L6 - Stablecoins Flashcards
What are the three primary functions of money?
Money is defines as all means that fulfill the three primary functions of money
a) Medium of exchange
b) Store of value
c) Unit of account
Secondary functions of money
portability divisibility no double spending anti-counterfeiting price stability acceptance fungibility
types of money
commodity money
covered money (metal standard)
fiat money
commodity money
Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods.
covered money
he silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver.
fiat money
Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.
What is the definition of currency?
- widespread use
- can be used as legal tender
The official currency is of a country is the money or the monetary system, which has widespread use and which is usually designated by the state as legal tender
What is legal tender?
Legal tender is the money that is required by law to legally fulfill a debt.
What is a currency peg?
A currency peg is a policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies.
The Swiss National Bank pegged its Swiss franc to the euro on Sept. 6, 2011,
Who is responsible of supervision of the currency (legal tender)?
It is in the hands of the ministry of Finance or the Central Bank
Is Bitcoin money?
- functions of money are only partially fulfilled (particularly unit of account and medium of exchange are problematic)
unit of account meaning
Unit of account is one of the money functions. A unit of account is a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions.
Money acts as a standard measure and a common denomination of trade. It is thus a basis for quoting and bargaining of prices. It is necessary for developing efficient accounting systems.
Bitcoin as digital gold?
- bitcoin supply/reserves are limited (comparable to gold)
- high price volatility argument against digital gold
- bitcoin has no fundamental value
Definition of a stable coin
- linked to other asset
- can be exchanged at fixed rate
A stablecoin is a crypto token whose value is linked to the value of other assets such as a currency, a basket of currencies or bonds and which is exchangeable into that asset at a fixed exchange rate
What is one of Bitcoin’s largest problems?
High price volatility. —> Bitcoin is not used as a means of payment
