Is Cash Really An Asset?

cash management
Long time back, I think it was when I was studying Economics, I came across a story, perhaps hypothetical, I don’t know.

It was about a tiny African country where inflation has soared to such an extent that to buy a loaf of bread you would need a huge bagful of cash. The currency of that state was valued so low.

There were 2 brothers who had inherited quite an amount of wealth from their father. One of them squandered his wealth in drinking. And the older brother was very meticulous and stored away all his money in cash. And then inflation hit the roof.

All the cash of the older brother could buy them food for a few days. But the empty bottles of the younger brother were worth more than all the cash they had.

Now, I am not advocating drinking here because gaining wealth by losing your health is actually a very bad deal in life. The poor with good health are much happier.

But the point I am making here is, that the hoarders of cash are going to have a hard time because that isn’t “real” wealth.

We know it now because of the PM’s announcement yesterday suddenly making Rs 500/- and Rs 1000/- mere pieces of paper. What was wealth yesterday has suddenly become waste today.

However, those who use pieces of paper to invest in “real” wealth will not have their net worth suddenly eroded.

Cash is not wealth. It is merely a medium.

The history of hoarding and sharing:

Till the time we used the barter system, we had to compulsorily share. Why?
Because all the “currency” was in perishable form – whether it be foodgrains, fruits, vegetables, even cattle to certain extent. You can’t hoard them for long.

But then we invented currency, which made it easier for people to hoard. So now there is no compulsion to share.

Earlier when we used to share, there was a better distribution of wealth and less difference between rich and poor. There were very few poor who couldn’t have a square meal a day.

But now despite the world being richer than ever before, there is also unimaginable poverty because there is very little sharing. The difference between rich and poor is increasing day by day.

The lesson we can learn from this is we should be “investing” in “real” assets and not hoarding.

  • Giving away stuff or donations is one part of it. We create “wealth” in terms of a better society and better inter-personal relationships by sharing.
  • Investing your money in creation of “real assets” which appreciate over time is the other part.

Moral of the story: Cash is not an asset. Its just a medium to build “real assets”.

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Is Cash Really An Asset?
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