Today we live in a world based on a unique monetary system. After all, our entire economy is based, in essence, on trust. The cash we use to pay for goods in the store, Visa and MasterCard credit networks, and electronic payment systems like PayPal or WebMoney that allow lightning-fast payment, all exist in our collective imagination and are not supported by anything other than some branched structure of social obligations, in other words, mutual responsibility, based, however, on the guarantee of states and central banks.
As long as this guarantee is strong, money has purchasing power. As soon as it breaks – for example, the state does not keep its obligations or citizens suddenly hear news about a catastrophe, war, or banking crisis and decide to withdraw all their savings or start spending cash quickly, expecting that tomorrow they will depreciate – and money will lose value at breakneck speed, becoming literally cheaper than the paper it’s printed on. To avoid such a development of events and control the value of their own currency, the central banks of states pursue a certain monetary policy and accumulate gold and foreign exchange reserves.
Electronic money and payments
Recent decades have been characterized by the rapid development of Information technologies and the Internet.
Fundamentally new technologies of payment transactions appear. These include the so-called electronic money. Not so long ago, few people knew about their existence, but every year they become more widespread. Electronic money has many advantages over cash, in particular, high-speed transactions, low transaction costs, portability, and the ability to ensure anonymity and confidentiality of transactions.
Increasingly, people prefer electronic cards and non-cash payments. It is convenient and reliable. But not in times of crisis, when a simple power outage and absence of the Internet will block access to electronic money and payments.
Will we be able to use such popular global EPS as PayPal, E-gold, and WebMoney, when in times of crisis, electricity, communications and the Internet will simply disappear? Of course not. In addition, it is not known whether monetary institutions will exist at all.
But what exactly will exist – at least at the very beginning – is paper money. Therefore, it is very important to have a certain amount of cash in case of crisis. Of course, there are many nuances.
Having cash in times of crisis means you aren’t reliant on banks or a steady power system to access your finances. Global and local crises can have a significant impact on the value of cash, and there is a question of whether it is better to keep cash at home or in the bank. You must approach the subject of how much cash to have on hand carefully, just as you would any other financial decision.
The same suggestion is wise in times of global instability. However, keep in mind that withdrawing funds from your investments could have a big influence on your future prosperity. Your spending policies will become hazy during a crisis. However, do not panic and switch the majority of your money to cash.
Having tangible money in your wallet is vital. Keeping cash at home ensures that you have immediate access to finances to meet your fundamental necessities. To avoid sounding overly pessimistic, it could be good to have cash on hand in case our banking system or electricity grid are affected by hacking attacks, destruction, or blackouts.
We also have no idea how the financial sector will react. If people begin to panic, banks may cut cash withdrawal limits.
The amount you’ll need is mostly determined by the cost of living in your neighborhood, the size of your family, and other considerations. Think about the other dangers of having cash on hand, such as burglary. We recommend having a respectable quantity of cash, ranging from $300 to $1,000. This may not appear to be much, but it would be sufficient to obtain essentials or other necessities for a short period of time.
Cash is, in the end, the monetary equivalent of your needs: an emergency preparedness kit, gas for your car, etc. Just be careful not to put too much emphasis on cash at the expense of your long-term security. In a panic, converting the vast majority of your assets to cash could have long-term impacts.
But if the crisis worsens, even cash will lose its value, and then it will be possible to get the desired things for survival, such as food, clothing, and medicine, only with the help of barter or commodity money.
Barter and commodity money
For many millennia, the only way to get what you want was barter, that is, the exchange of the necessary goods in volumes that could satisfy the interested parties.
Human history is very thrifty, so barter exchange, as such, did not at all remain the prerogative of the past, on the contrary, it flourished not only in primitive societies but also in developed countries during times of crisis, devastation, and wars. Historic examples include alcohol, tobacco, gold, silver, salt, and some other items.
In crises, most likely you will have the opportunity to exchange goods. As history shows, alcohol, gold, and cigarettes are always in the top ten most demanded things for exchange, even though in an emergency there are more significant things. But they can always be exchanged for water, medicines, and other goods on which your survival directly depends.
No one knows exactly what scenario the money crisis will develop in your area. We hope that our analysis will significantly help you determine the algorithm for dealing with money in a critical situation.