What is Money?

Inflation – does the word send shivers up your spine?  Palms sweating?  I think we can all agree that our current inflation rates are problematic, and for many, the cause of inflation is our money system – the ability to “print money” or to inflate the money supply.

In the world of cryptocurrency, Bitcoin has been identified as the solution to inflation.  Without getting into the specifics, there is a fixed amount of 21 million Bitcoin that will be minted and put into circulation.  There is no centralized agency or government that can change the rules and print more Bitcoin.

There is a growing group of enthusiasts who are convinced that Bitcoin is the future of money.  Is this really possible?  Can you imagine a future where Bitcoin is the global reserve currency?!?

To help with the discussion, let’s take a look at the commonly held properties and attributes of money:

Money has three fundamental properties:

  • Store of value – people can save and use the value later
  • Unit of account – a common base for pricing and comparison
  • Medium of exchange – a way for people to use a common currency for buying from and selling to on another

Money also has several important attributes:

  • Durable – ability to last a long time before needing to be replaced
  • Portable – Something easily carried from one place to another
  • Divisible – something easily divisible into smaller units
  • Fungible – One unit is interchangeable with or the same as any other unit

 

Let the debate begin!!

Price volatility – I agree, clearly this is the most obvious weakness of Bitcoin, which makes it difficult to meet the “unit of account” property of money.  Are there any other weaknesses?

If this topic has captured your attention, you may enjoy a recent rant by Pierre Poilievere (What is Money? – Canadian Politician Pierre Poilievre Schools Justin Trudeau’s Liberals – 1/16/2022 – YouTube)

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