Money, Currency & Crypto
Posted: January 27th, 2024, 7:49 am
For some unearthly reason the ETF thread, a thread upon a traditional fund that happens to invest in bitcoin devolved into a debate upon currency.
I thought that a separate thread might serve better.
I’ll leave crypto until the end, as I think the basics of money and currency need considering first.
Money:
It is “currently” accepted that the three principles (uses) of money are:
Store of value:
Fiat has been really bad at this for getting on for 100 years. So much so that everyone is “monetizing” other things. They buy debt (government bonds), index trackers (stock market investments that remove the need to consider the underlying companies) or property (my house / Buy to let portfolio is my pension).
Unit of account:
This is NOT the same as what you pay. Historically there has never been Marks or Ora coined in England, but they were a unit of account at one point. Today a bank may calculate and accrue interest in fractions of a penny, but there is no such currency. The term means what it says. It doesn't mean currency.
Medium of exchange:
This is what use to be currency. The notes and coins currently accepted. An old £20 note may be money, you can change it at the bank. But it is not currency nor a medium of exchange.
Notice the obvious flaw. These definitions clearly predate electronic/online payments or credit cards!
Tweedle dum and Tweedle dee were always both right.
So arguably currency no longer just means the notes and coins currently accepted, but needs extending.
Here we have the problem that surfaced in the ETF thread.
Is currency defined as fiat? One person seemed to think so.
It it what the vendor accepts, another thought that.
Is it what a vendor quotes in? I.E if you order online from the USA, you may be quoted and charged in pounds, but they will be paid in USD.
Is something not a currency because it isn’t issued by a state, even if some vendors accept it? You know like local exchange trading schemes.
Is something not a currency because a particular vendor or ones in an area doesn’t accept it?
If I travel to Florida and buy a hat with my credit/debit card, what is THE currency? Is it USD or GBP? I certainly paid GBP. I would argue that both USD and GBP were acting as currency in the transaction.
Crypto: finally.
OK, first let us be clear the term crypto currencies is an incorrect catch all term that includes some things that are not intended to be currencies.
The first and best known is bitcoin, which was always intended as a medium of exchange (currency).
You can transact, passing BTC to someone. Other mechanisms exist though. Just like the Florida example you can use an exchange and debit card if the vendor wants USD. Alternatively you can use lightning for really small amounts of BTC and fast transactions, if the vendor accepts it and some do.
I’m not convinced that BTC was intended to be a store of value, though it certainly seems to have become one.
Is BTC a unit of account? That would be a really silly question. The stock broker II allows you to have multiple currency accounts to trade in foreign shares and receive dividends. Likewise a crypto exchange will hold multiple accounts for you to store your GBP, Euro, USD and crypto. The only changes are when funds are added subtracted or exchanged. The amount of bitcoin is measured in bitcoin, though it’s value is also displayed in the chosen fiat for convenience.
OK, useful comments, thoughts or links?
I'll kick it off with a book link.
https://www.amazon.co.uk/Broken-Money-F ... ext&sr=1-1
I thought that a separate thread might serve better.
I’ll leave crypto until the end, as I think the basics of money and currency need considering first.
Money:
It is “currently” accepted that the three principles (uses) of money are:
Store of value:
Fiat has been really bad at this for getting on for 100 years. So much so that everyone is “monetizing” other things. They buy debt (government bonds), index trackers (stock market investments that remove the need to consider the underlying companies) or property (my house / Buy to let portfolio is my pension).
Unit of account:
This is NOT the same as what you pay. Historically there has never been Marks or Ora coined in England, but they were a unit of account at one point. Today a bank may calculate and accrue interest in fractions of a penny, but there is no such currency. The term means what it says. It doesn't mean currency.
Medium of exchange:
This is what use to be currency. The notes and coins currently accepted. An old £20 note may be money, you can change it at the bank. But it is not currency nor a medium of exchange.
Notice the obvious flaw. These definitions clearly predate electronic/online payments or credit cards!
Tweedle dum and Tweedle dee were always both right.
So arguably currency no longer just means the notes and coins currently accepted, but needs extending.
Here we have the problem that surfaced in the ETF thread.
Is currency defined as fiat? One person seemed to think so.
It it what the vendor accepts, another thought that.
Is it what a vendor quotes in? I.E if you order online from the USA, you may be quoted and charged in pounds, but they will be paid in USD.
Is something not a currency because it isn’t issued by a state, even if some vendors accept it? You know like local exchange trading schemes.
Is something not a currency because a particular vendor or ones in an area doesn’t accept it?
If I travel to Florida and buy a hat with my credit/debit card, what is THE currency? Is it USD or GBP? I certainly paid GBP. I would argue that both USD and GBP were acting as currency in the transaction.
Crypto: finally.
OK, first let us be clear the term crypto currencies is an incorrect catch all term that includes some things that are not intended to be currencies.
The first and best known is bitcoin, which was always intended as a medium of exchange (currency).
You can transact, passing BTC to someone. Other mechanisms exist though. Just like the Florida example you can use an exchange and debit card if the vendor wants USD. Alternatively you can use lightning for really small amounts of BTC and fast transactions, if the vendor accepts it and some do.
I’m not convinced that BTC was intended to be a store of value, though it certainly seems to have become one.
Is BTC a unit of account? That would be a really silly question. The stock broker II allows you to have multiple currency accounts to trade in foreign shares and receive dividends. Likewise a crypto exchange will hold multiple accounts for you to store your GBP, Euro, USD and crypto. The only changes are when funds are added subtracted or exchanged. The amount of bitcoin is measured in bitcoin, though it’s value is also displayed in the chosen fiat for convenience.
OK, useful comments, thoughts or links?
I'll kick it off with a book link.
https://www.amazon.co.uk/Broken-Money-F ... ext&sr=1-1