DeFi and the Future of Finance
by Campbell R. Harvey, Ashwin Ramachandran, Joey Santoro, Vitalik Buterin and Fred Ehrsam · 23 Aug 2021 · 179pp · 42,081 words
Barter was highly inefficient because supply and demand had to be exactly matched between peers. To solve the matching problem, money was introduced as a medium of exchange and store of value. Initial types of money were not centralized. Agents accepted any number of items such as stones or shells in exchange for goods. Eventually, specie
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.”1 Modern coinage came much later, first emerging in Lydia around 600 BCE and providing what we think of as today's functions of money: unit of account, medium of exchange, and store of value. Important characteristics of money included durability, portability, divisibility, uniformity, limited supply, acceptability, and stability. Bank notes, originating in China, made their way to Europe
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key problem with any digital asset: you can make perfect copies and spend them multiple times. Blockchains allow for the important features desirable in a store of value, which were never before simultaneously present in a single asset. Blockchains allow for cryptographic scarcity (Bitcoin has a fixed supply cap of 21 million), censorship
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and new dinars Source: Central Bank of Iraq The features of Bitcoin that we have mentioned – particularly scarcity and self-sovereignty – make it a potential store of value and possible hedge to political and economic unrest at the hands of global governments. As the network grows, the value proposition only increases due to
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, cryptocurrencies, which can have varied use cases based on the construction of their networks. Bitcoin itself, we believe, will continue to grow as an important store of value and a potential inflation hedge over long horizons.11 The original cryptocurrencies offered an alternative to a financial system that had been dominated by governments
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holds identical quantities of 100 of each asset and naively offers both at a fixed exchange rate of 1:1. We use ETH as the unit of account to track the contract's return on its holdings and any impermanent loss. At the given balances and market exchange rates, the contract has 200
What's Next?: Unconventional Wisdom on the Future of the World Economy
by David Hale and Lyric Hughes Hale · 23 May 2011 · 397pp · 112,034 words
can derive the essential characteristics of domestic and international currencies. The classical requirements for domestic money are that it should fulfill three functions: 1. Unit of account 2. Medium of exchange 3. Store of value But clearly an international reserve currency that is used outside its domestic market (for example, for trade invoicing, capital remittances, reserve holdings, or as
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international currency, but also an international reserve currency, it must satisfy four additional requirements: 6. Creditor status. Creditor status is essentially an extension of the store-of-value concept, except that it is derived primarily from the strength or weakness of the management of the government’s fiscal accounts, as well as the
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or Japan. Nevertheless, another problem for sterling is that it has tended to be viewed as a volatile currency, which makes it unreliable as a store of value. Given these shortcomings, a provisional conclusion is that despite the recent depreciation in the US unit—which may lead to some temporary diversification of reserves
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with the SDR The quantity of SDRs issued is not tied to the quantity of the SDR’s underlying component currencies; it is essentially a unit of account for trading obligations in the constituent currencies. At the end of 2008 there was SDR 21 billion outstanding that had been issued by the IMF
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as an international reserve currency? Viewed in terms of the nine criteria for an international reserve currency, China and the RMB currently meet only five (unit of account, medium of exchange, store of value, economic size, and creditor status), while the remaining four (availability beyond home borders, full convertibility, developed financial system, and network effects) have yet to be
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be overcome when introducing such a composite are huge, and they should not be underestimated. The SDR is therefore likely to remain restricted to a unit-of-account role among a limited number of supranational or official financial institutions such as the IMF and central banks. Finally, notwithstanding the current phase of weakness
How Democracy Ends
by David Runciman · 9 May 2018 · 245pp · 72,893 words
have their own currencies, both still have reason to be afraid of the US Federal Reserve. They need the state to provide them with a store of value. Without it, their own value is uncertain. That is why Bitcoin and other digital currencies are so attractive to many technologists – they open up the
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state. Google and Facebook may well have their own money one day, or at least their own money-like equivalent that can serve as a store of value, unit of account and medium of exchange – it is a far more realistic prospect than either ever acquiring its own army. But it is probably at least twenty years away. It
The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory
by Kariappa Bheemaiah · 26 Feb 2017 · 492pp · 118,882 words
: to facilitate trustworthy interactions. If a certain kind of money is to exist, then it needs perform three functions : it needs to be a store of value, a unit of account, and a means of transfer. These three attributes manifest themselves in the form of a currency which is a physical representation of trust within a
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person to accept his money or vice versa. What allows trade to function in a modern-day economy is the fact that we trust the medium of exchange, be it dollars, euros, or anything else. Currencies in general have always been in a gradual state of evolution, with its format varying as economies
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of trust that gives a currency value and allows it to execute its three functions. Fiat currencies lack intrinsic value but still function as a medium of exchange. The value of a country’s currency is set by the supply and demand for country’s money and the supply and demand for other
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how that debt is utilized are therefore topics of great importance. Rather than exchanging currency , most consumers use their bank deposits as a store of value and as the medium of exchange. Once a bank creates money by issuing debt, most people use that money to make and receive payments via their deposits rather than currency
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currencies such as bitcoin) will replace the existing monetary system. But irrespective of any view, we remount to the same conclusion: money is a store of value, a unit of account, and a means of transfer which needs the backing of the state to ensure trust and widescale adoption. In light of the discussion of the
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supporters of private cash was the Austrian economist, Friedrich Hayek, who argued that private agents could use markets to create currencies which were a store of value and a unit of account. According to Hayek, private actors could create a stable monetary system without the need for government intervention. As per his view, the government ought
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of currencies like Bitcoin has been a subject of constant debate and had led analysts to comment that the currency will never be a good store of value since it is subject to large price swings. This is true, but if one were to look at the volatility over the past five years
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word “Blockchain” in the title. 14The three functions of money: i) medium of exchange (money is used as a trade intermediary to avoid the inconveniences of a barter system); ii) store of value (money can be saved and retrieved in the future); and iii) unit of account (money acts as a standard numerical unit for the measurement of value
The End of Money: Counterfeiters, Preachers, Techies, Dreamers--And the Coming Cashless Society
by David Wolman · 14 Feb 2012 · 275pp · 77,017 words
, music, and newsprint are transmuting from atoms to bits, money remains irritatingly analog,” I declared. “Physical currency is a bulky, germ-smeared, carbon-intensive, expensive medium of exchange. Let’s dump it.” Reader responses were . . . passionate. “Wolman is a fascist.... Taking away cash would be like taking away our guns: One needs it
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, this special paper made from mulberry trees circulated freely, enriching the kingdom and turbo-boosting commerce. When people far and wide readily accept the same medium of exchange, opportunities for trade expand exponentially. The emperor had mandated the notes’ pass-ability, while making them redeemable for coinage. Anytime you wanted to, you could
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secret by doting grannies, and stashed safely in colorful lock boxes as we saved up for a new toy. Despite money’s dull textbook definition—medium of exchange, unit of account, store of value, and method of deferred payment—it is by way of cash that we first come to have any understanding of or relationship to this civilization
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decay. What if those feathers start to fall apart, or the dowry payment of five cows just keeled over? Money needs to be a dependable store of value through time. As trade expanded—not just to the next village, but to the next kingdom, country, or continent—the need for consistent value only
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money anymore. Legally they are, sure, but they don’t exactly circulate. A store of value? Practically nil. Medium of exchange? Only if you have a boatload of them, which won’t exactly endear you to whomever you’re transacting with. A unit of account? Technically, but I don’t know anyone who uses the hundredths place in his
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remember about money, says Birch, is that it’s not one thing. “Economists will tell you about all these different functions of money—unit of account, method of deferred payment, store of value and all that.” Looking at money in this way, he says, illuminates the disadvantages and waste from using cash. “Think about how people
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this insult is the fact that the payments are denominated in euros. Apparently not even Iranian or Afghan officials perceive their own currencies as trustworthy stores of value. To borrow a line from Birch: doesn’t anyone else find this at all odd? In a world without cash, financial crime wouldn’t disappear
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debased their currencies can attest. Goods leave the marketplace because no one wants to sell anything if they’re going to be paid with a medium of exchange that doesn’t have value, or that they don’t believe has value, which is essentially the same thing. With that, everything breaks down: paying
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merely adding a few million drops into the ocean that is the money supply. Depending on how finely you slice it, supernotes are real money—medium of exchange, store of value, unit of account, and so on. Illicit, sure, and they do hurt the Little Guy if he accepts one and then loses money because of it. But they
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. Keep the government out of it, as if we are neighbors swapping a rake for a batch of homemade brownies, but by way of some medium of exchange that ensures this is not just barter but commerce conducted with a fungible currency. As author Douglas Rushkoff put it in a Wall Street Journal
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date equals the amount it takes to do so now. But energy units are anything but fungible. How could you ever use them as a medium of exchange when their only two states of being are consumed or lost? A couple of months ago, I received a few dollars off my electricity bill
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their currency in the Islamic world, under the name E-dinar. As one proponent of this e-styled return to a gold- and silver-backed medium of exchange told Wired, suicide bombings aren’t the way to fight Western capitalism. “You want to be radical? You don’t need to blow up the
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barter a car for a chainsaw if you can’t measure their worth.” What I think he means is that people need a commonly recognizable unit of account; we think in dollars, at least for the time being. But that hardly suffices as an explanation of the full ramifications of a MoveUp that
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to have an immovable position as the world’s favorite method of payment for small-value transactions. Finding an equally trusted, fast, and universally accepted medium of exchange to unseat cash’s place within this niche constitutes the final mile before arriving at a fully cashless society. The task sounds so daunting that
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like a banknote—whatever the issuer wants, be it political propaganda, corporate logos, tone-deaf design, or other elements signifying that it’s a trustworthy medium of exchange. With your phone, you could transfer money onto the note, via the tiny antenna nestled in its fibers. The note would “become” of value by
AI 2041: Ten Visions for Our Future
by Kai-Fu Lee and Qiufan Chen · 13 Sep 2021
. If money is demolished because everything is becoming free, it will bring down many key pillars of our society along with it. Money is a store of value, unit of account, and medium of exchange. But more important, we have been taught to accumulate money for centuries, in our pursuit of safety and survival. Money has become a status
The Death of Money: The Coming Collapse of the International Monetary System
by James Rickards · 7 Apr 2014 · 466pp · 127,728 words
the U.S. Treasury was forced to issue government bonds denominated in Swiss francs. Foreign creditors no longer trusted the U.S. dollar as a store of value. The dollar was losing purchasing power, dropping by half from 1977 to 1981; U.S. inflation was over 50 percent during those five years. Starting
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the currencies of its three principal allies—Iranian rials, Russian rubles, and Chinese yuan—because the Syrian pound had practically ceased to function as a medium of exchange. By late 2013, the financial damage in Iran led to an agreement between President Obama and Iranian president Hassan Rouhani, which eased U.S. financial
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1945 and explicitly since 1974, the United States has guaranteed Saudi Arabia’s security in exchange for Saudi support for the dollar as the sole medium of exchange for energy exports and for Saudi promises to purchase weapons and infrastructure from the United States. This nearly seventy-year-long relationship was thrown into
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the three-part definition of money as a medium of exchange, a store of value, and a unit of account. The unit of account part of the definition is useful but almost trivial. Bottle caps can be a unit of account; so can knots on a string. A unit of account is merely a way of adding or subtracting perceived value. Medium of exchange also refers indirectly to value, since each
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party to an exchange must perceive value in the unit being exchanged for goods or services. Two of the three parts of the definition implicitly reference value. The entire standard definition can thus be collapsed into the one remaining part, the store of value. If
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silver. This view misapprehends the role of gold in a gold standard, but for the few who insist that coins or bullion be the sole medium of exchange—a highly impractical state of affairs. All gold standards involve a relationship between physical gold and paper representations of gold, whether these representations are called
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is also used by a number of international and regional organizations as a unit of account. . . . Participants and prescribed holders can use and receive SDRs in transactions . . . among themselves. As money is classically defined as having three essential qualities—store of value, unit of account, and medium of exchange—this disclosure clinches the case for the SDR as money. The IMF itself
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says the SDR has value, is a unit of account, and can be used as a medium of exchange in transactions among designated holders. The three-part money definition is satisfied
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, primarily a deep, liquid bond market. Any currency can be used in international trade if the trading partners are willing to accept it as a medium of exchange. But a problem arises after one trading partner has acquired large trade currency balances. That party needs to invest the balances in liquid assets that
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be, the universal currency of civilized nations. It is not necessary to enumerate the well-known properties which rendered them best fitted for a general medium of exchange. They were used . . . from the earliest times. . . . And when we see that nations, differing in language, religion, habits, and on almost every subject susceptible of
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or energy in any form. It is true that gold is desired by almost all of mankind, but it is desired as money in its store-of-value role, not for any other purpose. Even jewelry is not a consumption item, although it is accounted as such, because gold jewelry is ornamental wealth
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an ounce. In other words, one dollar buys you less gold, so the dollar is down. This highlights the role of the numeraire, or the unit of account, which is part of the standard definition of money. If gold is the numeraire, then it is more accurate to think of dollars or other
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, another 710 tonnes was sold on the market, and the remainder of approximately 2,800 tonnes was retained by the IMF. The IMF changed its unit of account to the SDR, and the pricing of SDRs was changed from gold to a basket of paper currencies. The United States was satisfied that gold
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capital account in order to join and allow the new system to succeed. Participants would be encouraged to adopt the new gold SDR as a unit of account as broadly as possible. Global markets in oil and other natural resources would now be priced in SDRs rather than dollars. The financial records of
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implied, nondeflationary price of gold in a global gold-backed monetary system. Once that issue was resolved with respect to one numeraire, conversion to other units of account using fixed exchange rates would be trivial. Initially, the new system would operate without an expansion of the global money supply. Any nation that wanted
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participating in the new system. Given these constraints on the creation of new SDRs, the system would launch with the SDR as an anchor and unit of account but a relatively small amount of SDRs in existence. The combined base money supplies of the participants would constitute the global money supply, as it
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, when there was a run on Fort Knox, or in 1978, when, because international creditors had begun to reject the U.S. dollar as a store of value, the U.S. Treasury issued the infamous Carter Bonds, denominated in Swiss francs. When pressed harder, Volcker is candid about China’s rise and acknowledges
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, the first party might accept the rope and go in search of someone with nails who wanted rope. In this telling, money was an efficient medium of exchange that solved the simultaneity problem because one could sell her wheat for money and then use the money to buy nails without having to barter
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in the dollar are the dual specter of inflation and deflation, the perception on the part of many that the dollar is no longer a store of value but a lottery ticket, potentially worth far more, or far less, than face value for reasons beyond the holder’s control. Panic gold buying, and
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dollar replaced the gold-backed dollar in stages between 1971 and 1980. In each case, confidence was temporarily lost but was regained with a new store of value. Whether the loss of confidence in the dollar results from external threats or internal neglect, investors should ask two questions: What comes next? and How
Rethinking Money: How New Currencies Turn Scarcity Into Prosperity
by Bernard Lietaer and Jacqui Dunne · 4 Feb 2013
professionals in the field, economists, never actually define what money is; they just describe what it does: how it plays the role of a unit of account, a store of value, a medium of exchange. At present, our unexamined money system perpetuates scarcity and breeds competition. Are you aware that money is created out of nothing, as bank debt
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, Welsh, Scots and Northern Irish; pesos for the Mexicans; yen for the Japanese; and so on. Furthermore, most believe that such currencies are simply a medium of exchange, facilitating transactions that would otherwise take place less efficiently, through barter or other forms of exchange. Thus, money is assumed to be value neutral, not
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not a mere coincidence but, rather, endemic to the discipline. Economics textbooks, for example, define money by what it does, as discussed earlier—a store of value, a medium of exchange, a unit of account—rather than what it is. More important, never questioned is the assumption that the same monetary tool is needed to play all three roles
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. This disregards the fact that some of these roles may operate at cross-purposes. For example, a medium of exchange functions optimally when it is available and circulates
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, but a store of value can result in a currency’s effective removal from circulation. Traditional economics has never decoupled monetary architecture into its constituent
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is acceptable in an exchange. That is why our working definition of money is: an agreement, within a community, to use something standardized as a medium of exchange.2 These agreements manifest in very different scenarios and levels of society, ranging from tokens used among a small group of friends playing cards or
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fiat currencies, debt based, created through the fractional banking system. They are designed to facilitate transactions (i.e., as a medium of exchange), used both as units of account and as savings (i.e., as temporary stores of value), and are particularly well adapted for business and industrial applications and settings. As already seen, the use of interest, especially
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efficiency leads to brittleness and fragility, and too much resilience leads to stagnation. Viewing economies as flow systems highlights money’s primary function as a medium of exchange. From this perspective, money is to the real economy what biomass is to an ecosystem or what blood is to the human body. Money is
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types of money in use within a community: the conventional type, used for both savings and exchange, and cooperative currencies, used only as a pure medium of exchange. Each has its own very different quantity and velocity. Therefore, in this environment, Fisher’s equation becomes: E = (Qs × Vs) + (Qc × Vc), where Qs equals
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velocity of circulation of that kind of money, Qc equals quantity of complementary currency used as pure medium of exchange, and Vc equals average velocity of these complementary currencies. When a currency is not used as a store of value, it will logically tend to have a higher velocity than a currency that tends to be
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) and different monetary functions (store of value versus means of payment).11,12 CURRENCY VERSUS BARTER Given the collective blindness around money, terms are often interchanged in the belief that they are synonymous. Cooperative currencies are typically designed to facilitate transactions, that is, to operate purely as a medium of exchange. But cooperative currencies should not
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cuts to the crux of the issue of conventional money. As it is used as a store of value, there is a built-in tendency to save it, while at the same time it functions as a medium of exchange, meaning it’s supposed to be spent. This juxtaposition of functionality causes a push-pull conflict
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. Conversely, cooperative money, by and large, is designed to facilitate transactions by being a medium of exchange exclusively— nothing more, nothing less. Savings and stores of value accrue using other items, such as savings accounts or bonds denominated in conventional money, real estate, gold, or a charcoal etching
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are more transactions. There are two principal reasons for this. The first is that for the most part the currencies are designed purely as a medium of exchange: They are intended to be spent, not saved. (The addition of a demurrage charge boosts this function as the money “rusts” by a certain date
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, Thailand, and the United States. Australia has many communities actively trading in LETS. One interesting application is QuipShare. The currency, called the quip, is the medium of exchange that enables people to pay for the use of a 78 PROSPERITY piece of equipment without having to buy it. Think about how often one
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money and the market to define value and contribution, they would always be viewed as redundant, throwaway people.”5 Cahn devised a cooperative medium of exchange backed by time. The basic unit of account is a time dollar, equivalent to one hour of service, which can be spent for goods and services that are available within
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the families’ energy and creativity to truly support one another? In my search, I stumbled on time dollars in 2007.”7 Using time as a unit of account, the families are able to arrange a variety of ser vices and all-important social events. Conlan continues: “Many of our families were isolated, especially
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, Guinness among others, issued paychecks in various smaller denominations, rather than one check for the entire salary. That way, they could be used as a medium of exchange, just like cash. Linton added, “Employers, particularly the brewers, started giving paychecks to their employees in denominated checks, and those checks became fully accepted at
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our world today—the multinational corporations—and take into consideration the realities of our present-day geopolitical climate and monetary system. The TRC, with a unit of account called the Terra, is a supranational cooperative currency initiative intended to work in parallel with the current international monetary system to effectively address global issues
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. Government, whether at a local, state, or regional level, can take its economic fate into its own hands and issue a cooperative currency. This cooperative medium of exchange, which can be customized to any given government’s needs, is a currency called the civic. The key component of such a solution is that
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goals and objectives. Agreement as to the nature of these tasks might be reached by canvassing neighborhoods door-to-door or by online voting. This unit of account could be one hour of time, valued at the same rate for everybody. So, for instance, if a city aspires to be greener and more
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the exchange of local currency back into national currency at any time, thus increasing the acceptance of and confidence in this currency as a valid medium of exchange. Ideally, the money would be used in the form of extremely low or zero percent interest loans payable in local currency, further increasing the acceptance
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the town back to work and the economy moving Truth and Consequences 177 again. So he designed the Wörgl currency to function solely as a medium of exchange. To that end, a demurrage charge was applied through a stamp affixed each month at 1 percent of face value. Like all other demurrage charges
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indigenous peoples.5 This coinage was outlawed, however, in the 1950s. “Chinese money, known also as pis bolong in Bali, has circulated as a local medium of exchange here for at least the past 1,000 years and only ceased to be used for local purchases in the early 1970s. Up until that
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Stephen DeMeulenaere, founder of the Cooperative Currency Resource Center and a long-term resident of Bali.6 According to DeMeulenaere, uang kepeng became the official medium of exchange of the Banjar and could be taxed, spent on public works projects, and circulated as a fully functioning currency. Thus its significance to Balinese society
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its independence, that the Balinese were forced to accept the Indonesian rupiah in place of the uang kepeng. “The decline of uang kepeng as a medium of exchange corresponded with a shift in economic behavior toward earning the Indonesian rupiah. Although many significant elements of traditional life remain vibrant in Bali, mostly thanks
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national taxes are being paid. Governance and We, the Citizens 201 The main difference would be that national currencies would lose their monopoly as the medium of exchange. Payments could consist of a mix of national currencies, corporate scrips, or Internet currencies, even in a single transaction. The only places where the national
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, 154 Marginalization, 32, 42– 43, 156, 173 Marginal-productivity theory, 50 Materialism, 48– 49 Medicaid, 12 Medicare, 12 MediCash, 165 Medium of exchange, 57, 58; assumption of mere, 9; choice of, 199; conflicting with store of value, 66; Fisher equation and, 64; in flow system, 62– 63; money defined as, 28, 93; monopoly as, 201; professionals
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wounds of, 18–19. See also specific topics Monoculture, 3, 70. See also Diversity Monopoly: Bell Telephone, 96; of currency creation, 24, 27–28; as medium of exchange, 201; of money type, 63; privatization and, 20–21; state-owned, 128 Morals, 48– 49, 134 Mortgage, 39– 40 Move Your Money, 95 Multicurrency world
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Club, 172 Runaway speculation, 33 Saber, 153–155, 207–208 Sabotage, 192, 194 Sacred wounds of money, 18–19 Safety net, 134, 135 Savings. See Store of value Savings and loan system, 112 Savings points, 110 Sawayaka Fukushi, 166–167 Scarcity, 215–216, 220, 222; fear of, 4; interest and, 37– 40; money
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currency, 196–198 Spice, 160 Square, 115–116 Stamp scrip, 180–181 Sterile reserve, 40 Sternthaler, 88– 89 Stimulus, 23–24, 145–146 INDEX Store of value, 58; conflicting with medium of exchange, 66; Fisher equation and, 64; money defined as, 28; professionals describing, 1–2 Street children, 143 Strike, 96– 98 Stripe, 115–116 Student
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Rabot, 151; in Weimar Republic, 236n10; Wörgl and, 175–178 UN Happiness Resolution, 131 Union, 16, 119 United Nations Environmental Program (UNEP), 144 260 INDEX Unit of account, 58; money defined as, 28; professionals describing, 1–2; time as, 80– 81. See also Terra Trade Reference Currency University, 153–154, 193, 226–227n13
MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them
by Nouriel Roubini · 17 Oct 2022 · 328pp · 96,678 words
major global reserve currency and the creation of an alternative to it that didn’t depend on dollar accounting, dollar payments, dollar funding, and dollar store of value accumulation. Financial wars led by geopolitical shocks and changes in geopolitical power have for centuries led to the decline of some currencies as the global
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of megathreats. How much more unconventional will monetary policies become? What are the potential dire consequences of these experiments? Will fiat currencies survive as resilient stores of value, units of account, and mediums of exchange, or will policy actions debase them and financial innovation displace them? Will financial crises become more frequent and virulent? Will monetary unions such as
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becomes the dominant power, then China’s trading and financial partners may choose to value their goods and services using the renminbi as a primary unit of account. In tandem with that, the RMB will increasingly furnish a means of payment in global trade, a reserve currency for central banks, and an investment
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to many emerging markets deals they’d find hard to refuse: e-commerce platforms; digital payment systems platforms; its currency as a means of payment, unit of account, and store of value; its surveillance systems as a way for autocrats to control their restless masses; and its 5G networks, big data, and Internet of Things solution
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” is indeed a misnomer. Five features that define a viable currency are missing in the case of blockchain-based alternatives. True currencies function as a unit of account, meaning vendors use them to set prices for goods, services, and assets of all sorts. Yet with the value of any particular cryptocurrency fluctuating wildly
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registration fees in crypto, because an overnight fall in value might wipe out the conference sponsor’s profit margins. Debt contracts also require a stable unit of account. Were someone to write a mortgage with principal and interest in bitcoin, a spike in the value of bitcoin would cause the real value of
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etched into every blockchain transaction may improve its reliability, but it does so at a snail’s pace. Another vital attribute makes money a stable store of value not exposed to dramatic swings in market value. Deposited savings should accrue interest until withdrawn and they should not be threatened with unpleasant price surprises
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relative to an index of the price of goods and services. Otherwise, the purchasing power of that “currency” becomes very unstable and thus an unreliable store of value. With bitcoin rising or falling in value by 10 percent or 20 percent in a matter of days, instability rules it out as a useful
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Lumpur is transparent to consumers using any currency. And within each country with its own currency that currency that is also legal tender is the unit of account and single numeraire for all goods, services and transactions. But in a crypto world of “tokenization,” if I need a Pepsi coin to buy a
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the dollar. After a run of eighty years, its condition now stirs questions. It ain’t what it used to be, an unimpeachable and stable store of value. High inflation, close to double digits, could eventually undermine a weakened dollar. Debasement and weaponization of the dollar for geopolitical goals will lead to a
Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives)
by David Birch · 14 Jun 2017 · 275pp · 84,980 words
3.0 steamship look like? Many years ago my colleague Neil McEvoy and I argued in Wired magazine that while the new technologies for the medium of exchange were being deployed in a reactionary fashion to bring improvements to the current money system of national fiat currencies (i.e. the sailing ship effect
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is about the way in which technology allows for the ‘moneyfication’ of debt (Graeber 2011a), converting a store of value into a mechanism for deferred payment and then a medium of exchange that can in turn become a unit of account. Moneyfication is a horrible word, but I hope you will come to see why I use it to
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, let me begin by being clear on this topic. As most texts about money begin by stating, money has four basic functions. It is a unit of account. The unit of account does not, of course, have to have any physical reality. The European Currency Unit (ECU) and the Special Drawing Right (SDR) are examples. Brazil
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-based units of account, and gradually adding other functions as the currency moved to have status as a legal tender. It is an acceptable medium of exchange. Whether it is packets of data or packets of Marlboro, money is useless as a medium of exchange unless it is acceptable to both parties to a transaction. It is a store of value. Unfortunately
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when the store of value is subject to inflation or other changes. Each of these functions may be implemented in a different way. A favourite example of mine is that of the American colonies at the turn of the eighteenth century. The colonists used sea shells (known as ‘wampun’) for their medium of exchange: a form
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of cash borrowed from the Native Americans (who were, in effect, the central bankers of this monetary system, converting the shells into animal pelts that were used to store wealth and for external trade). The unit of account was the English pound (despite most of
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work’ (a precursor to the Bitcoin blockchain, I suppose). The beans provided a stable, widespread and long-lived currency even though they were not a store of value. Henry Hawks, a merchant who spent five years in Central America, wrote in 1572 that in Guatemala the beans ‘goeth currently for money in any
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. As society evolves, and trust does not scale, these values begin to diverge. Economic history provides many examples in which the debt used as a medium of exchange was never short-maturity or demandable and therefore must have integrated that measure of trust. The type of longer-maturity notes known as bills of
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as a form of payment among merchants until the twentieth century: they were, in effect, instruments created as means for deferred payment that then became stores of value because people would hold them as well as use them to facilitate trade. Rich as Croesus Broadly speaking, then, we can see that the idea
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of money (as a store of value) originated as debt but that tokens were not a practical means of using that debt in commercial transactions. Hence, as we might reasonably expect, ancient societies began to develop a medium of exchange and, for a variety of well-understood reasons, they opted
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for precious metals, which could additionally serve as a store of value and a mechanism for deferred payment. In the Near East, it was silver that became the
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standard against which currencies were measured. The shekel, which is something like 5,000 years old, originated as a term for a specific weight before it became a unit of account for reckoning prices
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describe silver coins that weighed a shekel, and then later it became the official name for the coin, completing the path from a stable store of value through medium of exchange to unit of account. We had debt, then we had banking, then we had money, and then, a couple of thousand years later, we invented coins. In inventing
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coins we invented cash: a medium of exchange that did not need to be redeemed against anything, but that could be self-assayed (within bounds) and passed from
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that we will return to. Minted Throughout early modern times, coins became the standard of value even though they might not have been used a medium of exchange by the majority in a feudal economy. The history of coins in England illustrates this rather well. Guildford, the home of Consult Hyperion (the consulting
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can tell from the wear and tear on the coins found around the country that they were in circulation, not simply being hoarded as a store of value. Coins remain a remarkably successful technology, as evidenced by the fact that we still use vast quantities of them today. In 2010 the United States
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the twelfth century there was a functional market in government debt centred on London. The Crown allowed the tally sticks to circulate as a functioning medium of exchange insofar as it gave a present value to the tallies that people held (Desan 2014b). No wonder the London money markets are so sophisticated:
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market to operate smoothly (Davies 1995b). The distributed ledger technology of the tally had been used to convert a means for deferred payment into a store of value and then into a means of exchange, and the sticks remained in widespread use for hundreds of years. The Bank of England, being a sensible
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do find it interesting to note the role that the City of London played in shifting the new technology of the tally from debt to medium of exchange. London has always survived and thrived through the introduction of money technologies: ranging from banknotes and bills of exchange, through derivatives and EFT. The City
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costs and uncertainties associated with borrowing and the need to impose taxation. What would it mean to create new stores of value? We looked at the chocolate standard earlier. Out in the British colonies the store of value was related to some physical good: often, but not always, gold. The United States was on a tobacco
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from its ability to monetize new forms of debt rather than from its ability to act as a useful means of exchange, thereby creating new stores of value that are claims over that debt. This is one of the reasons that I remain sceptical about the new virtual currency Bitcoin (this is, again
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, and this ‘bad money’ drove out the pure silver shillings then in circulation because people kept the good shillings as a store of value and used the bad shillings as a medium of exchange in the marketplace, thereby damaging commerce for many years until Good Queen Bess called in the debased coinage, melted it down, separated
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would really believe that a Zimbabwean dollar is really worth the same as a gold piece, so they wouldn’t want to make them a store of value. No one studies history Henry’s Great Debasement was, of course, just one of a multitude of debasements that began with the invention of money
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debased under a democratic government, as it was under Henry VIII, but I do want to emphasize the point that the marketplace needs a circulating medium of exchange and that it is the marketplace that is the source of wealth – something that Sir Thomas Gresham understood very well. Exchange and market Something else
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the Dutch revolution in finance and the English revolution in industry collided to recreate money. When the Bank’s notes began to circulate as a medium of exchange, this was a by-product of the Bank’s activities, not its purpose. Note that the smallest banknotes it issued were more than the average
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lack of trust in the state quickly led to a shortage of credit in the marketplace and, therefore, to an immediate demand for a circulating medium of exchange. But from where? France did not have a central bank along the lines of the Bank of England. The failure of John Law’s note
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notes in circulation, with a total value of more than £60 billion. She went on to say: Demand for cash as a medium of exchange appears broadly stable, its use as a store of value appears to have grown… We estimate that around 20% to 30% of total UK cash was in, what we refer to
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would tend to indicate that people have lost confidence in formal financial services or are happy to have loss, theft and inflation eat away their store of value while forgoing the safety and security of bank deposits irrespective of the value of the interest paid. The Bank believes that ‘a small number of
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least (and in many emerging markets), there is an ever-growing range of electronic payment and settlement vehicles, with cash pretty much becoming a redundant medium of exchange and means of payment for legitimate, legal transactions (see, for example, Bolt 2006). Among legitimate payments, cash is mostly used for smaller retail payments, which
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sure that the implications are. The point is that if there is no physical means of exchange, then there are no entry barriers to alternative stores of value becoming means of exchange. If, in the weightless economy, frequent flier miles and IBM stock became as liquid as dollar bills, then it’s not
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were unwanted. That is, they are currencies that people may well use in the marketplace but they do not choose to hold them as a store of value. Governments can force their citizens and subjects to hold fiat currency by requiring its use for state transactions (e.g. tax) but they have no
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Electronic money Money that has no physical medium of exchange Cash Money that can be passed from person to person Electronic cash Electronic money that can be passed from person to person Mundane currency Physical money that is a unit of account Virtual currency Electronic money that is a unit of account but only in a virtual world Analogue
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currency Physical money that is a unit of account Digital currency Electronic money that is a unit of account in mundane and virtual transactions Fiat currency Analogue currency whose value
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is this latter point that is truly disruptive. Tally sticks turned the mechanism for deferred payment into a store of value. The cheque turned the store of value into a means of exchange. The gold standard created a stable unit of account. None of these implementations is a law of nature. They depend on technology push and societal pull
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century); and yet another is that they want to use a non-government currency because they don’t trust governments to manage money properly (a store of value for the twenty-first century). Now, having been involved in a previous attempt to create a global, decentralized, peer-to-peer means of exchange that
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– although I could personally be persuaded that, over time, volatility could decrease to a point where it could become an acceptable store of value. Secondly, it has very restricted use as a medium of exchange, and my interpretation of the widely available usage figures is that it remains primarily a tool for speculation (there is very
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little retail use, and it is not clear to me that it will grow). And thirdly, it does not seem to be used as an independent unit of account against
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I think illustrates a very fundamental point about the interplay between technology and money, identifying a line of thought that the historical functions of money – medium of exchange, store of value, unit of account and measure of value – can be separated and that each function can be performed by different means. This defines my thinking too. One of the
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to the future’ dynamic of a more interconnected world. While we might therefore find it odd to use London Loot as a medium of exchange and Islamic e-Gold as a store of value and US dollars as a mechanism for deferred payment, our phones will not. To return to Mervyn King’s point about money
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issuing central bank digital currency (CBDC) – a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-crisis United States, we find that CBDC issuance of 30% of GDP, against government bonds, could
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to deliver the anonymity of cash but on a global scale, then one might imagine that the rich and powerful will enthusiastically adopt the new store of value to remain beyond any reach of democratic accountability. Neither of these visions seems particularly appealing to me. On the other hand, the utopian vision of
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as a vehicle for Szabo-style synthetic currencies (Szabo 1997) that could go even further and be used directly in contracts to substitute for a medium of exchange. This ought to be the science fiction writers’ new exchange paradigm. No more ‘that will be ten galactic credits, thank you’, more ‘you owe
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of unanticipated consequences to its reinvention. Just as tally sticks were invented as a mechanism for deferred payment but the market mutated them into a store of value and then a means of exchange, who knows what the market will do with Bitcoin? Paul Kocher, president of Cryptography Research Inc., said that breaking
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to be more monies than fiat currencies, then corporations are obvious issuers of transactional medium of exchange currencies, and companies and their customers are a kind of community that has incentives to share a currency. Whether corporations can deliver a store of value is harder to predict, given that they don’t (in the grand scheme
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structures needed to manage currencies for the long term. Cryptocurrencies may find a niche but it is hard to see them becoming the mass market medium of exchange. I think that the future of money will be organized around reputation zones rather than currency zones, which is why I have concluded that communities
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theory that money originates in the creative tension between debt obligations and technological evolution: in other words, technology enables the use of debt as a store of value and a means of exchange) and focus on the historical arc. In the predawn of civilization, the only technology available was the human memory. Hence
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that estimated that only around one-third of the €500 notes in circulation were used for transaction purposes and that the remainder were hoarded as store-of-value in the euro area or held abroad. Recent figures from the Bank of England show a similar pattern, with about a quarter of the cash
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