Many of my readers aren’t just here to marvel at the stupid stuff I blurt out sometimes with regards to financial independence. No, being quite the little investors they are, most of them are actually looking for new investing ideas. It’s true too that stock markets hold no secrets to this diverse group of financially savvy people. As such, they own small pieces of profitable businesses all over the world.
With that comes the difficulty of having to deal with multiple currencies. Personally I own stocks denoted in Euros, US Dollars and Great-Britain’s Pound-Sterling on multiple stock exchanges. Lots of personal finance blogs, mainly those geared towards dividend growth investing, therefore offer at least one or two articles on how to deal with foreign currencies and currency risk.
That’s all fine and dandy of course – seriously, read up on that stuff if you’re an international investor. However, I always find myself thinking “oh, man if only they thought outside of the box of what a currency actually is.” So that’s why it’s high time that I published my own take on the meaning of a currency. Let me therefore start by stating the following.
There’s a new currency in town, folks, and it’s called Time. (I told you I blurt out stupid stuff sometimes!)
Time as a currency
Seriously though, forget about Euros and Dollars for a moment and think about what a currency actually is and does. In essence it’s nothing more than a medium of exchange: “I give you x amount of currency in exchange for product or service X, Y or Z.” After our currency changes hands you will be able to do the same with another person. And so on and so forth.
For a couple of centuries now people within geographically delimited areas have been using a system of money as a currency to provide eachother goods and services. Euros, Dollars and British Pounds serve as different types of currencies withing those systems of money.
We do so for convenience. It’s impossible to exchange two goods or services of equal value every single time a transaction takes place, so we collectively establish the value of an intermediate type of currency. One Euro is one Euro, whether you’re from Belgium like me or from France.
Now consider what would happen when society as a whole rejects the previously established currency. One possible outcome is what happened in Germany when it was hit with horrible levels of inflation. People actually started trading time instead of the Deutschmark. While that sounds convoluted, it’s quite an ingenious solution to devastating inflation. You could for example offer your hairdresser 30 minutes of woodchopping in return for a 30 minute haircut.
One major flaw
Sounds great, right? Sadly, there’s one major flaw to using time as a unit of exchange. Not everyone values time the same way!
First, some people are lucky enough to possess more valuable skills than others. Basically, they earn more per hour. There will always be more people who have the skillset to drive a truck, whereas very few people know how to heal someone’s failing heart. Therefore a heart surgeon trading two hours of his time with a truck driver mainly sounds like a pretty sweet deal for the truck driver.
Second, the liquidity of time is much more limited than that of traditional money and currencies. If I trade you €10 for a book, you’ll be able to use that money at any given time in the future, whereas I won’t always be able to trade you my time at any given moment – even I need sleep.
Pretty stupid idea to use time as a currency then? I thought so too for quite some time until I learned about Optimum Currency Areas (OCA), a model pioneered by Robert Mundell. Basically, an OCA is a geographical region in which using a single currency would result in maximum economic efficiency. The best known examples in this regard are the European Euro and US Dollar.
As most of you know the Euro area isn’t doing too great these days, with many economist pointing out that the Euro fails to comply with the theory of OCA. It’s true that the Euro area fails to meet the the criteria of labour mobility and risk sharing, for example. Without going into too much detail, there’s one proposed solution to this problem that I really like: separating the means-of-payment function from the currency-unit function of the Euro.
Such a solution would mean that you can still use the Euro to pay in all Euro countries, but its actual value differs from country to country like with other international currencies. I suggest that we all indivually apply the same separation to the money we own: even though one Euro is worth one Euro to everyone, its underlying value is defined by you personally in a certain amount of time.
Cool story bro
Well done, NMW, you scared everyone away. That’s a lot of difficult theories to explain we should calculate our hourly wage working our day-job and decide if purchasing something is worth x amount of your worktime. You’ll still be paying in Euros or Dollars (means-of-payment), but inside your beautiful mind you’ll be trading away time spent at the office (currency-unit).
Is that brand-new €600 smartphone worth 50 hours or 6.25 days at the office to me? Does it make sense to spend almost 30 hours every week working a job to provide myself with housing? Am I nuts for trading 20 minutes of my time for a special Belgian abbey beer?
Those are the questions you should be asking yourself everytime you reach for that fat stack of bills in your wallet. When you’re trying to become financially independent, it’s not only about value-for-money anymore. It’s about value-for-time.
If you’ve ever wondered how I got to save about 70% of my income the past few months, this is how I did it. Don’t think about money as being money, but as being time. €12 is not €12 to me, but the equivalent of 1 hour. Next time you’re going for a haircut, don’t think about how much it costs, but think about how long you’ll be chopping wood at your office to pay for your brand-new hairdo.
You’ll be surprised how liberating it is to know you resisted the urge to splurge on something you didn’t need when that means you could be spending less time at your job. I could actually be working two days every week and have enough money to go around. Notice how that’s the exact opposite of what most people’s workweek looks like: five days at home versus five days at the office.
Like I said, there’s a new currency in town. It’s Time. It’s awesome. And you should definitely try it. Or maybe you already are?