INTERNATIONAL ECONOMICS Fixed Assets, or: Why a Loan in Yap Is Hard to Roll Over

Question

INTERNATIONAL ECONOMICS Fixed Assets, or: Why a Loan in Yap Is Hard to Roll Over Applicable Concept: fanctions of money YAP, Micronesia On this tiny South Pacific island, life is easy and the currency is hard.. . . [T]he fro currency is solid as a rock. In fact, mall changes. it is rock. Limestone to be precise. whale's tooth. Thry also can buy arerstones where tbey are and things with yar, a currency made make a mental accounting that the large seashells, but these are wership has heen transferred. The worth of stone money The people of Yap have been oesn't depend on size. Instead, the For nearly 2,000 years the Yapese have used large stone wheels to pay for major purchases, using stone money ever since a Yapese warrior named Anagumang was to get them here. first brought the huge stones over such as land, canoes and permis from lmestone caverns on neigh- tages to using massive stones fon sion to marry. Yap is a U.Ss boring Palau, some 1,500 to 2,000 mn. They are immune to black- territory, and the dollar is used inyears ago. Inspired by the moon, market trading, for one thing, and he fashioned the stone into large hey pose formidable obstacles to circles. The rest is history Yapese lean the stone wheels Buying property with stones is against their houses or prop up "much easier than buying it with o of them in village "banks." U.S. dollars," says John Chodad, Most of the stones are 2 1/2 to 5 who recently purchased a building feet in diameter, but some are as ANALYZE HE issu 1. Explain bow Yap's large stones much as 12 feet across. Fach has a hole in the center so it can be pass the three tests in the defin- “We don't know the value of the U.S. dollar. 2. Briefly discuss Yap's large betel-nut ree and carried. It takes Stone wheels don't make good pocket maney, so for small an20 men to lift some wheels. actions, Yapese use other forms of currency, such as beer. stones in terms of other desir- able properties of money. By custom, the stones are hear people on Yap musing about than risk a broken stone-or Besides stone wheels and beer, Source: Art Pine, Fixed Assets, Or Why a Loan in Yap Is Hard to Roli Over" Wal Street Jowrmal, Mar. 29, 1984, p 1. Reprinted by permission the Yapese sometimes spend gaw, wanting a piece of the rock. Rather consisting of necklaces of stone beads strung together around a back-Yapese tend to leave the

Explanation / Answer

1.

In economy money serve four purposes, medium of exchange, store of value, and unit of account, and standard of deferred payment. Like all other commodity money also has its own price. The price of money is the opportunity cost of holding money in cash. If people hold money in cash rather than in bond they had foregone the interest rate that could have been earned from bond. Thus, the price of money is the interest rate in the economy.

The stones are used as medium of exchange in large purchases, such as land, canoes etc. The stone has unit of account as property or canoes can be converted into the size of stone, like 30 inches stone to purchase a property. The stones have store of values as they are not moved frequently from one place to another and the owner make mental calculation and used them in purchase accordingly. The stones does not loose its value unless its broken.

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2.

The stones can be used as standard of deferred payments as loans are written in money value. The bonds and other loan agreement is stated in amount of stones the borrowers owe the lender. As the citizens does not carry them from one place to another, each lender makes mental note of ownership and spend and lend accordingly. The currency is hard to carry thus does not poses the threat of pick pocket and hard to hide thus does not give rise to black marketing or illegal transactions.

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