they are not all qualifying years so I’m more than £20 a week down. I assume all those who have come here and contributed NOTHING will all be getting their benefits though. Even people who come and commit two assaults on women, serve time in jail etc, get handed £110k.

    1. Mike Wilson
      December 13, 2017

      Take it up with your MP.

    2. Hope
      December 13, 2017

      Presumably the families of EU migrants will come sign on for winter fuel payments, get health care and fly home. How many millions has May signed the U.K. up for or is this freedom of movement by another name? All of whom having access to ECJ!

      1. Jonp
        December 14, 2017

        Yes Hope..and DD going on about the brexit agreement being a statement of intent..well now we know..the EU president Verhofstadt quickly replied..DD scurried.. but what a crowd of brexiteer losers? making it up as they go along?

  25. Derek Henry
    December 13, 2017

    The currency is a tax credit. This is one £.

    At one time you could go to the UK government and demand and get gold. You can’t do that anymore. What you can do with this is pay taxes to the government. Anything the government accepts for payment of taxes has value. If the government said this piece of paper (holds up a letter-sized sheet of paper) is worth £100 for taxes, this will be worth £100. The government grants tax credits to many corporations. They are as good as money. Not only that, they are money.

    Number one, the money is a tax credit.

    Number two the currency is a public monopoly.

    The money to pay taxes comes only from the government, unless there is counterfeiting. Apart from that, all the money to pay taxes comes from the government. Now you might say you can get money from the bank to pay taxes. And again very quickly, when you borrow money from the banks to pay taxes, yes, the banks create that money. But when you use it to pay taxes, the government, the central banking system, subtracts those £’s from the bank’s account. And those £’s in the bank’s account come from the government.

    So all you have to know is that the money to pay taxes comes from the government.

  26. Dennis Zoff
    December 13, 2017


    ….what exactly is the point of this tacit lecture?

    Reply I was asked to comment on Bitcoin by readers

    1. Dennis Zoff
      December 14, 2017

      John, on reflection and reading previous comments that I missed regarding Bitcoin, I am now up to speed….my apologies.

  27. Derek Henry
    December 13, 2017

    How do you get people to come work for the government?

    You could ask for volunteers. People have tried that. It doesn’t work all that well. The British used to get people in the Navy by going to the bars at night, and they’d take a bottle and hit somebody on the head. Then they would wake up in the British Navy, climbing some mast. That was called impressing sailors. That’s another way to provision the public sector.

    You could conquer somebody and take slaves. That used to be popular. But today we pretend to be more civilised.

    We tax people in something they don’t have that comes only from the government, and suddenly everybody in the country needs that currency.

    Okay, so the money is a monopoly. What does monopoly also mean? Are there any economists in this room? Monopoly means you don’t get market clearing. It means it’s not a competitive situation. It’s very easy actually. When they teach Monopoly, it takes about 15 minutes. When they teach competition that takes forever, that’s complicated. Monopoly is easy: one person has it, everybody else needs it. The currency is a monopoly. It’s the easy one.

  28. Peter
    December 13, 2017

    I have never trusted the pound sterling since Harold Wilson’s assurance about ‘the pound in your pocket’.

    I have not yet followed the Indian model of keeping much of my wealth tied up in gold, but it might be worth considering to evade the robbers in charge of the inheritance tax scam.

  29. Pete
    December 13, 2017

    Money in the western world is a complete and total fraud. It is not a store of value for absolutely certain. It is not backed by anything except the good faith of bankers and governments who have no good faith at all. It is entirely a method of extracting wealth from the common man and transferring it to the ultra rich. If people actually realised how much of a scam our monetary system is it would be destroyed in a day.
    Cryto currencies also are not backed by anything but they do have the advantage that they can’t be hyper inflated by banks and their crony politicians and so are less fraudulent.

  30. Andy
    December 13, 2017

    The biggest problem with ‘Currencies’ is how Governments have been able to debase the coinage with such ease. In 1914 on the day War was declared Sterling still had the same value as on the day Napoleon surrendered his sword after Waterloo. In 99 years the Bank of England had maintained the value of Sterling. Today that 1815/1914 pound is worth a penny. That is how the State has destroyed the currency.

  31. English Pensioner
    December 13, 2017

    There appears to be increasing pressure for us all to make electronic payments rather than cash (or cheques). I don’t know whether it is coming from the companies handling the transaction who collect a percentage of each transaction, or from the government who see it as a means of reducing tax avoidance.

    But in my point of view, it has nasty side effects. When you have to pay cash, you get it out of your wallet and actually handle it; you realise that it is leaving you and there’s not so much left. I believe this leads people to think more carefully before they spend and realise that they could be short by the end of the week/month.

    Spending by card tends to remove the feeling of spending money, the touch and go facilities for payment up to £30 are hardly noticed. A couple of lattes in the coffee shop, just touch your card and bingo, transaction complete. I wonder how many people look with horror at their monthly card statement and think “I can’t possibly have spent that amount”? But they have without realising it! Is the huge card debt in this country sustainable? I think there could be problems on the way!

    I avoid spending by card for items costing less than £20, but is amazing how many people look at you in surprise when you tender a note! I don’t want ‘touch and go’ on my cards, largely for security reasons, but by card company seems reluctant to let me have a card without the facility. Why? We are told about the huge cost of credit card fraud and I want to help prevent it, as, with the right equipment, the card can be accessed at a distance of a few metres. A friend of mine recently received a new credit card which already had two under £30 transactions, presumably by someone in the chain along the way. The matter is still being investigated, but the card company cancelled the transactions without hesitation, so they are clearly aware of the problem.

    As far as I’m concerned, I prefer cash any day!

  32. Oh my gold
    December 13, 2017

    Long John Silver biting on a bitcoin to test it authenticity seems to lack a certain something.

  33. zorro
    December 13, 2017

    …… a substance of which T May is giving mega amounts to placate the EU and receive nothing substantial in return….. The EU will issue a political declaration and then begin to negotiate once the UK has left the EU?? Oh please….. thanks for nothing Theresa.


    1. Lifelogic
      December 14, 2017

      We have a complere joke party leaser and the opposition is far worse still.

  34. Jon
    December 13, 2017

    JR: “This precious metal has had a volatile past, with periods of large gains in value against paper currencies interspersed with periods of decline.”

    1. £ sterling value has fluctuated, you have expended time writing about the topic within the last three or so weeks.

    2. £200 deposited into your current ( non interest account ) in 2000, Today would purchase only £120 worth of year 2000 goods. A fairly significant loss of purchasing power, at 3% pa inflation.

    Alternatively, you could have bought 1oz of gold in 2000, which according to the LBMA would be worth about £900 in today’s money.

    Over seventeen years the price has fluctuated, true. But over that time frame the modest investment in gold would have made a very handsome 350% return.

    Difficult choice, lose £80 of purchasing power, or make a 350% profit.

    JR: “It is not widely accepted as direct payment ”

    According to Wikipedia the Sovereign is still legal tender in the UK, seeming to have a face value of £1 but bullion value of £200 or so. So it probably isn’t acceptable for your Newspaper on a Sunday.

    Reply Yes, but over other time periods you lost money in gold. I have never seen anyone shopping with gold coins.

    1. APL
      December 13, 2017

      JR: “Yes, but over other time periods you lost money in gold. I have never seen anyone shopping with gold coins.”

      What period of time, before 1931 the United Kingdom was on the gold standard, Sovereigns were cash, actual money in circulation, they still are legal tender today.

      You are unlikely to see many people spending sovereigns because one sovereign has a face value of £1 but a bullion value of £200, the divergence is largely because the British government decoupled Sterling from gold. There is of course a speculative component but much is inflation too destroying fiat Sterling too.

      But it suits your Uniparty hydra because it can covertly destroy UK citizens savings and investments including private pensions through your inflation policy. At the same time berating British business for ‘short termism’ in its investment decisions.

      London bullion market web page here:


    2. Richard1
      December 13, 2017

      2. Depends on what sort of goods you are buying, you can get a much better TV for £300 than you could in 2000. Or many more equivalent Tvs

      1. APL
        December 15, 2017

        Richard1: “Depends on what sort of goods you are buying, you can get a much better TV for £300 than you could in 2000. ”

        Yes true, and when it occurs, that’s called deflation. Where the value of your cash holdings goes up in terms of goods.

        The government want to tell you that 3% inflation – where it deliberately reduces the worth of the store of your productive labour ( your savings ) – is good for you.

        It isn’t a big surprise to find that the TVs and electronic goods that have made your sterling appear better, are produced in the private sector.

        Houses, they are regulated by the Government and have gone up in Sterling terms.

        And it suits the Government to let you think you are richer because the value in terms of Sterling of your house, appears to be more this year than last. Because it gives you the illusion of wealth.

    3. Socrato
      December 14, 2017

      Bitcoin and other cryptos can easily be transferred back into fiat currencies of choice on a debit/credit card service like Xapo. Im not recommending it or anything but some people now store their wealth in crypto and then simply convert back to fiat to top up their debit /credit card. This is all done by a mobile phone app.

      I suppose my point is what do people think about this long term? If people no longer trust fiat in numbers (due to excessive debasement with the threat of more to come in some sort of reset event), is it logical to at least hedge part of your wealth in something like crypto – which would appear to provide many of the positives of Gold but without the associated costs and difficulties? Of course there may be risks as well. There is disagreement even amongst regulatory authorities as to whether cryptos are currencies or are commodities etc

      What if the future was that government transactions are done with government created currency but private transactions are done with privately created money? What is the implication of a two speed system? Is anyone concerned by this? Is it an opportunity? Will these compete with one another? What are the implications for raising funding? or democracy? or inflation?

      I would like to hear/see more discussion on the above points.

  35. Bingo
    December 13, 2017

    Remoaners are in the House now moaning about “a meaningful vote “. No, no, no, no, …No! They are not speaking of the vote of the referendum, that vote we took to be meaningful that they trash by their every afterword. They alone wish a vote with the real and meaningful power to stop the outcome of millions of our votes, votes of We the People. Well, they had their meaningful vote in the referendum . They lost.
    Only Parliamentarians would have changed the law on hanging for traitors.

  36. Ralph Musgrave
    December 13, 2017

    The large majority of money in circulation is created / printed by private banks. That is quite clearly a subsidy (one of the many subsidies) of private banks. It’s time for private banks’ money creating privileges to be withdrawn, as argued by several Nobel laureate economists (including Milton Friedman) and more recently by Positive Money.

  37. Chris
    December 13, 2017

    O/T, but hopefully you will permit it: your contribution yesterday in the H of C. It was very encouraging and informative:

  38. Miss Brandreth-Jones
    December 13, 2017

    Value . There is the thing. What do we value? My philosophy trained me to look closely at value and whether true value can be bought.The basic needs to keep a roof over our head,clothes , food , water and heat and last but not least health are valuable to all. After this all is luxury. Even education can be undertaken by parents. Luxuries today are numerous and depend on snob value ( a silly concept) and status.
    Money is a fairly objective phenomenon. On its own it is nothing. Gold is nothing.Diamonds etc are nothing, but they correspond to the squirrel/ magpie instinct and rarity 9 I have so any so and there aren’t very many so I am better than you) although not really of intrinsic value. The concept of value which gels to anything material could entirely change if we removed ourselves from the tabla rasa of modern times however desire to power ourselves overtakes all .
    We all know these aspects of value and money but are trapped in the ways of barter.

    1. Miss Brandreth-Jones
      December 13, 2017

      A little mistake here mistake here. I don;t know why when I press these keys they do their own thing. Very AI ?

      1. Miss Brandreth-Jones
        December 13, 2017

        Apart from the semi colon which overtook the apostrophe I should have said in relation to yesterdays contribution and what is money , nothing comes of nothing and thank goodness the noughts were ignored.

  39. Dennis Zoff
    December 13, 2017

    The EU Parliament today debated their motion approving the Phase One agreement which was made on Friday with the EU Commission.

    A very good analysis, albeit succinct, is available from http://facts4eu.org/news.shtml …to which John contributes.

    It is interesting how fact4eu can get down to the very essence of what is really going on behind the scenes..and it appears Brexit is ominously being sold down the river?

    What the hell is going on John? We are losing confident every day that passes with T May, et al, and a very interesting head of steam is re-surfacing from the old UKIP voters.

  40. Paul Snaith
    December 13, 2017

    Good description of money, though over and above being a means of exchange, a store of value and a unit of account, another characteristic of money is scarcity. Scarcity helps money retain perceived value and inhibits counterfeiting. Bitcoin has all of these, making it true money, but its complete disconnection from any central bank influence poses challenges for current notions of monetary policy – the provision or withdrawal of liquidity our host describes. Bitcoin’s expansion in value is likely a function of the rapid increase in awareness across the globe, and it is behaving more as an asset than money. This froth will eventually die down, but its capacity to function as very real money will not go away. Being able to move value quickly across borders via Bitcoin and similar technologies is a great threat to the hugely profitable correspondent banking system, to which the skylines of New York, London, Hong Kong, Singapore, Frankfurt testify. We are in for very interesting times, Banking is about to be disrupted.

  41. Peter Martin
    December 13, 2017

    ” Most of us rely on the monopoly fiat currency of the country where we live. “

    Yes that’s true. But what gives it a value? The only answer that makes sense is that Governments, who have created the currency in the first instance, will take that currency as a payment for tax. To that extent it can be regarded as a tax voucher.

    They don’t need that currency per se. Why would they need what they have created and can create at will. They need to impose taxes to establish a value and maintain the value free from excessive inflation.

    Governments can never get back more in taxation revenue than they have first created. That’s seems a rather obvious point but we often lose sight of that.

    1. APL
      December 14, 2017

      Peter Martin: “But what gives it a value?

      Bless you Peter, you do try with your totalitarian economic claptrap, but just about everything you say refutes itself.

      The government doesn’t take silver, for example as payment for tax, yet it has value. The government only recently is contemplating accepting Bitcoin as payment for tax, but before that it has been sought after and accepted by the population as an investment (currently Bitcoin is a speculative instrument ) or medium of exchange. The point being Bitcoin is successful precisely because the government doesn’t control it.

      Peter Martin: “They don’t need that currency per se. ….They need to impose taxes to establish a value and maintain the value free from excessive inflation.”

      Of course the government needs a currency, evidenced by the fact that it compels everyone within its sphere of influence to use its own currency.

      Peter Martin: “Why would they need what they have created and can create at will. ”

      Because ALL control ultimately rests on economic control. The government will not tolerate any other mechanism of control with in it’s political sphere of influence. So it attempts to restrict the use of currency to the currency it has first issuing power, that way, it gets the prime value before it starts exploiting its citizens with its 3% devaluation policy.

      Peter Martin: “The only answer that makes sense is that Governments, who have created the currency in the first instance, will take that currency as a payment for tax.”


      1. Peter Martin
        December 17, 2017

        “The government doesn’t take silver, for example as payment for tax, yet it has value.”

        Sure that’s true. Silver, like Gold, is a commodity so it always will have a value independently of the existence of any government. Bitcoin would be in the same category. If just a few people think Silver, Bitcoin or Gold have a value then it will have the value they want to give it.

        But remove a Government from a fiat currency and it becomes worthless. Historical examples of that would include the Confederate dollar after the US civil war and the East German Ostmark after 1989. The German Reichsmark was almost in that position after 1945 but the Allied Govts and the emerging newly formed West German Govt did see fit to guarantee it wasn’t quite worthless after the Nazi defeat.

        1. APL
          December 19, 2017

          Peter Martin: “Historical examples of that would include the Confederate dollar after the US civil war and the East German Ostmark after 1989.”

          So you are saying a government backed fiat currency became worthless when the government that imposed it by fiat, collapsed. Doh!

          Peter Martin: “Silver, like Gold, is a commodity so it always will have a value independently of the existence of any government.”

          TaDa!! Well done. You’re nearly there.

          I bet, had the Confederacy managed to mint more than four silver .999 confederate dollars, they would have a face value of $1 Cconfederate dollar today, but a current market value of $15 ( LBMA $ spot @ 19/12/2017 ). Ignoring the collectors value of such a rare coin.

          It’s not that the currency unit value fluctuates, £sterling value fluctuates. It’s only backed by the rather poor credit of the British government. Gold sovereigns will have a value even if the British government completely sells out in the Brexit negotiations tomorrow and abolishes sterling in favour of the Euro, the next day. In that eventuality Sterling notes and coin will be worthless.

          Peter Martin: “Bitcoin or Gold have a value then it will have the value they want to give it.”

          That’s it Peter, Bitcoin has value because the value is recognised by the people that choose to use it. Not our government, nor any government.

          You could be a Billionaire in Zimbabwe dollars, but as a Zimbabwe dollar is worthless, the number you hold is irrelevant, regardless that the Zimbabwe government backs the currency.

          So your original proposition; “The only answer that makes sense is that Governments, who have created the currency in the first instance, will take that currency as a payment for tax. “, is false, not because in all probability the Zimbabwe government doesn’t want Zimbabwe $ for tax, but because the people of Zimbabwe, nor anyone else, would touch a Zimbabwe $ with a ten foot barge pole.

          1. Peter Martin
            December 22, 2017

            No-one is saying that hyperinflations don’t happen. They obviously do. But nearly always they are in the aftermath of a war which creates the conditions for a drastic reduction in total production. Inflation isn’t just too much money chasing too few goods. Its also too few goods being chased by too much money -or even the same amount of money as previously.

            A government can’t easily impose a set external value on our currency. The history of the pound shows that. For example the Tory Govt tried to peg the pound to the DM in the late 80s. That ended in tears in Black Wednesday.

            It’s better to not worry about the pounds euro exchange rate and just concentrate on keeping the economy working at full capacity. We don’t need gold, silver, or bitcoins to do that. Just sensible economic policies.

  42. ian
    December 13, 2017

    The idea of bitcoin has been around for years, It already has gone beyond the mass population at this time, at 19,000 dollars for one. It is now just something for the rich to play with when the idea was for the masses. For me to be able to buy a newspaper with a bitcoin at 1 dollar, I would have to split my bitcoin into 19,000 bits of bitcoin, all coded and means sending my bitcoin back to the maker to be split up and if the price of bitcoin goes up again, I will again be paying to much for the newspaper and if bitcoin goes down, I will have to give two bitcoin instead of one, so I take my bitcoin to the bank and have them split it up into local currency so I can use it. then comes the tax on profits and won’t be long before it on your tax form. With 60 odd cryptocurrencies so far and might be as many as 100 by 2019 and all promising different things, like the ease of use, store of value and buying power. At the moment it can take half a day to make one transaction or more and if you have bitcoin on your desktop or phone and they break down or are stolen, you have lost your bitcoin forever.

  43. Caterpillar
    December 13, 2017

    Money is the means of directing resource use and determining who benefits. Govt’s intervention modifies the use of and who benefits. This is done by recognising, printing, taxing, transferring or giving to EU.

  44. Dave Andrews
    December 13, 2017

    Money is created by governments as the mordent to raise taxes. We obtain it only by hard graft, whilst they help themselves of what we have with ease. It is only supplied with ease to the banks, on the understanding they make it hard for us to get some.

  45. Cromwell Jnr
    December 13, 2017

    As a people we British in thousands of years have had just two direct votes that were meaningful.

    The one on the Common Market and the on on the Referendum 23rd June 2016. It looks now the hard-worked-for and Remoaner conspired “Operation Delay” has started. The Deal with the EU will of course be delayed by Remoaner “Operation Scrutiny” of every comma and full-stop then a rejection on the Final Deal delaying our leaving the EU for ever.

    This is the saddest day for British democracy one could wish for. A Parliament, not of our people.A foreign entity. An un-British entity. Declared itself Enemy of the People.

  46. Iain Gill
    December 13, 2017

    Traitors in parliament today

    1. Richard1
      December 13, 2017

      Why ‘traitors’? What silly language. What you mean is they don’t agree with you. These MPs have got all worked up because they think the best thing is to have a final vote in Parliament. We can’t blame them for doing what they think is right. Personally I can’t see what the fuss is about. Parliament can vote on whatever it likes whenever it wants. By March 19 there will be a heads of terms for a deal – not a final deal. We will only have a final deal post Brexit. (Nick clegg has noticed this). Will Parliament really vote against the heads of terms? Almost certainly not. What if they do – presumably then it’s out in WTO terms. This looks to me like a storm in a teacup.

  47. agricola
    December 13, 2017

    Utterly traitorous behaviour by twelve of your MPs this evening. Traitorous to the will of the British people who voted to leave and in supporting the aims of the EU against those of the UK. To connive with the likes of Corbyn and the SNP puts them beyond the pale. I hope their electorate never forgive them.

    1. Richard1
      December 13, 2017

      Ludicrous hyperbole

      1. agricola
        December 14, 2017

        It is not an exaggerated statement, but meant to be taken literally. Those twelve belong to the great unwashed on the opposite benches or out of Parliament entirely.

  48. Chris S
    December 13, 2017

    Candidates for de-selection :

    Dominic Grieve
    Ken Clarke
    Nicky Morgan
    Bob Neill
    Stephen Hammond
    Oliver Heald
    Anna Soubry
    Sarah Wollaston
    Jonathan Djanogly
    Antoinette Sandbach
    Heidi Allen

    1. DaveM
      December 13, 2017

      I’m surprised (to put it mildly) that Anna Soubry still has the whip. She is not only openly doing anything she can to disrupt the Brexit process, but is going against the wishes of the majority of her constituents. Not that it was a constituency vote of course.

      Makes you wonder what she has to gain/lose personally, and whether she is working to a hidden agenda devised by T May.

      1. a-tracy
        December 14, 2017

        She deceived her constituents, this isn’t going to work out well for the Conservatives next time unless they deselect her.

        These Labour politicians and 12 Conservatives think that the public has no choice because of polarised decisions of their previous electors, however, they forget we have a lot of MEP’s being made redundant in Europe and looking for new seats, if the Conservatives won’t offer Dan Hannan, for example, a decent seat then he should take it upon himself to challenge one of these traitors who were elected to support May and her Cabinet and not turn traitor once gaining a job for the next five years. My MP had better not be running next time in my area.

    2. a-tracy
      December 13, 2017

      Regretting voting TORY tonight my MP is one of those in this list, most disappointing and a vote of no confidence in May to stab her in the back in this way and the cabinet.
      Conservative MPs never learn they’d rather bring the whole party down that follow the line they were elected on. My MP certainly didn’t advertise the fact they’re a raving EU anti-Brexit antagonist. Traitor to my vote.

    3. Chris
      December 13, 2017

      Hammond has been dealt with by being sacked from deputy Party Chairman, apparently.

    4. Far Right Extremist
      December 14, 2017

      Heidi Allen in all TV interviews doesn’t seem to fit as a Tory.It would be a cheap joke to say she studied astrophysics so what does she know about politics but a friend of mine is an astrophysicist yet knows far more about politics than Ms Allen.

    5. Far Right Extremist
      December 14, 2017

      Stephen Hammond has been sacked but not like Rome was sacked and not by barbarians but for wrong-doing by his kith and kin, his Countrymen and comrades

    6. Turboterrier.
      December 14, 2017

      @ Chris S

      You forgot to add the word “immediate” before selection.

  49. Duncan
    December 13, 2017

    UKIP will destroy the Tories and Labour at the next election

    Your colleagues treachery and subversion of British democracy will be punished THROUGH DEMOCRACY

    Tonight in the Commons was the night democracy DIED

    What we are seeing is nothing more than the overthrow of democracy

    May as leader as been a disaster. Her presence is a gift to the enemies of Brexit and I believe she is colluding with these Tory rebels

    Your party is a disgrace

    1. Turboterrier.
      December 14, 2017

      @ Duncan

      I believe she is colluding with these Tory rebels.

      I can see where you are coming from, no confidence in her at all.

      You could well be right about UKIP. All they need to do is take a leaf out of Labour’s book and start selling cheap membership packages. With a large membership you begin to pose a real perceived threat

  50. Too much Law
    December 13, 2017

    Dominic Grieve unwittingly perhaps, has just ended, hopefully not for ever, meaningful democratic debate and belief outside the frigid walls of Parliament. It woz the Law wot dun it. Let us all hope The People do not vote themselves outside Parliament their very own Second Amendment.

  51. Nc
    December 13, 2017

    So 39 billion is a lot of UK human energy to be giving Europe based on this principle we honour past agreements. No idea why the nation is not in uproar about it?

  52. Too much Law
    December 13, 2017

    Somehow, saying the Law is an Ass lacks that meaningful sorrowful human referent.

  53. ferdinand
    December 13, 2017

    Bank money is only as good as the trust we have in the Bank. In the old days the fiduciary ratio was set and fixed and of course when we were on the gold standard was backed by gold. there is so much ‘bank’ money now that there is very little total security. We are living on a prayer.

  54. hans chr iversen
    December 13, 2017

    the pound would be worth even less if your suggestion of BoE write off the government debt of 30% which has been bought as part of the, but I am sure you are know aware, that proposal form you was really never going to fly

  55. DaveM
    December 13, 2017

    “What is money”

    A question asked daily by millions of parents up and down the country!

  56. Fedupsoutherner
    December 13, 2017

    Fed up with traitors for politicians who think they are there to serve themselves. The Conservative party offered us a legal referendum and we were told that we would get what we voted for. Someone’s having a laugh.

    1. Turboterrier.
      December 14, 2017

      @ FUS

      When we have the next election then the losing party should now be in a position to demand a rerun when it is a close run thing.

      We have paid the ultimate price for having such a weak leader, afraid of the EU and terrified of her traitorous backbencher’s.

      Still these traitors on all sides of the house cannot come up with one hundred percent gold carat reason for staying in the EU especially with the changes they are considering. Project Fear is alive and running.

  57. Mick
    December 14, 2017

    So these traitors to democracy think they can stop Brexit, well you’d better think again, you were only 11 we are 17.4 million, these mp’s should be sacked and deselected there main aim is to thwart us leaving the eu no matter how much they say it isn’t, if Mrs May doesn’t show some backbone and get rid of them then come the next GE we will along with a lot of the other parties in Parliament, we are leaving the eu get use to it

  58. Fedupsoutherner
    December 14, 2017

    What is money? When talking about the divorce payment to the EU it should read It’s Only Money!!

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