Jens Weidmann: Money creation and responsibility
Speech by Dr Jens Weidmann, President of the Deutsche Bundesbank, at the
18th colloquium of the Institute for Bank-Historical Research (IBF), Frankfurt, 18 September
"2. Money and money creation
I wish to begin with a question which appears trivial at first glance but which, as experience has shown, is particularly difficult. What is money exactly? A succinct response from an economist would be: Money is what money does.
As money is defined by its functions, various instruments are fundamentally capable of acting as money, as long as they can be used as a medium of exchange, medium of payment and store of value.
Shells were previously used as money in some countries, for example, as were furs, salt or pearls. Livestock could also serve as money – the Latin word for cattle is “pecus” from which the word “pecunia”, meaning money, is derived. Concrete objects have served as money for most of human history; we may therefore speak of commodity money. A great deal of trust was placed in particular in precious and rare metals – gold first and foremost – due to their assumed intrinsic value. In its function as a medium of exchange, medium of payment and store of value, gold is thus, in a sense, a timeless classic.” To gold they tend, on gold depend, all things!”, says Margaret in the First Part of Goethe’s Faust.
However, the money that we carry around in the form of banknotes and coins no longer has anything to do with commodity money. Money has no longer been linked to gold reserves since the US dollar was removed from the gold standard in 1971..."