In Money and the Mechanism of Exchange, William Stanley Jevons described money in terms of four functions: a medium of exchange, a unit of account, a standard of value, and a store of value. To this date, most economists will default to these criteria when contemplating the function of money in modern economies. However, in 1875 – the time Jevons wrote this definition – he was likely thinking of commodity money and had not been exposed to money created by government decree or cryptocurrencies. So, it might be time to rethink the basic definition of money.

Money: A Really Short History

As has been pointed out by monetary historians, money has historically taken on many different forms and still does to-date. Depending on the time and place, stones, shells, and cigarettes have been used as money, with the latter still being valid currency in many penitentiaries around the world today. This points to a key function of money: the parties of an exchange must agree on what constitutes as money for every transaction they enter into. All other criteria, in essence, speak to the quality of that money in the eyes of third parties not involved in the transaction. As with any agreement, this – often unspoken – understanding of the transacting parties is the legal quality of money.

Currency: Solving the Double Coincidence of Wants Problem

Double coincidence of wants means that the parties of an exchange have to agree to sell and buy each other’s commodities. The problem is, of course, the very high improbability of the wants, needs, or events that cause or motivate a transaction occurring at the same time and the same place. As correctly identified by Bitcoin’s Whitepaper, this is the main problem that a currency (the paper refers to it as ‘cash system’) has to solve. And, which Bitcoin is indeed rather elegantly solving.

So, with this problem out of the way, the question that remains is (only) that of the quality of money. Here’s where we can refer back to Jevons’ historic money criteria.

Preliminary Conclusion

Historic definitions of money may no longer be suitable to define money. And, money and currency are not interchangeable terms but exist on different semantic levels with the former referring to a legal quality and the latter to a functional (mechanics).