Quote from: mu_enrico on July 01, 2020, 04:34:25 PM

I heard Gresham's "law" is for commodity money with intrinsic value, like tobacco. Mr. Free to choose said (sorry, I forgot the link/source) in the past tobacco was widely used in the US as money, and in the end, people spent the low-quality tobacco and saved the high-quality tobacco. This behavior droves out high-quality tobacco out of circulation.

If that "law" can be applied in fiat, then Indonesian Rupiah will push better money out of circulation, and you guys will use IDR! I'll be happy if that happens, lul.

That example holds both required properties. First, a tobacco of different quality is exchanged at the same rate per weight or, in other words, has equal nominal value. Second, tobacco can be alternatively used for its intrinsic value: just be smoked. That’s why whenever a smoker gets his hands on a high quality tobacco, he leaves it for himself to smoke, and uses a lower quality tobacco for further exchange. As the circulation continues, good money is literally burned and only bad money is left in circulation.

Gresham’s law’s practical implementations involved commodities mostly, but it also worked with a pair of paper/commodity money. I can’t recall any practical example of two paper currencies in the fiat era though.

Quote from: mu_enrico on July 01, 2020, 04:34:25 PM

Could you give me one example in the present era?

I never bought something other than using currency (physical + digital + virtual) and Bitcoin.

Money is the most convenient MoE, but on certain occasions other assets can provide some benefits that can make them acceptable as payment, given that they are sufficiently liquid.

For example, we are both traders using the same broker. I owe you some $, but I don’t have any free cash, only stocks. I offer you to choose from a list that I’m ready to trade and you pick up a stock that you wouldn’t mind adding to your portfolio. This may look like simple barter, but there are some interesting details:

1)   You do not actually need the exact stocks I offered and wouldn’t buy it on a regular occasion.

2)   You found them liquid (easily and quickly converted into other assets without a loss of value), which is why you accepted my offer.

3)   The exchange happened, because in that particular case stocks featured a lower cost of transport per unit of value than cash (had I converted them into cash, I would lose more on conversion. The same goes for a reverse conversion on your side), so we lost less value during the transaction.

Roughly the same can be applied to a transfer in BTC. In most cases, money is better to transfer value, but sometimes payment in BTC provides certain benefits and we both agree to use it for exchange. The ideological motive also plays a significant role for BTC.

A more common example is bearer instruments. Since they provide anonymous transfers and can pack a large value in a small volume of paper, they are often used as MoE in illicit activities, although their role tends to diminish, as they are oppressed by the AML legislation.

Quote from: mu_enrico on July 01, 2020, 04:34:25 PM

CMIIW, MoE is the most substantial factor in determining whether something is money or not.

Indeed, MoE and accounting functions distinguish money from other assets. The boundary, however, is not strictly predetermined. For example, according to Keynes, when an economy is caught in a liquidity trap, money and bonds become near-substitutes. We can also launch an inverse scenario, making non-cash assets perform the MoE function. Here is an interesting thought experiment on the matter.