Financial Accounts: Popular Today

Financial accounts are popular today because financial institutions such as banks and central financial authorities have declared that they be used as such.

Chris Kameir is a managing partner at blockchain venture fund


The term "money" is often used as a synonym for currency. However, the qualification of the former is determined by users of the latter. Which is to say that money is a contract between two or more parties. The arrangement solves a central challenge in trade called

To reduce friction in commerce, communities, organizations and countries frequently standardize these agreements, creating more efficient systems known as currencies. As such, a five-dollar Federal Reserve note may solve the trade problem between the seller and buyer of a pack of cigarettes; meanwhile, the contents of that pack may be a common medium of exchange and unit of account in a friendly poker game. A merchant may refuse Federal Reserve notes over some amount; however, legal tender laws could require him to accept those same bills as settlement for an outstanding debt.

A Federal Reserve note is a physical manifestation of a fiat currency, often contrasted to commodity currencies—where the price for the commodity matches the unit of account imprinted on it. The term "fiat" refers to the proclamation of authority that it wishes a particular unit of account to be used as money. As such, casinos may declare that poker chips should be considered the default medium of exchange within its place of business, and an online business may pronounce that only digital bearer instruments such as bitcoin are acceptable currency.

The historic definitions of a unit of account, medium of exchange and store of value may be an appropriate definition for commodity currency; however, they do not describe its function as money. The latter is defined solely by the parties in a transaction. It is surprising to find the conflation of currency and money in many contemporary papers from government agencies around the world as part of their discussion on new forms of payment such as central bank digital currencies (CBDCs).

In the United States, the Federal Reserve has taken the lead on discussing a potential U.S. CBDC with a

The paper's discussion of the legal nature of money doesn't make a clear distinction between the technical implementation of currency and the legal nature. Moreover, rather than clearly identifying current technologies that are available, it enumerates multiple forms of money by their credit and liquidity risks across central bank, commercial bank and nonbank money.

The paper attempts to determine a central bank digital currency from existing forms of money by defining a CBDC as a digital liability of the central bank that is widely available to the general public, and which is similar in nature to digital paper money. This takes on the form of Federal Reserve notes in seven denominations and various forms of coinage at present.

A bearer instrument, cash is often accepted without a fee and minimizes settlement risks for the party accepting it in return for goods or services. In contrast, notes have largely been displaced in commerce by digital currency transfer. As of today, only commercial bank money—and to a lesser extent nonbank money—is available in digital form.

The Federal Reserve Banks are structured like private corporations, but their purpose is to serve the public. Consumers do not have to pay fees for using central bank money. Commercial banks and most nonbank financial service providers, on the other hand, operate as for-profit entities and therefore optimize their operations to increase profits for shareholders. Banks generate income from consumers and companies by using commercial bank currencies when settling economic activities

As detailed LexisNexis, financial crime compliance costs amounted to nearly $9 billion in 2021 for U S financial service providers, every digital transaction carries detailed information about the sender and receiverand in some cases, the goods purchased, which are then screened by all financial intermediaries for illegal activities

A CBDC that is similar to a digital form of paper money—a digital bearer instrument—would not require intermediaries for most transactions carried out by consumers today. Payments for everyday purchases could be done without revealing the identities of the parties involved in the same way that users may choose to pay in cash. This would help fight cybercrime while freeing up resources for identifying truly illicit activities

Currencies are technologies that rely on network effects. In economies where digital solutions dominate, the medium of exchange has defaulted to bytes expressing a particular type of agreement (i.e., the terms of a demand deposit account, or certificate of deposit).

In the case that the latter introduces counterparty risks, these can be offset by holding U.S. Treasuries or Federal Reserve notes. In the event that the former is available as digital bearer instruments, investors can expect to see an explosion of new solutions in the form of programmable money, or what could be called Fintech 2.0.

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