In DS9 (and to a much lesser extent, TNG), the financial acumen of the Ferengi is repeatedly emphasized. Yet they always seem to cart around physical latinum (usually in gold-pressed form in-universe for convenience and out-of-universe so the allegory is blatantly obvious).

In human history, we used to do this with gold. But then someone invented banking, wherein the gold is held in a vault (or other secure location) and you get a paper ticket saying the bank owes you X ounces of gold. Paper is a lot more convenient to carry around than gold, and can be much more secure (with proper implementation). Or it can be totally insecure, in which case you basically have gold-backed currency, though that's usually issued by governments instead of banks.

Then the banks got cleverer and invented fractional-reserve banking, where they hand out more paper tickets than the gold (or gold certificates) they actually have. Normally, this works out all right, though bank runs can be a problem.

Eventually, we got to the point where the paper is no longer negotiable for gold at all. This lends greater stability to the currency since it is no longer directly upset every time there's a shortage or surplus of gold (e.g. because a large mine opened or closed somewhere in the world). There are counterfeiting problems, particularly in a world with replicators, but you can solve that by doing everything electronically with strong cryptography, which is just a scaling up of what we do today.

But the Ferengi don't seem to have followed this process. They're still at the "everyone carries gold around in person" stage. Why haven't they invented banking or fiat money yet? I'm particularly interested in in-universe reasons, since the out-of-universe reasons seem rather straightforward to me, but if anyone has any direct quotes or other good sources, I'll take those too.

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    "Why do the Ferengi still use latinum as currency?" You mean, instead of Bitcoin? – 15742 Dec 3 '15 at 6:29
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    I'm bad at lore-mining, but several times in DS9 "accounts" on Ferenginar are mentioned, by various characters. – Sean Boddy Dec 3 '15 at 6:39
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    @SeanBoddy: That's certainly interesting, but I'd still want to know why they exchange physical latinum when they're making a deal. – Kevin Dec 3 '15 at 6:49
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    Now I'm interested in what the Federation banking system looks like. – Mast Dec 3 '15 at 11:09
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    There is no strong cryptograhy in star trek. – CodesInChaos Dec 3 '15 at 11:26

The other answers definitely raise some good points, and are no doubt part of the decision, but I think the answer is a little more straight forward, and consists of two parts.

  1. The Ferengi are shown repeatedly to be a somewhat vain group, so the ability to physically display currency, to "flash your cash" if you will, would be very appealing. Having your money as just numbers would give less opportunity to boast.
  2. In order for a fiat currency to work, you have to be able to trust the issuer. I could invent my own currency right now, and legally I could issue it and trade in it, but very few people would actually use my currency because they don't trust me (and as such my currency would be meaningless). The one thing you can say about almost every Ferengi, is that they are untrustworthy. As such, who do you trust to issue the currency? The Nagus cannot himself do that on top of his other duties, and any other Ferengi would abuse the position to consistently. With something like Latinum, you cannot arbitrarily make more, and you don't have to worry about your holdings being suddenly devalued to nothing because the Fiat Issuer of Ferenginar suddenly decided to give himself, and his 100 closest associates, a massive one time issuance of currency.
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    I'll give you USD 0.50 right now for 10,000 Emersonbux. (EBX 10 000) – Todd Wilcox Dec 3 '15 at 15:10
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    All the issues in point 2 are directly addressed in bitcoin. Lack of trust is handled by consensus across a distributed network. Fiat value is determined by the market and not the issuer. Issuance is not possible in any form besides mining, which itself is an incentive to maintain the consensus of the network. – 16807 Dec 3 '15 at 16:19
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    @ToddWilcox What's the exchange rate to Stanley Nickels? – Random832 Dec 3 '15 at 16:52
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    @16807 Interplanetary bitcoin is harder than it looks. In Star Trek, whoever controls the subspace relays that make the distributed work viable would be able to undermine the currency strategically (introducing delays, etc.) to make physical-goods purchases with bitcoins that are destined to be invalidated. The same trust/counterfeiting problem of fiat currency returns. Since Ferengi don't trust each other, FerengiCoin based on even modern cryptocurrency technology + FTL comms is not feasible. – SevenSidedDie Dec 3 '15 at 18:05
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    @ Emerson Isn't latinum an untraceable currency, too? I would think the Ferengi would appreciate that property very much. – SevenSidedDie Dec 3 '15 at 18:17

Frequent dealings with other cultures

There is no evidence that the Ferengi do not use banking systems or fiat money.

As interstellar commodities traders, the Ferengi seem to deal frequently with members of other cultures who may not participate formally in the Ferengi banking system. (Quark is often caught by Odo while waiting for some trader from outside the Ferengi Alliance to pass through the station.)

Suppose you were to meet aliens today, and you wanted to do business with them. They may not care for your Dollars or Pounds Sterling. But they may be swayed by some of your precious metals.

I posit that gold-pressed latinum is useful for conducting business with other cultures, especially given the rarity of it:

Rule of Acquisition 57:  Good customers are as rare as latinum. Treasure them.

The Ferengi are constantly doing business with outsiders, and so it makes sense for a serious Ferengi trader to have gold-pressed latinum on hand.

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    Quark pays Rom in latinum ("The Homecoming"). Why doesn't he direct deposit? Surely the Ferengi of all races would have low or nonexistent payroll taxes, and we know there's no minimum wage ("Bar Association"), so why pay him under the table? – Kevin Dec 2 '15 at 23:05
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    Because they're on a Federation(-ish) station? The Federation doesn't really deal with money, and I doubt they'd have a bank that Rom would find useful. (I'd hate to see off-planet Ferengi ATM fees.) – user3757614 Dec 3 '15 at 1:22
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    @ThePopMachine : But they may not want a record of some of these "transactions" --- latinum is useful for this, too. – Praxis Dec 3 '15 at 2:31
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    @ThePopMachine: I could buy that as tradition or a cultural thing. Maybe the processing fees aren't worth it if you're only giving someone a single slip? – Kevin Dec 3 '15 at 4:44
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    @Kevin: Well, you can argue your way out of any counterexample if you're willing to speculate on almost anything. Sure, it could be. There could be Yodas all over the Enterprise-D and we were just never lucky enough to see them. OK, that's extreme, but you get the point. I don't think we get the luxury of ignoring counterexamples on the basis that "I can imagine a way that counter example doesn't apply". – ThePopMachine Dec 4 '15 at 16:30

In a future in which a species have perfected matter/energy replication, you have to take mass counterfeiting into consideration. If your primary means of currency can be perfectly (and infinitely) replicated, it no longer has any value, and you would have out of control inflation, which would destroy the economy.

This eliminates any possible physical monetary currency except something that cannot be replicated, and as per Memory Alpha, Latinum cannot be replicated. This makes it a perfect anti-counterfeiting measure for a currency.

While I don't recall a specific reference to banks in the Ferengi Alliance, you can assume that if one existed, there would still be a need for physical currency, considering in our "primitive" society now we have virtual money via ATM's and credit, yet we still have a physical means of exchange (paper/coin currency).

And lastly, if there is a banking system, why do Ferengi keep so much latinum around. There are 2 possible scenerios as to why they keep the Latinum around.

  • In the grand scheme of things, we see very few Ferengi, and the ones we do see spend most of their time offworld. It is hard to deposit physical currency in your bank if you do not have easy access to the bank, which means you need to keep it around until you can deposit it.
  • Alternatively, in a society that accumulation of wealth is so important, you have to consider that hacking/theft of a virtual currency to be a serious concern, thus many Ferengi may choose to keep their savings liquid.
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    @Kevin - There are very serious concerns that fractional reserve banking specifically, and debt based capital economy in general, are a Bad Thing for the species survival (and I'm not talking about fringe conspiracy theorists - see Nassim Nicholas Taleb's books). – DVK-on-Ahch-To Dec 3 '15 at 0:51
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    @Kevin I'm certainly not an economist, just a consumer - but when you consider everything, it seems that currency based on something that can be easily created without any effort is not good because it means the currency has no value. Forgetting everything else, when you have a currency based economy in a civilization that can create matter our of "thin air", you need a currency that cannot be created in that manner. – psubsee2003 Dec 3 '15 at 0:58
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    @Kevin Growth of the money supply is only actually necessary insofar as the currency is finitely divisible. Basically, as the economy grows, the increased production will make any particular unit of currency more valuable, which can lead to a situation where there's no unit of currency small enough to make certain purchases. Whether you handle this by creating more currency or by hacking your current currency into smaller pieces doesn't really matter, except that creating more lets those doing the creating siphon value from everyone else and so is, historically, the most popular method.. – Perkins Dec 3 '15 at 1:27
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    @Perkins: No, that isn't it at all. Deflation incentivizes saving and disincentivizes spending, while inflation does the opposite. Think of it this way: Would you rather spend $100 on a new TV today, or buy it tomorrow for $50? But if everyone is saving money, this slows economic growth and discourages certain kinds of riskier investments (e.g. stocks, venture capitalism) in favor of safer investments (e.g. bonds, CDs). Eventually the slowed growth will slow the deflation, and you get a full economic cycle. But it can be quite unpleasant in the short term. – Kevin Dec 3 '15 at 1:31
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    But, back to the original subject: Any Ferengi worth his lobes knows precisely what he would do if he were in charge of issuing currency, and that is inflate it like there's no tomorrow and keep all the profits for himself. Which is why he won't store anything more valuable than his mother's life savings as fiat currency and insists on being paid in latinum or similar relatively-fixed-value commodities unless he's certain he can convert it in short order. He might trust a bank to store it for him, but would probably be leery of letting them loan it out. He'll do that himself thanks. – Perkins Dec 3 '15 at 18:19

Throughout Star Trek, Ferengi are shown to have next to no morals whatsoever. If Ferengi made a bank system, it would collapse instantly. There would be basically nothing stopping the banker from taking cuts of the profit (ie, embezzling). Or just stealing it altogether. While one rule of acquisition says that Ferengi aren't supposed to break contracts between other Ferengi, the first and maybe most important rule of acquisition obviously shows how investments are not a good idea:

"Once you have their money, you never give it back." - First Rule of Acquisition

There's also the factor of desire and accumulating wealth. Ferengi want to have everything, and when they temporarily give their money to somebody else for safekeeping, it's like the banker gets to brag about the money instead of the actual rich Ferengi.

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    The banker taking a cut of the money is sort of the whole point of fractional reserve banking... – Kevin Dec 3 '15 at 4:47
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    @Kevin I mean in the sense of pocketing extra cash for no reason at all, ie in the form of embezzling. – Scratchifier Dec 3 '15 at 4:49
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    "Next to no morals whatsoever"? Quark would beg to differ. I don't remember the title of the episode, but I do remember him chewing out Sisko at one point, essentially saying that for all that the Ferengi make humans feel uncomfortable because they remind humans of dark parts of their own past, the Ferengi never got into slavery or wars of conquest. That implies that not only is there a moral code among the Ferengi, it's sufficiently important to them that he feels he can judge Sisko (or humanity in general) by it, if only to make a point. – Mason Wheeler Dec 3 '15 at 16:03
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    @MasonWheeler The Rules of Acquisition pretty much are Ferengi morals. Why engage in a war of conquest when you can instead sell weapons and armor to every side in a conflict (more profit than only selling stuff to your own side, plus you encourage an arms race to make even more money)? Though while Ferengi may not keep slaves, their treatment of women as second-class citizens isn't much better, so that one might just be Quark being pedantic. – JAB Dec 3 '15 at 21:25
  • It might be more accurate to say that unlike most human moral codes, Ferengi morals encourage, rather than discourage, (most forms of) theft. – MrTheWalrus Dec 3 '15 at 21:29

They probably have developed a system of derivative financial vehicles and thus have a history like ours, replete with examples that demonstrate over and over that all such systems are inherently unstable over the long-term.

The long, steady history of failed financial systems is why bankers who institute such systems still hold a physical reserve of land, gold, equity stakes in ongoing concerns, government bonds, and occasionally a paramilitary service to back all that up in the real world (right up until a system becomes radically unbalanced, like now, for example). When things crash they use these concrete assets as a base to rebuild from. This remains true whether the money is based on agriculture output, involatiles, or a basket of values, and whether the banking system is private, nationalized, or a mix.

Q: "How do you beat inflation?" A: "Convert liquid values to concrete ones."

Perhaps part of the Ferengi financial wisdom is the fundamental understanding is that it is worth the trouble to cart around a certain portion of physical wealth that is readily convertible under all circumstances and during or after nearly any crisis scenario.

But that would indicate they are a "survivor race", and many disasters are either still within living memory or deeply engrained in a financially-flavored "winter is coming" culture ("the bust is coming").

I think out-of-universe, though, the writers just needed a tongue-in-cheek lampshade for the Greedy Jew trope to make the audience understand instantly that there was an entire race of persnickety business-oriented characters.

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    I now have a mental image of Quark dressed in a fur coat and brandishing a longsword. +1 – Wolfie Inu Dec 3 '15 at 11:43
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    @WolfieInu Now my own mind is infected with this idea. I'll never be able to see Ned Stark (and by extension Boromir) in the same light again. – zxq9 Dec 3 '15 at 12:18

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