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Strength of the National Currency

Saturday December 11 2004 09:36 IST

By Karmayogi

Computer is the newest addition to modern office life. It works wonders. We welcome it, use it well, but never stop to think how it is made or how it was discovered, because it is not necessary for us.

It is our custom to receive into our lives every new discovery and put it to the best possible use. We pay serious attention to one such discovery as we are attached to it emotionally and we want to possess it, little realising that we are possessed by Money in that process.

To us, the moderns, Money means currency, though credit card is in vogue and coins are still in use. We see the phenomenon that in Malaysia their dollar is fifteen times our rupee, in Singapore it is 25 times, in Canada it is 35, in USA 45, in Europe 58.

After all, in every country it is Money. Why should Money value differ from country to country? We console ourselves saying they are richer countries.

There are dozens of aspects in the currency value for the economist or the common man. Of them, one strikes my eye. There are a few mysterious ways by which the value of a currency rises. One of them caught my attention. It is population.

About three hundred years ago, banks came into existence. They issued bank notes worth three times their capital. When there are one million pounds as capital, they can issue bank notes ONLY for one million. But they issued three million pounds of bank notes. The community served by that bank prospered. Thus banks began to multiply.

Now, an expert in Central Bank says, banks multiply their capital nine times. It is baffling, startling, but this has been a banking truth for centuries. As banks multiply money - increase its volume - telegraphy also does it, trade too does it.

All this is monetary economics, but to me the most mysterious truth that intimately concerns the common man is there are INVISIBLE forces in the society that create money, not false money, but true money. Population is one such.

The US population is 270 million. The dollar ruled the world market. Europe came together in the European Union and created the euro dollar which was five or ten rupees lower in value than the dollar. Now the EU is growing and has increased from 9 countries to 25 countries.

Her population rose to 480 million and today the euro dollar is at Rs. 58. Rise in population raises the currency value may be voodoo economics for the traditional pure monetarist, but it is TRUE as we see in the euro dollar.

Money is Trust, said Bernard Leiter, the innovator of a new form of currency. As the size of population increases, the TRUST rises too. Hence the higher value of currency. Trust, expert economists say, raises economic activity. It also raises the REAL value of currency whose basis is Trust.

Suppose India and China join to create a common currency, the value of both the currencies will rise. We should not shut our eyes to such possibilities.

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