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On Fri 20 Apr 2018, SoylentNews published four criteria for analog currency and four criteria for digital currency.
On Mon 18 May 2018, Bank of England Staff Working Paper Number 725 by Michael Kumhof [former Stanford University economics professor] and Clare Noone [former Reserve Bank of Australia staffer] published four criteria for a Central Bank Digital Currency [CBDC]:
The core principles are: (i) CBDC pays an adjustable interest rate. (ii) CBDC and reserves are distinct, and not convertible into each other. (iii) No guaranteed, on-demand convertibility of bank deposits into CBDC at commercial banks (and therefore by implication at the central bank). (iv) The central bank issues CBDC only against eligible securities (principally government securities).
I'm not sure these count as four distinct criteria or that they are strong enough to be useful.
(Score: 4, Insightful) by AthanasiusKircher on Sunday June 03 2018, @04:58PM (2 children)
This is a very bizarre statement. If credit "is arguably without value," then how do collections agencies make profits? Why would anyone buy credit (loans, mortgages, etc.), a major element of financial markets? "Value" is determined by whether someone is willing to give you something for your thing. Clearly many people value credit.
Indeed, the vast majority of the money supply [wikipedia.org] in most modern economies is in currency that is a form of "credit" rather than available in base currency (M0) like coinage/notes. "Credit" currency is significantly more common and thus most financial transactions in the world are taking place all the time on something that you say is "arguably without value."
And why shouldn't that be the case? It's basically been the same since the dawn of recorded monetary history. The myth that's told in so many economic textbooks [theatlantic.com] is that people in ancient/primitive societies barter, and money develops with physical tokens that function as standardized units of that bartering system. But that's been shown by various historians over the past century to be completely bogus. Barter is an aberration in primitive societies -- typically only used in transactions with people outside your immediate society/tribe/whatever.
Almost all ancient societies and societies that modern anthropologists have investigated show that elaborate systems of credit tend to develop long before physical currency.** We have detailed banking records from ancient Mesopotamia and Egypt (and I believe India and China too) before we have evidence of physical currency. The general evolution of money seems to be: (1) basic informal IOU - "You helped me build my barn; I owe you some help later...", (2) structured IOU - "You helped me build my barn; I'll give you 1/10th of my crop harvest this season...", (3) as agrarian societies get larger and more planning is needed, these debt structures become increasingly complex, eventually leading to standardized denomination of debt in some sort of unit (e.g., "cows") whether or not those are used as a medium of exchange. With the system so far, you can actually develop a complex banking apparatus. It's only when a society becomes very large such that transactions are commonly needed between people who don't know each other/trust each other that (4) the need for the abstraction of physical currency becomes necessary. (And yes, one can view physical currency as an "abstraction" from the primary banking units that tend to be based on indebtedness between parties.)
Currency in almost every society emerges as a method for denominating and then physically representing pre-existing complex debt structures. This is not a small matter that so many economic textbooks tell the fairy tale about barter. (Which makes no sense, if you think about it for an instant -- why am I going to exchange my cow for two goats when what I really need is bread? Now I have to go find three other people because the guy who wants goats can give lumber, but the guy who wants lumber needs leather for clothing, but I find a guy who has leather and has bread... so I can finally complete my transaction. Does anyone ever think this could function as a PRIMARY method of exchange in a society??)
When we tell ourselves that the "native" form of money is physical coin or whatever, it leads to images of self-sufficiency, accumulating wealth like in Scrooge's money-bin. If we view the native form of money as indebtedness, which was necessary for large-scale human societies to come into existence, the importance of working together to build collective societal wealth is foregrounded. (Some even argue that gifting economies [wikipedia.org] are a foundational component of many human societies before the emergence of money, which allow the systems of indebtedness to form that ultimately give birth to finance. How would it be different if economics textbooks began not with a story of "I need cows; you need goats; let's have this impersonal transaction and go our separate ways" but rather about humans giving labor and goods to each other as they need it, creating sustained interactions between parties, and gradually developing economic systems to measure indebtedness?)
To be clear, I'm not using this as some sort of communist parable or something -- I'm just noting the fundamental metaphors for the reasons money exists and how it comes into being likely affect the ways we interact with it.
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** If you think I'm making all of this up, note that even folks at the Mises Institute [mises.org] admit that historically debt could have been the origin of money. Although they insist on using bizarre circumlocutions like "inter-temporal barter" rather than admit it's really just indebtedness... particularly as debt structures become more complex. And note that link ignores stage (3) I described above, where we have evidence of centuries of financial records in Mesopotamia, for example, before standardized physical currency became common.
(Score: 3, Interesting) by requerdanos on Sunday June 03 2018, @05:35PM (1 child)
Yeah, this financial stuff is complicated for me too.
It isn't by people paying them "in credit" with promises, that's for sure. These agencies buy credit which is worth essentially nothing to its owners, except notionally (or they wouldn't sell it for pennies on the dollar), and then the collection agents pester those to whom the credit was originally extended, begging them to transfer to the agency something that *does* have value, such as (some representation of actual) money.
Even if they pay indirectly via some form of credit, such as a credit card or loan, it isn't the credit that the collection agency receives as payment (because that would be worthless), but the actual--watch this--corresponding convertible monetary value of that currency. (The lender in that case, not the collection agency, would then have a nice bucket of credit and good luck turning it into something of actual value.)
Yes. As I mentioned, currency doesn't necessarily need to have value to be popular or to be currency. Accounts receivable are worth what you can get for them, and the accounts themselves are worth precisely squat.
This can easily go off into existential territory. Something is worth so and so many ounces of gold--okay, that value fluctuates over time relative to your native physical coin. Does the value of the asset fluctuate, or is it the value of the gold that fluctuates, or just the value of the coin that's fluctuating? Do those questions have any meaning outside the context of being relative to each other? How does that affect the valuation of any of these things, or of other things you'd want to trade for them? It's all notional culturally, even if the traditions backing the notions are very strong.
Many cryptocoin exchanges, for example, give the value of a given currency in both bitcoin and in US dollars. (E.g., coinmarketcap is saying that Monero (XMR) is going for $172.57 USD or for 0.02242760 BTC.) But what do US dollars and bitcoin have to do with the value of Monero to, say, someone with a pocketful of rubles looking to invest in a fishing boat? Monero is not tied to any of the four (USD, BTC, RUB, Fishing Boats)--it's just a means in this case of turning a currency (the XMR) into more fixed, less liquid, non-currency assets in the form of fishing boats.
"Inter-temporal barter" is not a bad jargonization of trade with credit. It's called inter-temporal, I guess, because the thing that has actual value is given after some "temporal interval" has come and gone, and until the thing of actual value is received, all you've got is credit. If the credit had the actual value, of course, there would be no need for for us to talk about time travel to the point where the thing that has value is received. We would just shrug and say "what's the difference?" But we see the difference. One requires collection, and the other doesn't, as you yourself pointed out.
(Score: 1) by khallow on Monday June 04 2018, @04:23PM
Strongly disagree with that. It might not "need" the value, but being popular indicates it has value.