GDP Made simple (2)

Let’s see if I can express myself on my perception of this in let’s say an Hour.

Aii…..let’s do this.

I rambled in the first part on how it can be easily interpreted that money is a farce. It’s not as real as it seems to be. In dollar terms, it is a decimal unit to quantify present value, past value and for prospecting future value. It is an umbrella. A time machine of sorts. So the more stable the price tag of those assets of value a particular currency backs, the more stable the currency above other currencies…ceteris paribus. Case in point is the United Kingdom. The UK has quite the stable currency in part because of the stability of the economy. Growth per capita still exists, inflation also. But the central banking system ensures stability. All these on the backbone of a productive population. Trade doesn’t stop, research into trade doesn’t stop, trading for and against future trade to make a profit doesn’t stop. The mill doesn’t stop. Eureka right.

The banking system ensures this by running businesses with invisible money, which in turn allows the economy grow. When this gets to capacity, the central banking system declares inflation, blah….more blah (It’s a whole other topic). So, going by this we can assume that money is a store of value (I just giggled like hell. My bro’s chic was named Money. Store of value bro). So whenever you compliment a woman by saying “you look prettier by the day” *smug look*, you could as well say “you look a million dollars” *smileyface*

Inflation in this context lets you understand the fascination of the central banking systems and executive government over the term. It is actually not as simple as I’ve made it seem. If it were, why would all the intellectuals at IMF, World Bank, AfDB, ADB, and Brookings seem not to get enough of the term? I kid you not, there is an index of reasons.

Have you now wondered what happens if I take a million dollars out of Nigeria, assuming I earned that money in Nigeria through my fantastic entrepreneurial skill of baking cakes. You were with me till I said baking cakes right? I don’t have the figures on what Bakers who own their own sweet shops make, but I have valued Nellies (Same healthy food Nellies in Lagos) with my friend with very limited information and skillset. Let’s just say you wouldn’t mind being a baker if you can get your marketing right. Ceteris paribus.

So, baking cakes and cooking. Let’s keep it simple. When you take a million dollars out of the bakery, the business may fold up in a ‘worst-case scenario’ or may be forced to take up financing from other sources to keep those banana bread loaves warm. Money (the currency, not the chic) would be needed to pay EKO Disco bills, buy flour, fruits probably from the Jos plateau(you must keep potato porridge cheap by running cheap logistics on fruits and vegetables), you may also supply schools dessert so that mechanic that you consider a cheat may finally build a house on your head and so on. I paint this scenario assuming it’s a profitable $1m in running capital bakery. So assuming you fear for the worst in Nigeria, withdraw $1m in cash from your bank and move to Ghana. You have transferred $1m cash value physically across the border. Now the business in Lagos can’t pay salaries before they get re-financing. But who sets the terms and conditions so there can be equity and fairness on repayment of financing. You don’t want a city as Lagos filled with marauding Shylock’s. So the need for strong institutions to regulate the system or else, people who lack money would become slaves to those who have a lot of it. In the present day, the central bank of Nigeria is one of such institutions. They use principles of economics hinged on mathematics to set interest rates. This assumes the economy grows at a particular rate based on an existing index of variables (both quantitative and qualitative). When you understand these principles in full context, you understand why individuals try to beat the system which is referred to as making a profit.

Now, that $1m in Ghana is domiciled in a bank and therefore engaged to pay salaries, used to engage other productive factors and the economy grows because its attractive to individuals who want to work and those who want to spend what they have earned working elsewhere(say Nigeria) which basically is tourism. So the $1m attracts $2m over 3yrs which is domiciled in the local bank (Say Kwame Nkrumah Bank KNB) which then creates loan portfolios on the money thereby earning more money. Simple example; they give money to the local civil engineer who plans to build vacation homes for Nigerian tourists. The beachfront houses would be valued at a set price agreed upon by KNB and the Engineers firm which would take into consideration extra costs incurred and foreseeable profits. The money is domiciled in the bank and stands as a guaranty that construction workers and suppliers would be paid. The first phase which cost $500k is 20 single unit bedsitters on a private beach. Good marketing, security, friendly locals attract middle class Nigerians who desire serenity away from Lagos. A weeks’ stay cost $1k, so potentially the 1st phase can earn $1.04m a year. The trick here that helps KNB grow is to ensure that the $2m/annum business grows and remains their customer to ensure deposits remain with them even after making their profits from existing interest rates. This would ensure productivity of available labor.

This gives a glimpse on how money works and why some countries are quite strict about taking money out if their domain. Hence money laundering laws (It’s not nearly as simple as I’ve painted it to be). However, there are always ways to cheat the system. I love the term crowdfunding. It shares risk and responsibility to minuscule amounts that can be overlooked by a majority of the population (Demography helps). Look at various ways crowdfunding is employed and tell me you don’t love it and I’ll tell you whatever comes to mind e.g. Tax, Religious offerings, FMCG, Facebook, Dubai. You see the big picture?

I’m particular about Dubai which would lead me to China. Stay with me. It would be a quick one.

Emirati’s have been blessed with balanced policy. They made Dubai into a hub. Come they say, spend your money for some thrill and Adrenaline. You have arthritis? Oh bummer…We can fix that. Come to Dubai Healthcare city. You like to Shop but only favor Italian leather? We have the Armani hotel! But you have got to go when you’re done. Go work a bit, earn some more and we would show you an amazing time for $2k in 5 days. Emirate airlines ensures it’s an international cargo and human transit hub via huge subsidies. Smart way to crowdfund the financing of a city? That’s the backbone of tourism. This has greatly impacted on the GDP of the UAE with positive growth and improved standards of living for Emirati’s.

Now China. They are reviving the ancient Silk Road in the $900b OBOR which would control a huge amount of global trade. This would cover a geographical territory which technically isn't Chinese lands, but where would the money be domiciled?

Who would own and control it?

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