The island of Yap is found among the archipelago of Caroline Islands in the Central Pacific, and is renowned for its stone money, which has remained in use up into modern times.
Much of the limestone used to create this unique form of money was wrought from quarries on the islands of Palau hundreds of miles away, where it was carved into circular discs. Traditionally, these were then transported on perilous overseas voyages in tribal canoes, after which they were introduced into the economy of Yap as a preferred and prestigious form of money.
The Creation & Valuation of the Stone Money
According to one story, the stone money originated after a group of islanders was lost at sea during a fishing expedition, and accidentally discovered certain islands several hundred miles away from Yap.
The quarrying and crafting of new stones was undertaken at the behest of the tribal chieftains— so in this limited sense, they had the authority to expand the money supply. Unlike central bankers under fiat money systems, however, the authorities' ability to create more money was sharply limited by the immense efforts and intensive manpower required to make the dangerous overseas canoe voyages to Palau to quarry and craft the stones, and then bring them safely back to Yap for use as money.
As might be expected, the value of many of the traditional stones increased along with its size and weight, as long as it was carved using authentic Yapese shell tools. The stones were also valued based on the unique history of each particular specimen. The quarrying, carving, and transportation of a large stone was a monumental undertaking, involving a great deal of effort and danger as the specimen was transported overseas in canoes. In some cases lives were lost during battles between rival chieftains over the stones, or during the long overseas voyages, causing the economic value of each particular specimen involved to rise.
After being brought back to the island of Yap, the largest stones were rarely ever moved, even if they changed ownership. In at least one notable case, one of the large stones never even made it back to dry land on the island, but was still accounted for in the island's economy. According to this account, one of the canoes being used to transport a giant stone back to the island of Yap sank in the middle of the ocean, and the stone sank into the depths. However, the stone itself was still acknowledged as being deposited on the seafloor, and consequently remained eligible for a legal claim to ownership, and for active use as money on dry land.
The islanders have also used pearl shells, mats, and ginger as money, but the stones carry the greatest prestige as marks of high religious and cultural status, even if they are not the most commonly used currency. The limestone money was used by chieftains to buy lands, purchase alliances with other tribes, to redress grievances, and even to buy wives, among many other transactions.
Stone Money as a Unit of Account & Store of Value
In some cases, valuable stones were used as a sort of security deposit. If, for example, an islander wanted to fish in someone else's waters, he could deposit a rai stone with the proprietor of the fishery in question. After the fisherman paid the proprietor a satisfactory percentage of the fish from his catch (to pay for the privilege of using the owner's waters), the stone money on deposit would be restored to the original owner's sole possession.
The giant stones (i.e., those that were so large that they weighed many tons, and were immovable without assembling a large amount of manpower) functioned similarly to gold held in a secured vault: Even if the giant stones were unavailable for regular exchange, the immobile stones functioned as a store of value and a unit of account (as well as measures of their owners' wealth and prestige). One islander could transfer ownership of his giant stone's monetary value in a large transactions with other islanders. But often, only the claim to ownership changed in such cases: The giant stones themselves almost always remained physically immobile, just as gold ownership sometimes changes hands without the physical gold ever leaving its vault.
Stone Money in the Modern Period
The very largest of the stones were apparently quarried by the islanders under the direction of a certain Captain David O'Keefe. After being shipwrecked on the island in 1871, O'Keefe became wealthy and powerful among the Yapese by creating more stone money using imported tools. He also succeeded in setting himself up as the islands largest trader, and enjoyed that position for thirty years until his death in a typhoon. By some accounts, O'Keefe had even used his stone money to purchase his own island, of which he was considered "king," and a dramatization of his life, "His Majesty O'Keefe," was made into a feature film starring Burt Lancaster.
When Captain O'Keefe returned to the island after his initial adventure as a castaway, he brought a large number of stones to the island, seeking to profit in commodities. O'Keefe used the newly introduced stone money to buy copra— coconut kernels, from which oils can be extracted. The foreign specimens were accepted in trade, but ultimately ended up being discounted to distinguish them from the older stones acquired using traditional shell tools and long overseas voyages, which were valued at significant premiums. The stone money was consequently subject to less inflationary pressure on Yap than was often the case following foreign introduction of new supplies of money, such as the inflated supply of cowry shell currencies elsewhere in the world.