Money must flow

On the David McWilliams Podcast this week (episode 141) the subject was Bitcoin. More specifically it was about whether Bitcoin is money or not. David McWilliams explained his view that it’s not money because people hoard it rather than spend it. (The premise of the show is that David MacWilliams, a professional economist, explains current economic issues to his childhood friend, and the show’s producer, John. It is like listening in to two friends having a chat about the news in a bar or cafe. Check it out.)

This reminded me of something a tour guide said to my family and me when we were on holiday in India. It is something that has stuck with me for almost 15 years. Whenever we were at a tourist site, or passing by street hawkers, the guide, Ramesh, would say, “Money must flow.”

It’s a simple phrase but it resonated with me. If we spent our rupees on postcards, souvenirs, drinks, or whatever else then the money would flow into the community. In this way our tourism would help local people and the money we brought from England would circulate through the community.

I think this is what David McWilliams was getting at. I have choices about what to do with the money I earn. I could save it for the future and I might do that by converting the cash into bonds or gold or anything else I think will hold or increase its value. To that end I could buy some bitcoins or other digital assets like the non-fungible tokens that have appeared recently for works of art. 

Alternatively, I could spend the money. If I am going to spend the money, I can see why I might convert it into rupees, or dollars or euros or some other currency depending on where I plan to do the spending. Would anyone convert their money into bitcoin with the aim of spending the bitcoin? Well, perhaps criminals would, but would regular citizens do that? I think not.

Next time you are in a souk in north Africa, or outside a tourist attraction in India, or in a desert town in the Andes, remember that money must flow: spend your money with local people and local businesses. And give generous tips to your tour guides!