Ross Esmond

Code, Prose, and Mathematics.

a picture of me
Written — Last Updated

Currency

Currency is a representative of value. It could be said that currency holds no real value, which is often true. A dollar holds no value beyond the goods and services that can be purchased with it. As paper, a dollar is nearly worthless, but it still holds value, as we accept it as holding value. Currency does not have value; it represents it. Gold, Federal Reserve Notes, and Bitcoins are all forms of currency. The quality of currency depends on six properties that it should satisfy, that being uniformity, divisibility, durability, scarcity, portability, and acceptance.

The first two properties, uniformity and divisibility, are necessary for the currency to properly quantify the value it represents. If the currency is not uniform, it is impossible to deduce how much value the currency represents, as no two representatives are equivilant. If the currency is not divisible, than it is impossible to scale the currency to match the value that needs representation. Either of these issues would create a currency that cannot properly quantify value, and therefore cannot be exchanged for value.

The second two properties, durability and scarcity, are necessary for the currency to maintain the value that it represents. If the currency is not durable, then the supposed value that the currency represents could be lost whenever it is stored as currency, creating an disincentive to exchange any value for the currency. If the currency is not scarce, it creates a similar problem. If the currency can be readily produced and still exchanged for value, then its worth would be quickly destroyed as people create endless amounts of currency. Both of these properties are necessarity to keep the value of the currency stable, but through opposite methods. Durability prevents losing value through the destruction of the currency, and scarcity prevents the value from being diminished through the creation of the currency.

The fifth property, portability, is necessary to make the currency favorable to other items of the same value. I cannot accept a service during a trade unless I plan to use that service immediately, or travel back to the practitioner when I intend to collect on the debt. If I exchange a bushel of apples for a haircut, I cannot take the haircut with me to the next town to exchange for another item which I prefer. Similarly, I cannot accept a currency in exchange for value if the currency cannot travel with me to where I intend to exchange it for another item of value.

Durability, scarcity, and portability make the currency a more desirable form of value than other goods and services as they solve the logistical problem of maintaining value over time and transporting that value to a new location. If the currency is not at risk of losing value, unlike goods which may spoil, and may be carried to new locations, unlike services which are tied to their practitioner, then the currency will be a preferable form to the goods and services for which it is exchanged.

The last property, acceptance, says that currency must be widely accepted in exchange for value. This is the most speculative quality of currency, as it’s a social phenominon rather than a characteristic of the currency itself. It is then not possible to design a currency for acceptance; only to advocate for it. Acceptance is then likely a byproduct of the currency achieving the other five properties of currency. Interestingly, if the currency holds any value at all, it will likely achieve acceptance. If the currency is divisible and uniform, then its value can be easily quantified relative to goods and services, making it easy to use it for any exchange. If the currency is then more durable and portable than other goods and services, it will always be a preferable form of value than those goods and services. Once these four properties are achieved, assuming the currency is also scarce, to protect its value from depletion, the currency should be widely accepted, as it is simply another form of value, but one that is easier to store and handle. Better still, if the currency’s value is not intrinsic, in that the currency holds no material value to any particular person, then the currency is an even better representation of value, as no one person is likely to value the currency more than others.