Editorial hello
Short and sweet today as I’m in news-gathering mode. I would, nonetheless, like to flag George Pantelopoulos and Paul Wessels’ paper on The Alchemy of Fungible Money. It originally came out in August while I was off. The summary and link are below.
Essentially, the authors argue that par value is necessary but insufficient to assure fungibility. This is because two forms of money can trade permanently at 1:1 and still not be genuinely fungible. For example, when people lose trust in one issuer over another, or when one system gets hacked or forged, and the other does not. This, in turn, implies that fungibility is contextual and can change without the exchange rate changing. Or as the authors put it: “fungible money is in reality akin to alchemy, since means of payments are not fungible in an absolute sense, but in a practical sense”.
The same obviously applies to conventional deposits and is why deposit insurance was invented (to lower information sensitivity).
And herein the authors make a more controversial point: based on current legal opinions, it’s not necessarily clear whether tokenised deposits qualify as commercial bank money claims in the same way conventional deposits do. As a result, it’s unclear if holders are eligible for deposit insurance. If that’s true, that’s a pretty big problem for rampant take-up.
