Hey, Vsauce. Michael here. On Earth
the average piece of currency changes hands
about 55 times a year. That's about once a week.
With that kind of turnover, it's safe to say that statistically
in the United States out of every 100 pieces of currency
one was most likely touched in the last year
by someone who within the next year will commit murder.
But how much cash,
how much physical currency is there on
earth?
First things first, how much cash
is inside of bank? Well, according to the FBI,
the average successful bank robbery involves 10,000 dollars.
But that's usually just currency from the tellers
tills. In their vaults, the average bank might have anywhere from 10,000
dollars
to a 100,000 dollars with some larger banks at times
carrying as much as a few million in cash.
But what about in our homes? How much loose change do we all have scattered on
dressers
or lost under cushions? Well, it's tough to
accurately figure out the exact number and many of the estimates vary.
Last year, Lloyds TSB announced that in the UK
the average person has about £14.15 just
lying around. A recent survey by VISA looked at a bunch of countries
and included cash left at home, the office,
and in the car. Their figures are a tad higher,
but agree with the US Treasury's estimate of few years ago
that the typical US household has ninety
to a hundred dollars just laying around,
which means that if just everyone in America scrounged up all of their loose
change
and put in one place, they would have 15
billion dollars. That's enough to fund
357 more seasons of Arrested Development.
But we are asking about how much cash
there is on the entire planet. Well, that amount has a special name.
It is called M0.
It's an aggregate of all coins and banknotes.
DollarDays.org's most recent estimate
values this total amount, considering all currencies in countries,
at just slightly over the equivalent of 5
trillion US dollars. That number,
the value of all of the currency on Earth,
M0, is huge. But believe it or not,
it represents less than 10 percent
of all of the money we humans have available to spend
right away. To explain, we should look at how
money is born. In pretty much every country on Earth,
one of the ways new money can be born involves
a central bank. Now, let's say that in our country the bank is run
by Jake from Vsauce3. He's really smart
and he pays close attention to our economy. If he feels
that an increase of the money supply would help us, well,
he can just make more money.
It's that easy. It doesn't need to be printed as currency
to be born. The next step involves the commercial banks,
like the Bank of Vsauce. These are the banks that you and I use.
All the central bank needs to do is buy some things from these banks using the
money it just made
and now the commercial banks have more money. There's another way money can be
born.
It involves commercial banks and gets to the heart of our question.
If I go to the bank and deposit 5 pounds,
the bank says fantastic, we will hold on to this money for you
and at anytime you want, you can withdraw or spend
these 5 pounds. The thing is, legally,
banks only need to reserve a fraction
of the money that they are given. It is known as fractional reserve banking
and it pretty much happens in every country. It means
that if someone else comes along, like, say, Kevin from Vsauce2
and he wants to borrow some money, say, 3 pounds,
the bank can lend him 3 pounds. And now, whenever he wants he can
spend these 3 pounds. But here's the thing:
Kevin can spend 3 pounds and I can spend 5
for a total of 8, despite the fact that there are only 5 pounds
in the bank. New money has been born.
And if we want to count all of the spendable money
on Earth, we're going to need to include this type of money, the kind that
fractional reserve banking
creates. If we include that kind of money,
we are now talking about a number much larger than
M0. Economists call this figure
M1. M1 includes all
physical currencies, as well as money that people can access quickly,
like money in checking accounts. Globally,
across all countries and all currencies, M1 is
estimated to be the equivalent of 25
trillion US dollars.
M2 is an even broader definition of money
and it includes things that you can't necessarily spend right away.
For instance, savings accounts or CDs
under a hundred thousand dollars. M2, globally,
is currently estimated to be the equivalent of 60
trillion US dollars. Finally,
M3. This is a broad definition of money that includes
all currencies, banknotes and coins, checking accounts,
savings accounts, small CDs and really big, long time deposits.
In the American economy, the Federal Reserve doesn't even report this figure
anymore,
but as a measure of eventually spendable wealth it's real
and if we consider M3 the global money supply
that gives us a figure that is equivalent
to 75 trillion
US dollars. Of all that money,
how much of it is yours? Well, last week
over Twitter, Mark Boadey introduced me to Global Rich List
dot com. Enter your salary and figure out how you stack up
against everyone else on Earth.
By the way, you can act just like a central bank
and control the money supply yourself.
It is illegal, but you can technically increase the money supply
by counterfeiting and you can decrease the money supply
by subtracting money. For instance,
burning it. If you burn your own money,
you become poorer, but because you've decrease the money supply,
the power of everyone else's money goes up and they become a tiny tiny bit
richer. Of course, given the amount of money
on Earth and the amount that you could probably get your hands on and burn,
your effect will be quite imperceptible.
One the largest amounts of cash ever burned was done by KLF,
who in the nineties for reasons
no one's still quite sure of, burned a million
pounds worth of cash. It took them about
2 hours to burn all of that cash and they recorded the act
on video. You can also destroy money
by eating it, like the rapper Tyga did. But
you probably shouldn't do that either because money
is dirty. A study published in Applied and Environmental Microbiology
reported that the flu virus can survive on cash
for 1 hour to 2 days.
And other studies have found that about 7 percent of cash
carries viable strains of dangerous bacteria,
like those the cause pneumonia or those that come from
feces. That is a lot
of germs and those germs might be high.
Studies have found that 92 percent of banknotes
are contaminated with traces of illegal drugs, typically
cocaine. In London that number has been as high as 99 percent.
All it takes is for a few exposed
bank notes to circulate normally for all of the cash
to become contaminated. Locked within the fibres of a banknote,
there's an average of 28 micrograms
of cocaine, which means that in 5,000 banknotes,
there's enough cocaine for an entire
line. These drug traces are nearly impossible to remove from bank notes,
so there's little risk of the drugs transferring to your skin.
However, they can be detected by drug sniffing dogs
and, on more than one occasion, courts have forced police to return confiscated
cash,
because even though drug dogs detected drugs on the cash,
that's just how cash is.
As if that wasn't enough, cash is
also not nutritious. Termites can eat cash,
but to us humans, the ones who love this stuff so much,
cash as we know it today and, for that matter, money
doesn't really have any intrinsic value.
In a post-apocalyptic world, where nothing was stable
and survival was a challenge, food,
clean, water, AMO, weapons, antibiotics, machines,
fuel, the trade and exchange and gifting
of those types of things would be our economy.
When what you use as money has an intrinsic value, it's useful
in and of itself, it is known as commodity money.
It can also include precious metals, like gold,
whose rarity makes it likely to be accepted by other people
for goods and services. Now, when you can safely store all of your commodities in
one place
and you don't need a defend them or lug them around everywhere,
representative money often makes more sense.
Store your valuables in a trusted place like a bank
and get some slips of paper from them, saying "yeah, I
own that stuff." Now you can walk around with some easy to carry slips of paper
and use those to buy the things that you want.
We are now closer to what we call money today.
I say closer, because almost all money that we know of today
doesn't represent any actual useful commodity
anywhere on Earth. This note doesn't represent how much food or water or gold
or spices or video games I have stocked up in a bank,
it just is money.
It's called fiat money. Fiat is Latin for "let
it be done." And that kind of authoritative command is exactly what
gives fiat money
its value. The people who make it have decreed
that it is valuable. Why?
Just let it be done. Because of this,
the value a fiat money depends on everyone believing
that the people who make it will continue to exist and have the authority
that they already do. This means that the value of fiat money,
unlike other commodities, can be erased
by force. Let's imagine that you live in America and have a lot of dollars.
Great job. Well, technically, Canada
could invade and declare that the US dollar will no longer be accepted
at all. Well,
shucks. You now have a bunch of paper, which at best
is a incomplete deck of famous American
flashcards. The important distinction here
is that invading Canadians could technically
erase the value of fiat money.
But nothing they said or did could make a commodity,
like gold, less valuable. Other countries would still be glad to take your gold
and in return give you their own, still valuable,
currencies. No amount of force
or authority or laws or rules can make a commodity like potable water
any less important to drink or gold
any less rare. On the other hand, the value of
fiat money depends on our beliefs,
what we think. So long as we all believe
that fiat money is valuable, it is.
This happens all the time. What we believe,
what we think we know, can actually cause those things
to become true. Actual people, real
objects, the way the universe works and deities,
like Zeus, can exist all by themselves, whether we know about them
or believe in them. But some concepts
require us to believe in them for them to be real.
And if no one believes in them, they literally
aren't true. It's called the Tinkerbell
effect, and the value of fiat money is an often-cited example.
But what's really cool is the fact that there are situations where
our convictions can actually destroye
the very thing we believe in. It's called
the reverse Tinkerbell effect and it describes the situation,
whereas more people believe something that
thing actually becomes less and less
true. For example, the idea that driving a car
is safe. As more and more people believe this,
more people will go out driving and they are likely to drive less cautiously,
ironically making driving less
safe. Another example would be the idea that
in an election your vote matters. As more and more people believe this, more people
will go out and vote
and the individual weight of each vote will go down.
It took hard work and tools
to build civilization and find cures and explore our solar system,
but we should keep in mind that without doing anything at all
we are still capable of creation.
By merely believing in something we can make it
actually truly real.
Other things can actually be destroyed,
if we merely believe in them.
Can you believe that?
And as always,
thanks for watching.