Thirteen Virtues of Sound Money

1. Ability to serve as a medium of exchange (which includes fungibility; that units of it can be substituted for one another, and are interchangeable with one another)

2. Portable (and thus, also, light-weight, because currency being light-weight helps it be portable)

3. Physically durable (i.e., made out of a material which is difficult to destroy)

4. Ease of ability to serve as a unit of accounting (This includes ease of divisibility. Ideally, the currency should be easily divisible, both in a physical sense, and in the sense of doing mental math while using it. For example, Spanish pieces of eight were easily physically divisible, while U.S. Dollars are rarely if ever accepted when they are torn in half)

5. Difficulty to counterfeit, duplicate, or imitate

6. That creating the currency took considerable effort and labor

7. Rarity, and being in limited supply

8. Acceptability (ability to be widely or universally used and accepted as currency)

9. Having stable value (and, ideally, rising value, also also having a high purchasing power), especially as compared to other currencies

10. Potential to have transactions using it, tracked and traced, in a manner which is transparent and open and verifiable to its users (as in Blockchain)

11. Ability to represent a real store of value

12. Redeemability in real assets (ideally the currency would represent real assets because it represents value in a full-reserve banking system, as opposed to a fractional-reserve system)

13. Ability to not only represent a real store of value, but also to serve as a real item of value which has a real use (rendering representation unnecessary, and rendering redeemability somewhat less necessary)

     I have noticed that there are potential conflicts between several sets of these virtues of sound money. Those potential conflicts lie between Virtues #3 and #4; Virtues #7 and #8; Virtues #11, #12, and #13.

     Regarding #3 (durable and difficult to destroy) and #4 (easily divisible): The potential conflict lies in finding a material which is both difficult to destroy and easy to divide. This is easy to reconcile, however, given the number of durable materials (such as precious metals) which are used as currency.

     Regarding #7 (rarity, and being in limited supply) and #8 (acceptability, and universal or wide acceptation): The potential conflict lies in finding a currency which can be accessed and possessed by nearly everyone, while the supply of it must also not be too high so that the currency loses value because everyone would have so much of it (and thus it would be in low demand, leading to decreases in the valuation of the currency).

     Regarding #11 (representation of a real store of value), #12 (redeemability in real assets), and #13 (ability to serve as a real item of value with a real use): The potential conflict lies between deciding whether we want to have real money that is something of value, or a whether we want a currency that represents something of value. As long as a currency can be redeemed for real physical assets, then there is no conflict. But the bank doing that redeeming, must be transparent about their bookkeeping, and practice full-reserve banking, for redeemability to be reliable.

Based on notes taken in spring 2018

Written on November 3rd, 2019

Published on November 3rd, 2019