The question is before the house. In extremis. What is money? Of what does it consist? What does it do? I attempt an answer in these paragraphs. Indulge me in the hope that I make a little sense.
Money is a value calculus, the nature of which I have discussed in a previous blog. It is frangible. Its volume has fixed limits, natural or artificial. It is convenient. One can easily buy lunch with it. It is the subject of a general consensus that it is a medium of exchange and significantly worth a stable range of values. It has a support structure to maintain that stable range of values. In the case of the dollar the Federal Reserve system does support that consensus range of values. That describes the phenomenon.
What does it do? It allows the relative valuation of disparate entities, such as apples and oranges or products and services, on a basis of utility/scarcity in a market composing a market system defining a political economy by the use of that money.
The first recognition of the nature of a medium of exchange was Constantine's regulation of the solidus, a precious metal coin defined in law by weight. This allowed reasonable estimates of profit, of Return On Investment. Trade as we understand it was born. Without the government fiat of the weight and purity of a solidus, its support, this would not have happened. Gresham's Law is a relic of the lapses in Constantine judgement, being that bad money drives out good and, by experience, good money requires support for its stable exchange value, whether rigorous definition or liquidity regulation, interest rates, printing rates, etc., for its comparative value across political economies.
Cryptocurrencies lack government fiat. They lack systemic support and rely on a difficult version of competition in light of Gresham's Law. They fly in the face of all history. They are a speculative instrument as the SEC has noted. They will enjoy a certain purchase as the value goes up but they will never be stable enough to enable reasonable ROI estimates. They are not a convenient medium of exchange and when the value goes down, 0 value is a distinct possibility as we recently saw.
We can allow this crypto phenomenon to proceed as a risky speculation but any claims to a currency status must be constrained, not as a power play but as a real concern for the public welfare
Do Well and Be Well...
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