What is money?

The chapter on money and banking introduces students to the definition of money. For anything to function as money in society it must serve three functions: 1) medium of exchange 2) unit of account, 3) store value. Historically there have been three types of money: 1) commodity money -physical objects such as gold and silver coins denote money 2) money backed by objects of value - the gold standard is an example of this second type of money, each dollar in circulation is redeemable for a specific amount of gold. 3) Fiat currency - money issued by the government with no intrinsic value. Currently, every currency issued by countries around the globe is Fiat money. The entire global economic system operates on Fiat currencies.

Cryptocurrencies represent a potential new type of money and an alternative to Fiat currencies issued and regulated by governments. Watch the following videos which analyze cryptocurrencies.

1. Why Investors Are Piling Into Bitcoin Despite the Risks | WSJ: https://www.youtube.com/watch?v=HhOuvNDMlI0
2. Stablecoins: Why This Hot Cryptocurrency Faces Challenges | WSJ: https://www.youtube.com/watch?v=GEvxWQmloLw
3. Why Central Banks Want To Get Into Digital Currencies: https://www.youtube.com/watch?v=ywV5JMDHiAY

Answer the following questions:

1. Are cryptocurrencies money or merely an investment? Explain in detail.

2. Central banks around the world are responding to the expanded availability and use of cryptocurrencies. In economic terms, explain the costs and benefits of cryptocurrencies and the reasons why central banks are attempting to counteract the growth of cryptocurrencies with digital currency options.