What is money anyways?

Should the Riksbank issue e-krona?
Date: 16/11/2016
Speaker: Deputy Governor Cecilia Skingsley
Place: FinTech Stockholm 2016
http://www.riksbank.se/en/Press-and-published/Speeches/2016/Skingsley-Should-the-Riksbank-issue-e-krona/

A rather extensive speech about the upcoming debate in Sweden regarding the decision of whether or not to institute an electronic currency in Sweden. She discusses some of the big questions like "what is money". Hard cash (banknotes and coins) is presently circulating in Sweden at about half the rate at which it circulated at it's peak in 2007.

Quote: Skingsley on properties of cash

One cannot get away from the fact that cash has properties that electronic payment services lack. Will this mean that we lose a means of payment that cannot be directly replaced with something else? Cash can be handed over regardless of access to electricity or the internet. Cash payments are anonymous. A payment can be made in cash without involving the banks. Even if cash is not used on a daily basis, it comprises a backup option in certain crisis situations. And, as I explained earlier, cash is central bank money and does not involve any credit risk for the holder. I consider some central properties of cash to have a substantial value and expect they will be in demand in the future, too.

To explain one comment, Skingsley distinguishes between "bank money" which is that most common type of money in any country. There is always a certain amount of "credit risk" associated with bank money, even if it is insured. Cash is supported by the country's government and has no credit risk.

Big questions regarding an electronic currency
1) Does the country need it?
2) Are they trying to replace banknotes?
3) Should it be distributed directly to people or to banks (like hard banknotes and coins)?
4) Should it be "account based" or secured by complex blockchains like bitcoins. If you lost your smartphone, you lose your money just as if you lost a banknote.
5) What kind of "interest" should be charged. Positive, negative, or zero.
6) What kind of anti-money laundering controls should be enforced. In the USA any cash payment over $10,000 must legally be accompanied by an IRS form. Also cumulative and related transactions adding up to more than $10,000 must be reported. You can't say here is a $1000 and repeat that ten times with 20 seconds between transactions.


The popular banking phone app since 2012 in Sweden is called SWISH, and allows you to make instant cash movements from one bank account to another. Unlike a credit card the accounts are updated immediately. But as in a notorious case of a street mugging, the electronic payment can be reversed and the criminal can be easily apprehended.

An theft involving an electronic currency transaction would be final and untraceable, just like stealing banknotes. Of course, the time of transfer can be correlated with GPS location of a phone (for both sender and recipient). So there should be more circumstantial evidence than with a physical banknote.

Quote: Pacomartin

Post dated March 21st, 2016 at 9:33:56 AM


Gold price $1,249.70 per ounce
Bitcoin price $1,159 for nothing

I would be so happy for you Wizard if you went into bitcoin last March.

It finally happened! one bitcoin is now worth more than one troy ounce of gold
Gold price $1,225 per ounce
Bitcoin price $1,276 for nothing

Quote: Pacomartin

$1,276 for nothing

Gee, Finance Ministers, bright Techie Types in several nations around the world, Bankers, Lawyers, Tax Accountants. Japan even accepts bitcoins for tax payments. Decision makers such as those I've listed are rarely so carried away that they will pay a premium above the price of gold for nothing. After all, a bitcoin is worth more than a trillion times its weight in gold, so it can't be nothing.

Quote: Pacomartin

It finally happened! one bitcoin is now worth more than one troy ounce of gold

The crash must be near.

Quote: Nareed

The crash must be near.

That was said during the early days of the tulip mania too.

Quote: Fleastiff

After all, a bitcoin is worth more than a trillion times its weight in gold, so it can't be nothing.

I was being sarcastic. Bitcoin is a concept. You can argue that all value is conceptual, but usually it is masked behind some physical object.

Cecilia Skingsley , Deputy Governor of the Riksbank in Sweden commented in her speech in November that bank money in Sweden (which is all simply accounts) now amounts to 2200 billon krona (or about 50% of GDP). Physical notes and coins are about 60 billion krona or just over 1.5% of GDP.

A long time ago the national currencies stood for a certain weight in gold or silver, but they have long moved away from those beginnings.

Quote: Pacomartin

I was being sarcastic. Bitcoin is a concept. You can argue that all value is conceptual, but usually it is masked behind some physical object.

It was. I truly don't know what gold reserves represent these days, but it's not money.

Quote: Nareed

It was. I truly don't know what gold reserves represent these days, but it's not money.

The Anglo countries UK, Australia, New Zealand, and Canada all sold their gold reserves about a decade ago since they decided it represented an archaic concept . The politicians involved in the decisions all took major heat when the price of gold soared much later.

Switzerland, which has the most extensive gold horde per capita of any nation on earth fights reactionary groups all the time with names like "Save our Swiss Gold".

I think no American politician wants to touch that lightning rod. While I am sure that some feel that the gold in Fort Knox would be more valuable if it were sold off for jewelry, nobody wants to risk their career over this issue.

Look at the issue of terminating the minting of the penny like Canada chose to do. It's a simple decision, and most rational adults would simply have no emotional reaction except for slight nostalgia. Countries around the world make decisions like this all the time. But no politician wants to be known as the man who killed the penny.

Quote: Pacomartin

The Anglo countries UK, Australia, New Zealand, and Canada all sold their gold reserves about a decade ago since they decided it represented an archaic concept .

See?

Quote:

The politicians involved in the decisions all took major heat when the price of gold soared much later.

Cheap shot. The price will always rise later. If you just wait, you'll wait forever. At some point you just have to make a decision.

Quote:

Switzerland, which has the most extensive gold horde per capita of any nation on earth fights reactionary groups all the time with names like "Save our Swiss Gold".

Until such time as we develop a cheap form of fusion and begin synthesizing elements on industrial scales, gold should hold up rather well in value (unless a solid gold asteroid impacts the Earth and drives the price down, or someone unexpectedly discovers a solid gold layer of sediment). And even then, all elements past iron on the periodic table, require more energy for synthesis than the reaction can produce.

Quote:

Look at the issue of terminating the minting of the penny like Canada chose to do. It's a simple decision, and most rational adults would simply have no emotional reaction except for slight nostalgia. Countries around the world make decisions like this all the time. But no politician wants to be known as the man who killed the penny.

Yeah. It's disheartening to know there are such cowards so high up in your country's government.

I wonder if they'll also get rid of the $1 note when they finally ditch the penny.

Quote: Nareed

I wonder if they'll also get rid of the $1 note when they finally ditch the penny.

I think that time has come and gone. The decision to replace the small bills with coins was a question for the wealthy nations in the 1970's and 1980's. Even Mexico introduced a 10 peso coin in 1997 and retired their banknote.

At this point the desire is to introduce electronic transactions to replace small value banknote and coin transactions.