WHEN my daughter Jemima was just four years old she gave me a homemade Father's Day card. Tucked inside was a voucher she had made at kinder. It said: "The bearer of this voucher is entitled to (fill in the blank) free hugs from (fill in the blank) Jemima. This voucher may be presented at any time and never expires".
She is now 11 and I'm pretty sure she has no idea I have kept and treasured it. One day when I really need a hug, probably when the two of us are in the middle of a blazing terminal row, I'm going to cash it in, but until then it sits on my shelf and gives me a bit of a warm feeling every time I look at it. To me it has real value and the reason it has value is because I completely trust my daughter to deliver the free hugs when I present the voucher. It has "currency" because we love and trust each other and in that realisation you begin to understand money.
Under the gold standard, the UK pound and the currencies of the empire used to have the same currency as my daughter's voucher because the bearer could present a pound sterling banknote to the Bank of England and be given gold in return.
In the shadow of that promise, a promise from the bedrock financial institution of the British Empire, the paper on which that promise was written had value because it represented a promise from a trustworthy institution to deliver something of set value.
The empire came off the gold standard in 1931, and since that day the currency we use in Australia, as you will see if you have a look, now represents not gold, but an assurance from the governor of the Reserve Bank of Australia and the Secretary of the Treasury of Australia that "This Australian note is legal tender throughout Australia and its territories". In other words, if a debt is owed then this note may be used to legally satisfy that debt in Australia and its territories.
Well, that's good enough for me. It means that if someone refuses to take my notes or give me notes, and demands or tries to deliver something inconvenient like goats instead of dollars to satisfy a debt, Glenn Stevens will back me up and Glenn Stevens is the sort of chap I can trust.
The integrity of all Australian money would be at stake if he didn't and the consequences of that would be simply appalling for Glenn, let alone the rest of us. Basically, if Glenn gave me a voucher for free hugs I'd rank the value of that very close to Jemima's.
And that's money, a relationship between two people. It used to have a hard currency value, gold, but now it is worth no more or less than the strength and integrity of the relationship of the holder and the promisor and the confidence of the party holding the paper that the other party will deliver on whatever they promise.
On that basis it might amuse you to begin assessing how much "money" you really have in terms of the relationship you possess with it, rather than its face value. Rarely is a dollar worth a dollar. For instance:
You lend $1 to the village idiot. How much is it worth now?
You put $2000 into a TAB account. What would your spouse value it at?
You give $10,000 to the CEO of an exploration company.
You borrow $500,000, add $100,000 of cash and buy a $600,000 house (double or triple these numbers depending on your suburb). How much is your $600,000 worth now, or next year?
You put $1 million of superannuation money, your future, in the hands of a flotilla of managed fund managers across the world who you've never met. How much is your million dollars worth now?
You buy ?205 billion of Greek bonds.
The Greeks have done untold damage to the original implication of the word "bond". Money is a relationship based on trust, whether it's with the village idiot or the property market, and the easiest way to add value is to constantly assess and improve the relationships you commit your money to.
Jemima and I work on our relationship every day because you don't get free hugs taking relationships for granted, not in this market.