The debate around crypto assets and central bank digital currencies (CBDCs) is intensifying, and with it, the discussion around the definition of money. “The nature of money has evolved over time,” according to the European Central Bank (ECB). However, ECB board member Fabio Panetta insists that “cryptos have failed to make good on their claim to perform the role of money.” He believes that free market crypto assets should be regulated into irrelevance, while a digital ledger central bank currency is developed.
The BIS Annual Conference and the organization’s annual report both echo Panetta’s conviction that all crypto assets are the “same” and that all experiments to date have been a failure. But two economists from the German central bank published a paper for the European Money and Finance Forum called “Empowering central bank money for a digital future.” This note discusses the design of central bank digital currencies, and recognizes that a guiding principle should be “form follows function.” This unearths the insight that the function of money is not universal or even constant, and that its design should take its function into account.
Noelle Acheson, former head of research at CoinDesk and Genesis Trading, writes that “What has never changed is that money is what money does.” The emergence of bitcoin has given us the imperative to question money’s definition and utility, and to explore the potential of technology to change what money can do.
The debate around money’s evolution is ongoing, and it is clear that the traditional definition of money is being re-considered. Crypto builders continue to push boundaries, explore use cases and wait for legacy finance to catch up with the idea that old semantics may be convenient.