Money is not real

by | Oct 12, 2022 | Investment | 0 comments

Andrew Ritchings is a Family Office Consultant and Private Investor at Thomas Kelly Holdings

A common criticism of holding cryptocurrency is that it’s not real money; its value tomorrow could crash if sentiment changes. What’s more interesting about this notion, though, is that it shines a light on the flaws of fiat currency. As we saw recently, the Great British Pound crashed overnight because of a lack of faith in the UK government.

Both are systems of exchange. Money is a way to conduct a transaction by having a middle-ground token. The system relies on everyone believing in its purpose in order for it to keep a steady value. If it doesn’t have a steady value, you may switch to gold or tangible, useful assets instead.

Because money doesn’t hold inherent value and isn’t tangible, it can be severely manipulated. If I lend £100 to a friend with 20% PA interest, I will have created £20. When entire countries do this with each other, they quite literally create this money out of thin air. Whilst the money itself may not feel real, the changing of its value is, and the people responsible for this are the Bank of England.

Money has become an IOU

Around 97% of the money in society is created through bank loans, with physical notes and coins making up around 3%. 99.5% of government COVID debt was matched by the Bank of England’s money printing. Without getting into the fact that the majority of stock trades derivatives, a contract that promises a future transaction (a bit like an IOU), it’s clear that most of the money circulating in society is debt. Much like a pyramid scheme, it requires more debt to be created in order to pay the interest off, making it a self-compounding, self-replicating system.

It does raise the question, then, that if money is so easy to create - like the ~£5,000 spent per person in the UK on COVID measures - then why are homelessness and food banks rife in the UK? We can afford foreign aid and a large military budget, yet food bank usage is on the rise…

Well, there’s one more element to the equation that we’re missing. When more money is created, that currency gets devalued, which is another word for inflation. When almost everybody in the UK was given Eat Out to Help Out vouchers, many restaurants increased their prices. When supply increases and something gets less scarce, its value drops. If the Pound drops in value, it will require more of it to buy the same amount of goods, hence why inflation (rising prices) indicates a currency becoming less valuable.

So, when framing the questions of where the government wants to spend its money, it’s more of a question of what is worth taking out more debt and potentially inflation for. The one benefit of inflation is that whilst your money’s value is decreasing, so is your debt’s value.

As an individual, all of this can be quite overwhelming. Is it even worth understanding, or are we better off living in the illusion that money is a real, tangible thing? Well, whilst we don’t need to get bogged down too much in concepts, we need to be aware that inflation and deflation are very much real, and that we are at the mercy of the Bank of England’s orchestration of it.

The threats of the Kwarteng and the Bank of England

In order to understand the catastrophe of Kwasi Kwarteng’s mini budget, we need to understand that there are either contractionary or expansionary economic policies. Here’s a very brief breakdown.

Expansionary policies

  • Tax cuts
  • Government spending
  • Reducing base rate
  • Quantitative Easing/printing money

Outcomes of expansionary policies

  • Drives growth, productivity, employment, and inflation
  • Devalues currency
  • Increases debt

Contractionary policies

  • Raise taxes
  • Cut spending
  • Increase base rate

Outcomes of contractionary policies

  • Cool off inflation, reduce consumer spending, increase consumer saving
  • Increase currency
  • Decrease debt

The UK is currently in a time of low unemployment, high consumer spending, a falling GBP, and high inflation, meaning most analysts would expect some contractionary policies. Kwarteng’s mini budget proposed the exact opposite, and this threat to inflation has caused the pound to crash further and investors to pull out of the UK.

The Bank of England, knowing the contrarian approach of the mini-budget, has proposed it will need to drastically increase interest rates (contractionary policy) to counter Kwarteng’s mini-budget. One is pouring water on the flame whilst the other is pouring petrol.

This poses huge threats to all of us in the UK who are looking to build wealth. Firstly, the fall in the pound will mean we can buy fewer USD-denominated stocks and investments for our money. Secondly, inflation and the cost of living crisis will in theory continue because of the tax cuts (although a U-turn has been proposed on some of them) which can decrease our savings rate. Finally, our debt will become much more expensive, with mortgage repayments skyrocketing if/when the BoE does continue to raise rates.

Reacting to new inflationary threats as an investor

Clearly, UK consumers, homeowners, and investors are severely out of alignment right now with the British government. Even the tax cuts, which would be expected to be popular among the wealthy, were heavily rejected causing investors to pull out of the pound. Our life’s work is to grow our wealth and pass it down to our children, meaning we need to remain flexible and adapt to policies and economics accordingly.

Earlier, we mentioned that money is a “system that relies on everyone believing in its purpose for it to keep a steady value”. Currently, this remains true for the pound, but much less so now than 10 years ago. Furthermore, holding any form of cash during inflation means we’re losing money because 8% inflation means our cash is worth 8% less each year.

Our money can be put to work in other ways; ways that are a hedge against the pound. For example, fine wines, cask whiskey, and gold are all tangible and (arguably) useful assets that will hold their value. It’s rare that tomorrow’s sentiment on cask whiskey will crash because it’s actually a real ‘thing’.

cks are one of the best inflation-beating assets around, but they’re still vulnerable to the risk that inflation can cause in isolation (currency risk and market crashes). In volatile times like this, diversification is vital, mixing both evergreen and tangible assets with equities and bonds. Fixed Income Loan Notes are also bound to yield more from the base rate rises because money is now more expensive.


When we look at the price of stocks, we can judge their price based on fundamental analysis. Is it worth that price? When looking at crypto and forex, you'll notice that nobody focuses on this, because there is no inherent value. There is no productivity, dividends, future cash flow, or profit forecasts. All there is, is momentum and price patterns.

This sums up the dangers of money. There is no guarantee around its price stability, and it’s in constant fluctuation because of market sentiment and the Bank of England. Mitigating these risks is to invest in alternative assets with an underlying value, such as cask whiskey and commodities.

We can also look at the current economic climate and the cost of money. If the risk-free rate of return rises (i.e., the yield we can get with minimal risk), then we should now expect more return for our higher-risk assets. Furthermore, we need to consider liquidity during a time of crisis, like the regular income of Fixed Income Loan Notes and dividends.

Please visit for more information on Cask Whiskey

This Article is based on the views of the author is not nor should it be deemed to be advice.


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