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In 1903, Young American adventurer William Henry Furness III visited the Pacific island of Yap, one of the most remote and inaccessible inhabited places on earth. During his two month stay on the island, he discovered its interesting monetary system.

The coinage was surprisingly unusual. It was a large, solid, thick stone wheel, ranging in diameter from a foot to twelve feet, with a hole in the center. The value of the coin depended principally on its size.

This coin, called fei, was obviously difficult to transport. In fact, Furness observed that transportation of fei was rare even though there were numerous transactions on this island. If a deal involved so much money that it required transporting a heavy fei, a new owner was content to accept the bare acknowledgement of ownership and, without so much as a mark to indicate the exchange, agreed that a transfer of ownership took place. And the coin remained in the former owner’s house.

Furness heard an even more surprising story from his guide. Many years ago, one of their fei had been shipwrecked during the storm while in transit from Babelthuap. The parties involved talked about what happened and everyone agreed that the owner still owned the stone - even if it was at the bottom of the ocean.

I used to think that the essence of money was its function as a medium of exchange. It is not surprising that I believed this because it is what conventional theory tells us.

It goes like this. In the market, people used to have an exchange of equivalence by barter. The problem was that it was difficult to find the other person. Say you had an extra fish. If you wanted to exchange it for something, you needed to meet two conditions: 1) the other person wanted a fish and 2) the other person had what you wanted, both at exactly the same time and place(a double coincidence of wants). At a certain point, somebody had a brilliant idea to use a commodity that everybody thought was valuable as a medium for trading, so that people could exchange any goods. It made trades more efficient at both a personal and societal level.

This story sounds natural and convincing, but the money of Yap doesn’t fit this story. Although Yap had a simple economy, where almost only three products existed - fish, coconuts and sea cucumber - it was not running by barter. If this simple economy was not running by barter, what kind of economy could? Moreover, most of the time, fei were NOT exchanged at all. If it doesn’t have to be exchanged, it’s hard to call this function essential to a monetary system.

As a matter of fact, there is NO example of a barter economy and the emergence of money from it.

But then, what is the essence of money? In other words, what is necessary in order for money to function properly?

Conventional theory assumes that no transaction takes place unless there is a double coincidence of wants, or money as a medium of exchange.

The point is, what happens when there is no double coincidence of wants. Did we really invent money as a medium of exchange then? Don’t we have an alternative solution for this problem?

If you think about it, isn’t weird that two parties give up making a transaction, just because they don’t have what the other party wants at a specific time? In the past, it must not have been easy to meet other people, simply because there was no sophisticated transportation technology.

My assumption is that, instead of waiting for someone to come up with the idea of currency, they invented the concept of debts/credits. They agreed to make a transaction with the prospect that they would pay for debts or execute credits. They simply kept track of who owed how much to whom. People were using credit from the beginning. In fact, this is what happened on the island of Yap.

According to ”Money: The Unauthorized Biography”,

the inhabitants of Yap would accumulate credits and debts in the course of trading fish, coconut, pigs and sea cucumber. These trades would be offset against one another to settle payments. Any outstanding balances carried forward at the end of a single exchange, or a day, or a week, might, if the counterparties so wished, be settled by the exchange of currency—a fei—to the appropriate value; this being a tangible and visible record of the outstanding credit that the seller enjoyed with the rest of Yap.

In other words, fei were just tokens to record the underlying system of credit/debt accounts to implement the process of clearing. It just helped to build a consensus of how much people in Yap owned.

The bottom line is that the essence of money is to keep track of who owes how much to whom. As long as people record information and have a consensus, money functions as money. It doesn’t have to be a medium of exchange. Whereas, it is impossible for monetary systems to work properly without the concept and tracking systems of credits/debts.


Graeber, David. (2012). Debt: The First 5,000 Years. Melville House; Reprint edition.
Martin, Felix. (2015). Money: The Unauthorized Biography. Vintage.
Pagliery, Jose. (2014). Bitcoin: And the Future of Money. Triumph Books.