Approaches to the Definition of Money: Which Category does Cryptocurrency belong to?

Money generally embodies currency notes and coins held as cash in-hand or chequable deposits with banks. The definition of money remains controversial: money can be defined in terms of its function (that is money can be defined as what money does) or in legal terms anything declared as money by the state is money. Money as a concept is defined as any commodity that is generally accepted as a medium of exchange and a measure of value. With the emergence of several forms of money and money substitutes in form of assets it is necessary to define what should constitute money. 

Will discuss four approaches to the definition of money.

1. Conventional approach: this approach emphasises the basic function of money which is the medium of exchange and measure of value function. It defines money as any commodity that is generally acceptable and used commonly in settling of debts obligation at a particular place & time. This definition means that money is confined to a geographical area and its concept is relevant at a particular point in time. The total supply of money consists of coins, currencies and demand deposits. It is often called the narrow definition of money or M1

2. Empirical approach: it is an extension of the conventional approach with the inclusion of time deposits with commercial banks. The rationale is based on the store of value function of money, any asset capable of serving as a temporary abode of purchasing power is considered as money. Such assets are durable with no depreciation over time and is liquid in nature. Time deposits can be like savings account with the commercial bank or fixed deposit account: fixed for a period of time with interest payable at maturity. This is know as the broad definition or money or M2

3. Gurley Shaw approach: this approach defines money supply as the weighted sum of money, demand deposits of financial institutions and all deposits and claims against the non-bank financial intermediaries. It is an extension of the empirical approach. The basic argument anchors on the substitutability and liquidity of the assets involved. Since both banking and non-banking financial institution do create credits capable of serving as liquid assets, therefore claims against the latter should be part of the money stock. Such assets includes, insurance reserve, pension funds. An asset is qualified for inclusion depending on the degree of liquidity. This is called M3

4. The central bank Approach: this definition is rather broad since central bank are entrusted with the task of controlling and regulation of credit in accordance with the need of the economy. Here money supply constitutes currency plus liquid or realized assets which are perfect or near perfect liquidity and are easily converted into cash. Also the total credit both from commercial banks and other sources are considered depending on the objective of monetary policy and policy targets. CBN uses the M1 and M2 definition of money. 

Now what is cryptocurrency and can it be said to be a form/type of money? Can cryptocurrency serve as a medium of exchange, store of value, Standard for deferred payment, unit of account? which are the core functions of money?. Money is anything generally acceptable to both parties. Are cryptocurrencies generally acceptable? Money has characteristics like scarcity, divisibility, homogeneity, durability, portability etc. Does cryptocurrency have this same characteristics? 

What approach does cryptocurrency fall under in the definition of money? M1, M2 or M3? What is the sole purpose of cryptocurrency? Is a debate. Anyone with the best answer gets a tip from the post payout.

image source