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What is a good currency?

If you read my bitcoin blog on Monday, this is a logical extension of the topic.

If this new stateless electronic object of value is not a good currency, despite or because of its rapid price appreciation, what is a good currency?

With so much fear around about losing the value of one’s savings, it is not a surprise that so many people would rate the store of value aspect of money as its most important property.

With every gray hair I add to my head, I quite understand.

But that is not the only property of a real currency. There are two others listed in economic texts.

A functional currency must be a unit of account.

If you told me that there were two objects and each was valued at $1, I would say they have the same price. I expect you would agree.

However, if I was told that there were two objects and each was valued at 1 bitcoin, I would have to ask whether the two objects were valued at the same moment.

Because of the wildly fluctuating value of bitcoins, that is important information. If I were trying to make some sort of exchange, I would not want to get the short end of it.

That being the case, the dollar wins with this particular property over the bitcoin.

The third aspect of money is that it must serve as a medium of exchange. If you go to a retail establishment, whether it be for food or a new car, the dollar is universally recognized. The bitcoin is not.

This situation might change over time, but bitcoin is far from universal yet. When I can pay for my groceries here in Iola, Wis., with bitcoin, then it will have met the medium of exchange test.

As I said at the close of my blog on Monday, whatever bitcoin might be, it is not yet a currency.

Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper “Numismatic News.”

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