First let me start with a simple definition of a supply chain – according to Wikipedia, “ A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer”.

Next, let’s refine that definition to incorporate what is meant by supply chain optimization – again, according to Wikipedia, “Supply Chain Optimization is the application of processes and tools to ensure the optimal operation of a manufacturing and distribution supply chain. This includes the optimal placement of inventory within the supply chain, minimizing operating costs (including manufacturing costs, transportation costs, and distribution costs). This often involves the application of mathematical modelling techniques using computer software.

Lastly comes the concept of yield management – according to Wikipedia this is defined as “Yield management, also known as revenue management, is the process of understanding, anticipating and influencing consumer behaviour in order to maximize revenue or profits from a fixed, perishable resource.”

Now some of you may argue that currency by definition is not exactly a “perishable resource”. However I would challenge that assumption based on two facts: first – currency deteriorates in fitness and eventually perishes and: second – currency that is neither in circulation nor available to be in circulation has at least perished temporarily.

Therefore my simple premise is this – the yield of a note or coin (yield in this case meaning the interest or profit that can be earned from a piece of circulating currency) is directly proportional to its velocity (the speed with which it moves through our hands). In some countries the yield is also related to quality – simply because distributors (commercial and central banks, primarily) can charge different distribution fees according to the quality of the currency. In other words, in some regions of the globe there is a demand for better quality.

To tie the concepts of optimization and yield together as it refers to currency we need to understand the need for money. Without some form  of money we would have no way to trade. Without trade we would have no commerce and without commerce we would have no way to better our station in life. Betterment of our situation is as fundamental to the human condition as breathing – we all want to succeed and make a better life for our communities (communities of family, friends, neighbours, countrymen, etc.). Therefore the faster we can make money move the more opportunity we have to profit from that movement. Yet there is an inherent risk – yield can also be negative! If we don’t understand the nature of currency or respect its fundamental influence on all societies we are doomed to experience only negative yield – loss not profit.

In today’s complex world we need the assistance of (at least simplistic) artificial intelligence (aka computer software) to assist us in managing this supply chain. Obviously commercial banks can benefit from such applications. Less obviously and for substantially different reasons central banks can benefit from these applications. Latterly and least obviously cash centric businesses (retailers and casinos for example) can also benefit. Before we can move to a utopia of a cashless society we must master the management of this physical medium. If we don’t we will be the victims of even greater crashes than we have experienced recently – simply because there will be no real medium that governments can use to bail us out. Without a commonly trustworthy medium of value no recovery would be possible.

My advice is to understand the value of currency – whether you live in a glass tower in a large city and “work at a job”, or live in a grass hut on a beach and “work for sustenance” – because one thing is inevitable – currency has always and will always continue to change its nature, value and meaning.

As always – and particularly as a result of this post – your comments are encouraged and most welcome.