Electronic money

Francis Davey fjmd1a at gmail.com
Tue Dec 2 20:43:19 GMT 2014

2014-12-02 19:51 GMT+00:00 Charles Lindsey <chl at clerew.man.ac.uk>:

> But I don't accept the argument that money inevitably implies a liability.
> Yes, on a £5 note it says "The Bank of England promises to pay ...". But if
> you march in and tender your £5 note, what will you get in return? Another,
> cleaner £5 note? Yes if you are happy with that, but if you don't like it,
> they will give you 5 £1 coins, and then their liability stops. Likewise, if
> you demand repayment of the money in your bank account, if they pay it all
> in £1 coins, then there is nothing more you can demand of them.

To be clear I am not suggesting any particular theory of what is "money".
That is probably a discussion better had on an economics list than here. It
happens that the EU has come up with a definition of "electronic money"
which requires (as one of the conditions for something to be electronic
money) that there is an issuer and that the stored value represents a claim
on that issuer. What I am trying to get to the bottom of is: are there any
dematerialised examples of electronic money? You'd have thought so (there
are >40 authorised electronic money issuers in the UK) but I have yet drawn
a near blank.

Bitcoin is of course not an example of "electronic money" within the
meaning of the directive.

My guess is: why bother?

As to £5 - I'm not sure that the Bank of England does have any obligation
to give you £1 coins in return. Both are equally "legal tender" in England
and Wales (the £5 under s1 of the Currency and Bank Notes Act 1954, the £1
coins by Royal Proclamation on 20 April 1983 made under s3 of the Coinage
Act 1971).

> Where does a £1 coin get its value? Only from the fact that people are
> willing to give you goods in exchange for one; but that will only last so
> long as the mint refrains from manufacturing too many of them. I doubt
> Tesco would give you goods in exchange for Danish Kröner, but there are
> people (even Tesco) who will exchange them for £s at the "going rate".

I'm inclined to favour something along the lines of Modern Monetary Theory
which suggests that the large tax liabilities owed to the UK government
which are payable in Stirling are more important than any mere convention.
But, as I said, this isn't really the place to argue it.

> The real question is whether you could create a legally binding contract
> in which the Consideration was expressed in Bitcoins. I don't see why not,
> nor why such a contract would not be enforceable. For sure, you can agree a
> contract for barter, and it will be enforced. Courts have assessed damages
> in terms of peppercorns before now.

An agreement to transfer Bitcoins is almost certainly enforceable -
certainly an obligation to transfer them must be good consideration. I
don't have any doubt about that.

But I doubt nominalism applies to Bitcoin.

> But Bitcoins do not have an "issuer". You can mint them yourself (and, to
> some extent, their value represents the cost of minting them, which is
> quite large - people have even designed chips to speed up the process). And
> you have to store them with a company which specialises in doing so (of
> which there are several); but these are really no different from banks, and
> they have a liability if they lose them, or fail to deliver them on demand).

Yes, which is why bitcoins aren't "electronic money".

Francis Davey
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