Money in the form of coins and paper is not as stable as you might think. Fiat money – currencies issued by governments – are only as valuable as people trust they are. However, that trust is fragile, and in the wrong conditions, a loss of confidence in money causes its value to drop.
When money fluctuates unexpectedly it can threaten the economic growth of countries, as well as citizens’ quality of life. Alternatively, ‘stable’ money allows people to save more securely.
You need stability for true financial security. It means you can predict what’s coming, prepare, and plan long term.
Money is at the foundation of our society. It allows you to purchase groceries, fill up your car and pay your bills. If your money is not stable, how can your daily life be?
Money as you know it right now is not stable. When you buy and sell goods and services, the value isn’t fixed indefinitely. Costs change year after year. If your currency is stable, your purchasing power shouldn’t change with time. But if your currency is unstable, the value of your money can fall: that means you have to spend more to buy the same amount of goods, and your savings decrease in value. When prices rise but your currency’s value doesn’t rise accordingly, this is inflation.
Remember that money can be printed by governments. The more money they put into circulation, the less it’s worth: this is a primary cause of inflation.
Right now, the US central bank is printing money at a fast rate in response to COVID-19, leading to fears that the US dollar will drop in value.
Money is in a state of flux all the time.
So why is it important we have stable money?
Humans cannot operate efficiently in an unstable system. Access to financial services can become limited or more expensive. Citizens with lower incomes face unfair disadvantages when it comes to starting a business or buying real estate – worsening inequality across the population. Savings become unreliable, threatening personal well-being.
Unstable financial systems also isolate countries from the international financial system, as other countries are less likely to cooperate with them.
A stable and trusted monetary system essentially makes society a fairer place.
Remember how money is only as valuable as people believe it is? There is always a correlation between money losing its value and a loss of trust. For years, every time a currency has become unstable, there has been a weakening of trust in the financial system.
Only 55 percent of people trust financial services: that means nearly half of the world doesn’t have faith in how money is distributed, managed, or valued.
In the 1940s, inflation in Hungary caused prices to double every 15 hours. In the mid-1970s, Argentina’s government printed excessive amounts of the peso and saw GDP drop by 12 percent every year. In the 2000s, Zimbabwe had an inflation rate of 98 percent per day. More recently, in 2019, Venezuela’s inflation rate stood at around 10,000 percent a year.
Unstable currencies bring about unemployment, food shortages, debt, and unrest. No currency is exempt from supply and demand, and every currency can trigger the collapse of a society.
When the value of money is consistent, it can be invested back into society. That means more equal access to good quality housing, education, healthcare, and financial protection. People can afford to live comfortably and support their children and dependents.
Stability generates funding opportunities for businesses, new pathways for innovation, and greater freedom to experiment and continually build a better society.