This is getting heavy – but what even is money?

There are a few things in life that we don’t like to think about, because if we do, something mundane can become so complex that we give ourselves a headache.
Who closes the bus door once the driver gets off? How did the alphabet get put in alphabetical order? Why is there a ‘d’ in fridge, but not in refrigerator? And perhaps the most perplexing of all: What even is money?
We generally accept the concept of money at face value. We know a coin can buy you a lolly bag from the dairy, and a purple banknote might get you a new shirt. But who first decided that value, and why don’t we question it? Why is it that when digital money, cryptocurrency, or stablecoins enter the conversation, the concept of money suddenly becomes overwhelming?
Because fundamentally, money is still money. It just looks a little different today – and will even more so tomorrow.
The concept of money began with social credits or promises in ancient times, and civilisations developed various forms of commodity money to keep a track of those promises, often using scarce, durable and divisible metals such as gold and silver.
However, using precious metals as a medium of exchange became impractical for large transactions, prompting a shift to representative money in the form of paper cash.
By the 1800s, England established the gold standard and backed its paper currency with gold. This system of tethering fiat to gold lasted until 1971, when the global USD reserve currency transitioned to fully ‘fiat’ money, valuing currencies against each other without tangible backing.
But again, the internet boom transformed how we use money. Cash is becoming increasingly obsolete as many industrialised nations move towards cashless societies. Sweden, for example, is projected to become completely cashless by 2025.
The trend here at home is no different; the Reserve Bank reported a few years ago that “about 70 percent of the population indicated in 2020 that cash is one way they use to pay for everyday things, compared to 96 percent in 2019 and 2017.”
In the past 50 years we’ve seen debit and credit cards, payWave, Apple Pay, direct deposits, and recently, crypto. Now, we’re entering a new digital cash era, one that addresses the criticisms of crypto’s volatility while retaining some of its best characteristics: the stablecoin.
Stablecoins are a type of digital currency pegged to real-world assets or fiat currency. They enable instant digital transactions while avoiding extreme price volatility by being backed by an equivalent fiat dollar.
Stablecoins were innovated in the private sector, with Tether’s USDT debuting as the first fiat-backed stablecoin 10 years ago, maintaining a 1:1 ratio with the US dollar. Tether’s market cap now sits at NZ$184.1 billion – half of New Zealand’s entire GDP.
The volume of transactions using stablecoins have increased by 50 percent year-on-year. Their ability to provide stable, transparent, and quick transactions leads many to believe they’ll become the standard for cross-border transactions.
The impact on remittances is particularly noteworthy. If you’re an expat wanting to send money to your family overseas, traditionally, you’d face high fees and slow transfer times. With stablecoins, the process is much quicker and more affordable.
Despite international policy efforts to bring down the cost of sending money home, the average remittance fee in the Pacific is 9.1 percent higher than the global average of 6.25 percent. Pacific nations pay among the highest remittance fees in the world, and stablecoins offer a promising alternative to remitting fiat across borders.
Today, there’s no wonder 30 percent of global remittances are now facilitated through stablecoins.
Back home, in 2021, New Zealand introduced the first of a few NZD-backed stablecoins, and in 2022, ANZ issued A$DC, the first-ever Australian bank-issued stablecoin. Stablecoins are becoming a dominant part of crypto infrastructure, and one that is increasingly integrating into the existing financial system.
Now central banks also want a piece of the action. Enter central bank digital currencies (CBDCs), essentially government-backed stablecoin projects. CBDCs are digital forms of government-issued representative currency not pegged to a physical commodity.
The Reserve Bank of New Zealand is considering issuing New Zealand’s very own CBDC, with public consultations recently undertaken.
While it has not yet been decided what technology this will be based on – nor how it will work – as an (obvious) fan of digital currencies, I see huge potential for this to transform our economy.
While Adrian Orr, Governor of the Reserve Bank, described stablecoins as speculative investments and expressed his concern about people relying too heavily on alternatives to central bank money, the Reserve Bank’s recognition of the need for a CBDC shows a willingness to embrace the technological development of our economy.
There is a demand for alternative cash systems because there is a demand for a more efficient, cheaper, and more inclusive monetary system. This is why digital currencies are increasingly being used in domestic and international transactions, and why a CBDC will likely find some acceptance with most Kiwis and also further increase awareness of new approaches to money.
As physical cash use declines, people are looking for more efficient ways to pay. And as consumers, it looks like we have it pretty good.
Whether it’s Bitcoin, stablecoins or CBDCs, we stand at the first point in history where people have a choice on where, and how, they use currency.
Keeping up with the latest developments in crypto or finance can feel overwhelming, but I’ll make it easy for you: money is evolving. Just like when coins got too heavy in ancient times, these new developments aim to make life easier for you.