Greece and the Sociology of Money

The sociology of money provides an illuminating discussion about the connections between uncertainty, trust, and stability; a trio that is particularly relevant as we think about Greece and its current battle with the Euro zone. For Georg Simmel, considered one of the founders of sociology, money has important implications for society. To become a base for economic exchange, money requires a “civilized social order” with stable social relationships that provide protection of value.

Two Types of Trust

Simmel writes that money relies on two types of trust: trust in the issuing government and trust that the money received will hold the same value when it is used next.

This argument places an emphasis on the role of the state to back money. In other words, without institutional backing to support a stable social order and guarantee money’s value, money cannot work as a medium of exchange. At the same time, a functioning monetary system signals trust in the economic system. Simmel writes, “[t]he feeling of personal security that the possession of money gives is perhaps the most concentrated and pointed form and manifestation of confidence in the socio-political organization and order” (p.179).

The two-fold trust that Simmel deems as necessary for functioning money has disappeared in Greece. The feeling of personal security that is linked to money has evaporated as trust in the issuing government has dissolved due to the uncertainty surrounding the current crisis. Perhaps more importantly, the trust that money will have the same value in the future has been eroded as the uncertainty of Greece’s status as a Euro zone member leaves people wondering if Greece may have to return to the (devalued) drachma.

Bitcoin

This is where things get interesting. As Greeks’ trust in their government has waned, some have turned to cryptocurrencies as a way to ensure the value of their money. Cryptocurrencies, like Bitcoin, are decentralized and have no government backing them. This confronts Simmel’s argument head on by asking, do we really need institutional backing? Could money function with a collective backing instead?** Cryptocurrencies, like other forms of money, still rely on trust. It is just that the trust in this case has shifted from the government to the collective group of cryptocurrency users.

In a talk I attended recently, Susan Athey, an economist, noted that cryptocurrencies like Bitcoin have become seen as a store of value. The finite number of “coins” available can be used as a way to guarantee value during times of economic instability. However, Athey points out that people tend to exchange their money in and out of Bitcoin quickly; their money does not linger in that form for long. Not many businesses accept cryptocurrencies and most people exchange Bitcoin to a government-backed currency to make a transaction. Will the Greek crisis change this?

This could be an interesting moment for cryptocurrencies and their sociological implications.

The decentralized form may be a safer way to store money during this turbulent time in Greece. In fact, the (only) Bitcoin ATM in Greece is still working even as brick and mortar banks are closed and limiting ATM transactions. Of course, there are caveats to the system – first people have to trust a faceless group of users and hope that cryptocurrencies won’t suddenly lose value. Second, use of cryptocurrencies requires access to technology and people have to keep track of a unique code that is required to access their money. If someone loses their code, then they can no longer access that money, and it’s not like they can call a bank to get a reminder of what it is. The logistics of Bitcoin and others may make the currencies inaccessible to many citizens, limiting adoption, as Marketwatch points out.

I don’t think the current phase of the Greek crisis will be a watershed moment in the cryptocurrency trajectory, but it is certainly calling attention to the idea.

Further Reading

**Bitcoin and other cryptocurrencies exist as a secure, public ledger noting each transaction. Each user receives a copy of the ledger, and this enables a collective form of control. Unlike gold, cryptocurrencies are seen as a service where the price is determined by supply and demand, rather than having a determined physical, intrinsic value. Susan Athey has a great three part series that breaks down how cryptocurrencies work.

Simmel, Georg. [1907] 1990. The Philosophy of Money. Second Edition. New York, New York: Routledge. See, in particular, pp. 170 -190. 

For a discussion on Greek adoption of Bitcoin and other cryptocurrencies see:

Kelly, Jemima. June 16, 2015. Bitcoin Surges as Grexit Worries Mount. Reuters. Accessed June 29, 2015.

McKenna, Francine. July 2, 2015. For Greece, Bitcoin is More Talk than RealityMarketwatch. Accessed July 3, 2015.

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