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In preparation for this week's blog, I asked my partner, 'If there was one thing you wish you knew about finance, what would it be?' To my surprise, her question was, 'Is money real?' I know, it sounds silly. But, the truth is, millions of people across the world have the same question in mind, partly because it’s such a peculiar innovation deeply intertwined with every aspect of our daily existence. On a scale from 'Not Important' to 'Essential', money stands alongside oxygen and teenage girls hunting for tickets to a Taylor Swift concert (and surprisingly, even grown adult men are not exempt from this).

To answer that question, we must first define 'real' in this context. If it's something purely physical, money doesn’t fit the bill. In our digitized world, over 90% of what we label as money exists solely as electronic digits in databases.

The Evolution of Money's Value

Today, our monetary landscape is predominantly digital. In fact, $60 trillion of global money amounts to less than $6 trillion in physical currency. From the creation of the shekel (the first known form of currency) 5,000 years ago by the Mesopotamian people to digital currencies like Bitcoin and Ethereum in the 21st century, this thing we call money has been in a constant state of evolution. In today’s world, you don’t even need to have money in your bank account to make a purchase, all thanks to the convenience of systems like 'buy now, pay later'. Yet, there is a gray area as to whether money is genuinely real, and more importantly, how it is created.

How is Currency Created?

Money creation involves a complex process orchestrated mainly by central banks. Essentially, when a central bank wants to increase the money supply, it can purchase financial assets, typically government bonds, from banks. In return, the central bank credits the banks' reserve accounts, effectively injecting new money into the system. This process expands the available funds for lending, allowing banks to loan out more money than they initially had in reserves. As these loans are made and subsequently deposited, the cycle continues, amplifying the overall money supply within the economy. This process is known as fractional reserve banking and plays a pivotal role in controlling the money circulating in an economy.

What Gives Money its Value?

Value is derived from the significance we place on an object. In today's world, money plays an indisputable role in determining philanthropic impact, social change, and influence. Those with more money often have greater access to resources and opportunities, leading to advantages in various aspects of life. While money may not be tangible like physical objects, it plays a critical role in modern economies, carrying significant social and economic implications. If we look at Maslow’s hierarchy of needs, access to money and wealth play an instrumental role at each level. However, it's essential to note that true purpose and meaning don’t solely come from the zeros in one's bank account, but rather from living a life of impact and inspiring others.

During my research for this article, I explored Quora to read more about what people had to say on the topic. And I thought it worth will to share the screenshot below.

Purpose Beyond Dollars

To conclude, our societal relationship to money, as highlighted by Yuval Noah Harari in his book 'Sapiens,' has evolved significantly. Throughout our history, money has become more open-minded than language, state laws, cultural codes, religious beliefs, and social habits. It serves as the only trust system created by humans that can bridge almost any cultural gap, without discriminating based on religion, gender, race, age, or sexual orientation. Thanks to money, even people who don’t know or trust each other can effectively cooperate.

- Kondwelani Kalinda, Associate Investment Advisor

Kondwelani Kalinda is an Associate Investment Advisor at Endeavour Wealth Management with iA Private Wealth, an award-winning office as recognized by the Carson Group. Endeavour Wealth Management provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Kondwelani Kalinda who is a Associate Investment Advisor for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained here in may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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