The inhabitants of the island of Yap, one of the Caroline Islands in the central Pacific, adopted large, thick stone wheels for money, a primitive medium of exchange that survived into the post–World War II era. The inhabitants called this from of money fei. A study of the operation of this system of currency reveals interesting insights into the nature of money that are relevant for modern monetary systems.
The stone wheels ranged in diameter from a foot to 12 feet and the larger stones were virtually immovable. The hole in the center of the stone wheels varied with the diameter of the stone, and the smaller stones could slide over a pole and be carried. The stones were quarried from Palau, about 260 miles away, and sometimes from as far away as Guam. Stones could serve as fei only if they were made of a fine, white, close-grained limestone.
One of the interesting characteristics of this currency was that the owner did not have to take possession of it. In transactions involving these large stones, a buyer would give ownership of the fei to a seller in return for goods. The seller, however, would not actually take possession of the fei, but would leave it on the premises of the buyer of the goods. A mere acknowledgment that the seller owned the fei was all that was needed to signify its new ownership.
The logic of the Yap monetary system went so far as to acknowledge the wealth of a family on the strength of the ownership of a very large stone that had been lost at sea for several generations. According to tradition, an ancestor of this family had secured this fei and was towing it home on a raft when a storm rose, and the stone ended up at the bottom of the sea. Because all aboard the ship towing the raft testified to the size and quality of the stone, and that it was lost at no fault of the owners, the inhabitants of Yap agreed that the stone belonged to the family that lost it and that its market value remained unimpaired. Therefore the family enjoyed the purchasing power of this stone just as if it lay on their own property.
Another interesting anecdote related to the Yap monetary system occurred after the German government purchased the Caroline Islands from Spain in 1898. The German government wanted the natives of Yap to improve the roads and make them suitable for more modern vehicles. When the natives rather obviously neglected to improve the roads, the German government was faced with finding a way to fine the natives. Since removing fei was difficult, and the stones had no value outside of the island of Yap, the German government hit on the idea of sending an agent around to paint a black cross on the most valuable stones to signify a claim of the German government. The natives of Yap immediately set to work to improve the roads. After the German government was satisfied that the roads were improved, it sent an agent around to remove the crosses, and a great rejoicing rose up among the natives.
The value of the primitive money on the island of Yap depended upon the faith of its inhabitants. The idea of accepting money on faith must seem ridiculous to modern-day advocates of a gold standard as the necessary backbone of any paper-money system. The acceptance of paper money in our modern economies, shorn of the assurance of the gold standard, requires that people have faith that government will not mismanage the money supply, causing it to lose its value from inflation.
Angell, Norman. 1929. The Story of Money.
Friedman, Milton. 1992. Monetary Mischief.
Gillilland, Cora Lee C. 1975. The Stone Money of Yap: A Numismatic Survey. Smithsonian Studies in History and Technology. No. 23.