What is money? The first thing that comes to mind is coins and banknotes. Also gold. And what about restaurant vouchers? It is easy to broaden the range of candidates to fit the definition of money, which is an instrument used to complete a payment. Cards, mobile phones, and the internet are other means of payment, as there are as many as technology allows and consumers prefer. To simplify, we can say that money is any asset that allows us to pay for the product or service we need and is generally accepted. However, lacking intrinsic value in almost all cases, its acceptance remains a matter of trust. The same applies to legal tender issued by authorities. The trust and security behind money, as well as its stability over time, also establish it as a store of value that can be accumulated for future payments.
Money functions as a medium of exchange, a unit of account, and a store of value. By definition, the variation of money in circulation finances the nominal growth of the economy. This simple monetary rule led central banks in the past to attempt to control the money supply as an intermediate objective of monetary policy to achieve the final goal of price stability. It took time to realize that this is not possible in an open and innovative world. The concept of money is stable, but the form it takes over time is not, fueled by technological progress and changes in consumer habits. We are talking about generational and cultural issues, in many cases, which determine the use of the type of money in question.
This classic debate on the concept of money reaches the present day alongside the increasing digitalization of society. Cryptocurrencies, as we currently know them, do not meet the premises to be considered money. They are not generally accepted as a medium of exchange, they are not stable, nor are they a unit for pricing items. They can be, it is true, a store of value, like any financial asset or commodity. When referring to these assets, people speak of digital money, but it is necessary to clarify that legal tender is already largely digitalized through account entries in the system under a regulated and transparent framework that works well. This is the key to money: it must allow payments for the expenses and investments necessary for economic development to be carried out efficiently and securely.
The current monetary system has credit as its underlying basis. Credit dominates the relationships between central banks, private banks, households, and businesses. Central banks are issuers of legal tender, while private banks increase the money supply needed by economic agents through their loans and provide the means of payment demanded by customers. The financial intermediation performed by banking entities is essential for channeling society’s savings into investment, thereby enabling economic growth. Furthermore, the high weight of bank financing in the European economy makes credit institutions key to ensuring that the ECB’s expansive monetary policy reaches its final target: households and businesses.
Against this backdrop, it is a priority for the current debate on financial innovation to seek an improvement in the starting position and greater efficiency of the system, always for the benefit of the client. Banks have been and continue to be the engines of financial innovation, and their mission is to offer the necessary financing for entrepreneurship and financial services that respond efficiently to their customers’ needs. It is fundamental that they carry out their work within a context of financial and regulatory stability. Authorities must also adapt to the demands of the new digital era, joining the challenge of promoting innovation.
