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Money's three social functions – storing value, exchanging it and providing a unit of account – are unraveling, with dramatic implications, says EYQ's Insights Director.

Money performs three social functions simultaneously. First, it is an asset, a vehicle for storing value, empowering savings. Second, money is currency, a medium to exchange value, enabling consumption. And third, money acts as a unit of account (e.g. credits and debits), a way to keep track.

For as long as anyone can remember, those three roles have been bundled together. The development of crypto markets and financial technology, however, are unbundling those functions, creating new instruments that perform a single role rather than all three simultaneously. In turn, that alleviates trade-offs faced by money-issuers, expanding the possibilities for monetary policy.

To illuminate the unbundling process, let’s look at three recent case studies with key lessons for central bankers who are exploring digital currencies: 1) Bitcoin’s hard fork; 2) China’s DCEP experiments; and 3) the evolution of DeFi on the Ethereum network.
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