On 9 September 2026, Anna Seim, deputy governor of Sweden’s Riksbank, gave a speech with a plain title: “What is money?”. She was not alone in asking. In June the Bank for International Settlements (BIS), the central banks’ own bank, gave a chapter of its annual report of 23 June to testing stablecoins against the basic properties of money. In July, Nathanaël Benjamin of the Bank of England argued that most of what central banks do comes down to protecting the jobs money does.
Seim’s answer on Bitcoin took one sentence. The wider question takes longer.
What is money? Money is whatever a community accepts as payment, uses to put prices on things, and trusts to carry value from today to later. Those three jobs, plus a short list of practical properties, make a checklist that central banks apply to the euro, the pound and the dollar. By the end of this lesson you can run the same checklist on Bitcoin and on a dollar stablecoin, and see where each one passes and where it fails.
This is the first lesson of our money and economics path. It assumes you know roughly how a crypto-asset works; if not, start with our beginner’s guide to what a cryptocurrency is. Facts are as of October 2026. Nothing here is investment advice.
What is money: the three functions central banks agree on
Open the education pages of the big central banks and the same three functions of money come up. The European Central Bank lists them as a medium of exchange, a unit of account and a store of value, and adds that money has these three functions whatever form it takes. The Bank of England uses the same trio and points out that most money in the UK today is held electronically, as balances in bank accounts. The Banque de France teaches them in French as intermédiaire des échanges, unité de compte and réserve de valeur. The Banca d’Italia, explaining why crypto-assets fall short, names them in Italian as mezzo di pagamento, riserva di valore and unità di conto.
The words shift a little. The Riksbank says “means of payment” where others say “medium of exchange”, and a footnote in Seim’s speech admits the terminology varies. Some school courses stretch the list to four, five or six functions. Central banks keep it at three. So does this lesson.
Medium of exchange: getting past barter
A medium of exchange is something you hand over to settle a purchase, knowing the seller will take it because they can hand it on in turn. An IMF article from September 2012 by Irena Asmundson and Ceyda Oner explains why this matters with an argument about specialisation: without money we would be stuck with barter, and barter makes it very hard to specialise. People would trade goods for goods. That works in a village with five products. It breaks down once people specialise, because a person who does one thing all day would need to blockchain, dove gli utenti scambiano token direttamente dal proprio wallet senza affidare la custodia dei fondi a una società.">swap that one output directly for everything else they need.
A dentist cannot pay for groceries in fillings. With money, she sells her work to anyone who needs a dentist and buys food from anyone who sells it. The two trades no longer have to involve the same people.
Unit of account: one ruler for every price
A unit of account is the measure in which prices, wages, debts and contracts are written. The ECB puts it as the job that lets goods and services be priced and those prices compared. The Bank of England calls it a shared standard everyone can use.
This is the function people forget, because it is invisible when it works. A supermarket shelf in Leeds shows pounds. A rent contract in Ohio says dollars. A salary slip in Lyon or Turin says euros. Because everyone uses the same ruler, you can tell at a glance that a coffee costs more than a newspaper but less than a train ticket, and a business can add up a year of sales.
Store of value: spending later
A store of value lets you keep purchasing power for later: you are paid on Friday and spend the money next month. The Bank of England stresses that money keeps its face value. A ten-pound note is still ten pounds in a year.
Face value is not the same as what it buys, though. If prices rise 3% over a year, that ten-pound note buys about 3% less. With modest inflation, money still stores value well enough, because the loss is small and predictable. It stops working when the loss is large or nobody can guess it.
Why the three jobs depend on each other
The three functions are not a menu from which money picks one or two. They hold each other up, and the Riksbank speech shows how. Seim’s point is that money keeps its value when the central bank targets stable prices. Where it does not, the effect spreads: in countries with high inflation, she notes, the national currency stops being a store of value and people switch to the US dollar, or the currency gets pegged to gold.
Follow the logic one step further. Once savings sit in dollars, a seller of a car or a flat has every reason to quote in dollars as well, since a price in the local currency would need rewriting every few weeks. The local money is then left with small daily purchases. A store of value that fails tends to drag the unit of account down with it.
The opposite chain works as well. A thing that is hard to spend (a weak medium of exchange) is rarely used to write prices, and a thing nobody prices in is awkward to save in, because you always have to convert it back to know what you own.
Central bankers add a condition that sits under all three: the singleness of money. Seim’s version is that one krona must be worth the same whichever bank holds it. Benjamin made the same point for sterling in July: a pound in someone’s bank account must be worth a pound coin in someone else’s pocket or digital wallet, and the different forms of money must be exchangeable with each other at par, one for one. Seim adds the anchor: every form of krona can be swapped for money issued by the central bank. If a pound at one bank were worth 99 pence at another, the pound would stop being one ruler and become several.
Properties of money: what makes something good money
The three functions describe what money does. The properties describe what a thing must be like to do those jobs well. Teaching materials often give seven: durability, portability, divisibility, uniformity, scarcity, acceptability and verifiability. No authority publishes an official list, and the central-bank texts behind this lesson do not use all of these words. They do back the core of it.
The IMF article explains why precious metals worked as money for so long: they stand up to time, their supply is limited and costly to replace, they are easy to carry relative to their value, and they split into standard coins without losing value. Strawberries, the authors note, would make poor money. They rot.
In plain terms, the checklist reads like this.
- Durability means the thing survives being kept and handled for years without losing value through decay.
- Portability means a useful amount can be carried or sent without trouble.
- Divisibility means it splits into small units so you can pay for a coffee as well as a car.
- Uniformity, or fungibility, means one unit is as good as any other unit; central banks call the same idea singleness.
- Scarcity means nobody can create more of it at will, or at almost no cost.
- Acceptability means people around you will take it, which the ECB ties to a value that people trust.
- Verifiability means you can check quickly that what you receive is genuine.
The table applies the checklist to four things people have used or proposed as money. It is this lesson’s own assessment for teaching purposes, not an official ranking by any authority.
| Property | Gold | Banknote | Bank deposit | Bitcoin |
|---|---|---|---|---|
| Durability | Very high | Medium: paper or polymer wears out and is replaced | High, as long as the bank stands | High, as long as the network runs and you keep access to your keys |
| Portability | Low for large sums | Good for small sums | Very high: sent by card or transfer | Very high: sent over the internet |
| Divisibility | Poor without minting coins | Good, down to the smallest coin | Very high, to the cent | Very high, to 8 decimal places |
| Uniformity | Depends on purity and weight | High: each note of a value is equal | High: converts to cash at par | High at the level of the protocol |
| Scarcity | Limited by mining | Set by the central bank | Grows as banks lend | Capped at 21 million coins |
| Acceptability | Low in shops today | High, though some shops refuse cash | Very high | Low: few places take it |
| Verifiability | Needs testing | Checked by look and feel; forgeries exist | The bank keeps the record | Anyone can check the public ledger |
A few cells deserve a word. According to the bitcoin.org FAQ, only 21 million bitcoins will ever be created, and each one divides into 100,000,000 units called satoshis, which is where the eight decimal places come from. Verifiability comes from the shared ledger that every full node can check, explained in our guide to how a blockchain works. On scarcity, durability and divisibility, Bitcoin scores well. Its weak row is acceptability. Its weakest point of all does not fit in the table: how far its value swings, which the next sections measure.
Gold fails differently. It is scarce and lasts for ever, but you cannot pay for a sandwich by shaving a bar. Bank deposits look poor on scarcity, yet that is by design: the supply of money in a modern economy is meant to grow with the economy, steered by the central bank.
A five-question test you can apply to any asset
The table above scores properties. The functions are easier to test with questions you can answer yourself, about anything someone calls money, from a gold token to airline miles. Answer each one for the place where you live and spend.
- Can I pay with it for ordinary things near me, without converting it first? If you must sell it for pounds, dollars or euros before you buy anything, it is not working as a medium of exchange where you are.
- Are prices around me written in it? Look at shop shelves, your rent, your salary and your bills. If none of them use it, it is not your unit of account, even if a few websites show prices in it.
- If I set it aside for a year, do I know roughly what it will buy then? Check how much its value moved over the past year, measured in the money you earn. A store of value does not have to be perfect, but its losses should be small and fairly predictable.
- Who owes me if something goes wrong? Cash is a claim on the central bank; a deposit is a claim on your bank; a stablecoin is a claim on its issuer. Some crypto-assets are a claim on nobody. Knowing which one you hold tells you where the risk sits.
- Does the law say it settles a debt? Legal tender status, explained further down, is narrow, but it shows whether a state stands behind the thing or merely tolerates it.
For people who live in those currency areas, pounds, dollars and euros pass the first three questions, and the answers to the fourth and fifth are clear. Bitcoin and stablecoins get the same five questions further down.
Cash, bank balances and reserves: the forms of money in use
Money has changed form many times. For centuries the dominant type was commodity money: coins whose value lay in the metal itself. Later came representative money, paper notes that could be exchanged for a fixed amount of gold or silver. Our next lesson, the history of money from shells and coins to bank deposits, follows that path step by step.
Today’s pounds, dollars and euros are fiat money. They are not backed by metal. The ECB describes fiat money as money declared legal tender and issued by a central bank, and the IMF article says such money has value because a nation collectively agrees to give it value. That sounds fragile. In practice it rests on institutions: a central bank that aims for stable prices, courts that enforce contracts, and a state that accepts its own money for taxes. A later lesson in this path covers central banks and fiat money in detail.
Most money is a bank balance, not paper
On 14 March 2014 the Bank of England published two articles in its Quarterly Bulletin. The first splits money in the modern economy into three types: currency (notes and coins), bank deposits, and central bank reserves, which only banks hold. The second, “Money creation in the modern economy”, gives a figure that surprises most readers:
“Of the two types of broad money, bank deposits make up the vast majority — 97% of the amount currently in circulation.” (Bank of England Quarterly Bulletin, 14 March 2014)
That figure is for the UK in early 2014. It is neither a current nor a worldwide number, and we found no newer equivalent. The same article explains where those deposits come from: most are created by commercial banks when they make loans. A bank that lends you money for a car does not hand over someone else’s savings. It writes a new deposit into your account.
The euro area shows the same pattern. In a speech in Cork on 20 March 2025, ECB Executive Board member Philip Lane put euro banknotes in circulation at about 1.6 trillion euros, roughly 10% of euro area GDP. The broad money measure M3, he added, is ten times the value of the banknotes in circulation. Cash is a small slice of the money people hold.
French students learn this split as monnaie fiduciaire (notes and coins) and monnaie scripturale (bank balances), the terms the Banque de France uses. The Banca d’Italia adds a point that applies across the euro area: cash is the only form of money issued by a central authority that every citizen can hold directly. Your bank balance is a promise from your bank, convertible at par into cash. That conversion at par is the singleness of money at work.
Banks are now testing deposits that move on blockchains. JPMorgan’s JPM Coin is one: as our report on JPM Coin’s planned move to Ethereum explains, it is a bank deposit written as a token, not a stablecoin. The form is new. The legal nature, a claim on a bank, is the same as an ordinary current account.
What legal tender means, and what it does not
Many people believe legal tender means a shop must accept it. In the UK and the US, that is wrong. Legal tender is a narrow legal idea about settling debts, and the rules differ by country.
United Kingdom
The Bank of England’s legal tender explainer says the term has a narrow technical meaning tied to paying off a debt. In England and Wales, Royal Mint coins and Bank of England notes are legal tender. In Scotland and Northern Ireland, only Royal Mint coins are: no banknote is legal tender there, and the Bank adds that Scottish notes are not legal tender in England either. Coins have limits: 1p and 2p coins are legal tender up to 20p, 5p and 10p coins up to £5, and £1 and £2 coins for any amount. In a shop, the Bank says, the owner can decide which payment methods to take.
United States
Under 31 U.S.C. 5103, US coins and currency are “legal tender for all debts, public charges, taxes, and dues”. The Federal Reserve’s FAQ adds that no federal law obliges a private business to accept cash; businesses set their own policies unless a state law says otherwise.
Euro area
In the euro area, notes get legal tender status from Article 128 of the EU treaty and coins from Regulation 974/98. The European Commission relies on a 2010 Recommendation to explain what that means: in principle, cash must be accepted at full face value and settles the payment, with exceptions, for example when both sides agreed on another way to pay or when a refusal is made in good faith. The EU Court of Justice confirmed that reading in January 2021. France is stricter than the UK on this point: the Banque de France says euro notes and coins cannot be refused in payment of a debt. The Banca d’Italia notes that nobody has to accept more than 50 coins in a single payment.
Next to legal tender, many countries cap cash payments. In France, residents paying a business cannot pay more than 1,000 euros in cash, with a higher limit for non-residents. Italy bans cash payments of 5,000 euros or more. The EU is also rewriting the rules: a proposal on the legal tender of euro cash, tabled by the Commission in June 2023, was voted by the European Parliament’s economic and monetary affairs committee on 23 June 2026, and on 8 July the plenary confirmed the decision to open negotiations with member states. As of 20 October 2026 the Parliament’s procedure file shows no agreed text: it is not law yet.
The short version for any country: legal tender tells you what a creditor cannot refuse to settle a debt. It does not tell you what a café must take for a croissant. And crypto? The FCA in the UK, the IRS in the US and the Banca d’Italia all say it is not legal tender.
Is Bitcoin money? Scoring it on the three jobs
Bitcoin was designed as electronic cash, a way to pay without a bank in the middle; our guide to what Bitcoin is covers how it works. Its design handled verification and scarcity in a new way. The question here is narrower: does Bitcoin do the three jobs of money for people living in the UK, the US or Europe?
Medium of exchange: possible, rarely used
You can pay with bitcoin, and some merchants accept it. The ECB’s explainer on Bitcoin, first published in 2018 and updated in 2021, says there are very few places where you can, and that payments are slow and costly. The Banca d’Italia’s consumer page on crypto-assets makes the same points and adds that a bitcoin payment can take more than an hour before it is considered secure. In his March 2025 speech, Lane gave two reasons why crypto-assets such as bitcoin suit payments poorly: high price volatility, and an inability to process large volumes of transactions quickly.
Unit of account: the weakest of the three
Almost nobody writes prices, wages or rents in bitcoin. The reason is visible in any long price chart. According to figures reported by Crypto Briefing on 6 October 2026, bitcoin set a record of about $126,000 on or around 6 October 2025, then found a floor of roughly $58,000 to $60,000 in late June and early July 2026. By our calculation that is a fall of about 52% to 54% from the record, in roughly nine months.
Take a landlord who had priced a year’s rent in bitcoin at the October 2025 record. Measured in dollars, that rent would have lost about half its value by early summer 2026. A ruler that shrinks by half is not a ruler. Someone who holds bitcoin but pays rent in pounds still counts gains and losses in pounds, which shows which unit of account is really in use.
Store of value: the argument is about the long run
Supporters of Bitcoin say its fixed supply makes it a store of value over years, the way gold has been: no central bank can print more, so the cap of 21 million coins protects it from the kind of inflation that wears down a national currency. That is a claim about the long run, and a reader can judge it against the record. The test in this lesson asks something more modest: if you set it aside for a year, do you know roughly what it will buy? Over the nine months from the record to the 2026 low, the answer was no.
What the authorities say
Official views are not identical, and it helps to read them as a spectrum. The bluntest come from 2018 and 2026:
“While cryptocurrencies do not work as money, the underlying technology may have promise in other fields.” (BIS Annual Economic Report 2018, chapter V)
The ECB’s 2018 explainer called bitcoin a speculative asset and concluded that it may be virtual, but it is not a currency. The Riksbank’s Seim, after setting out the three functions in September 2026, said Bitcoin “cannot actually be classified as money according to any of the three criteria”. A footnote to her speech explains that central banks usually say crypto-assets rather than cryptocurrencies, because these assets generally do not fulfil the basic functions of money. The French market authority, the AMF, says plainly that a crypto-asset is not a currency: its value comes only from supply and demand, and no trusted third party such as a central bank stands behind it. The Banca d’Italia says crypto-assets are not always able to perform all three functions.
Their common ground is narrower than the headlines it sometimes produces. These texts judge whether Bitcoin does the three jobs of money, and conclude that, today, it does not do them well enough.
El Salvador tried to make bitcoin money by law
One country has tested what happens when a state backs bitcoin as a means of payment. In September 2021, El Salvador made bitcoin legal tender alongside the US dollar, which it already used. Businesses were required to accept it, and the government backed a crypto wallet called Chivo.
The mandate did not survive an IMF loan. In a staff-level agreement of 18 December 2024 on a 40-month arrangement worth about $1.4 billion, the IMF said legal reforms would make acceptance of bitcoin by the private sector voluntary, that taxes would be paid only in US dollars, and that the government’s role in Chivo would be wound down gradually. At the end of January 2025, El Salvador’s Congress approved the change by 55 votes to 2, minutes after President Nayib Bukele sent it, as The Block reported citing Reuters.
Since then, businesses are no longer required to accept bitcoin and taxes are paid in dollars; the law no longer makes bitcoin a means of payment that must be taken. Reports differ on whether a formal legal tender label survives in the amended text, and this lesson does not settle that point. On 1 October 2026, the IMF board completed the second and third reviews of the programme, releasing about $138 million. The IMF said majority ownership and control of Chivo had passed to a private operator and that no further bitcoin accumulation is envisaged beyond documented donations.
The episode shows the gap between the law and the three functions. A law can oblige a seller or a creditor to accept something. Whether people price their rent in it or save their wages in it depends on the three jobs, and no statute settles that.
Stablecoins: close to money, but a claim on an issuer
Stablecoins were built to fix Bitcoin’s weakest point, the unstable price. A stablecoin is a token designed to hold a steady value, usually one US dollar, backed by reserves held by the company that issues it. Tether (USDT) and USDC are the best known. Our guide to stablecoins explains how the reserves and redemptions work.
Run the five-question test on a dollar stablecoin and the result changes. It passes the unit-of-account question for anyone who already thinks in dollars, because it is meant to track the dollar one for one. It is easy to send. Question four is where it differs from cash: a stablecoin is a claim on the issuer, so its value depends on that company’s reserves and on its ability to pay out. The Banca d’Italia gives an example: USDC briefly lost its one-dollar value in March 2023, after the failure of Silicon Valley Bank, trading as low as 87 cents on some platforms.
The BIS chapter of June 2026 puts stablecoins through three tests drawn from central banking. Singleness asks whether every unit is worth the same everywhere; the BIS says stablecoins cannot currently guarantee exchange at par across different issuers and blockchains in all conditions. Elasticity asks whether the money supply can expand when the economy needs it. Integrity asks whether the system keeps out crime; here the BIS notes that stablecoins account for a significant share of illicit on-chain activity. Its verdict is that current designs “fall short on foundational properties of money”. It put the stablecoin market at about $320 billion at the end of May 2026, with 99.4% of fiat-backed stablecoins pegged to the dollar.
Seim reached a similar view. Nearly 98% of the stablecoins in circulation at the start of 2026 were dollar-pegged, she said, and so far they have worked more like financial assets than like money. Lane at the ECB took a different angle in 2025: of all crypto-assets, stablecoins are the ones that matter for payments. Benjamin at the Bank of England did not discuss crypto as such, but he set the bar any new digital money must clear: it must work with the rest of the system and be redeemable at par.
In the EU, the MiCA regulation turns that bar into law for stablecoins tied to a single official currency, which it calls e-money tokens. Article 49 says in so many words that holders have a claim against the issuer. Issuers must create tokens at par when they receive funds and redeem them at par at any time, without a fee. That right to get your euros or dollars back puts the token in the same family as a bank deposit, which is a claim on the bank. Our guide to the MiCA regulation covers the licensing side.
So a regulated stablecoin comes closer to money than Bitcoin does on the three functions, while depending on a private issuer in a way that cash does not. For the BIS, singleness is the first problem to solve.
How regulators file crypto: property and crypto-assets, not money
When a regulator has to decide what crypto is, the answer is never “money”. Each one files it under another heading.
United States: property for tax
The Internal Revenue Service set its position in Notice 2014-21: “For federal tax purposes, virtual currency is treated as property.” The notice describes virtual currency as a digital representation of value that works as a medium of exchange, and it says such currency is not treated as currency for the rules on foreign-currency gains and losses. In practice, the tax rules for property apply, not the rules for dollars or for foreign cash.
United Kingdom: not money, but property
The Financial Conduct Authority’s guidance on cryptoassets, policy statement PS19/22 from July 2019, says exchange tokens such as bitcoin are used much like traditional currency but are “not currently recognised as legal tender in the UK, and they are not considered to be a currency or money”. The guidance dates from July 2019, so read that sentence as the regulator’s position at the time.
Property law moved separately. The Property (Digital Assets etc) Act 2025 received Royal Assent on 2 December 2025 and came into force the same day, in England and Wales and in Northern Ireland. It confirms that a thing can be the object of personal property rights even if it fits neither of the two traditional categories of personal property, and leaves the courts to develop this third category. That matters for ownership, theft and insolvency. It says nothing about whether crypto is money.
European Union, France and Italy
The EU’s MiCA regulation uses the term crypto-assets throughout and sorts them into e-money tokens, asset-referenced tokens and the rest. The AMF in France states that a crypto-asset is not a currency, and the Banca d’Italia that crypto-assets are not legal money. The Riksbank’s footnote, mentioned earlier, gives the reason central banks prefer the term: these assets usually do not fulfil the basic functions.
What this changes for you
Knowing what money is will not tell you whether to buy anything, and this lesson does not try to. It does change how you read prices and promises.
Measure everything in the money you earn and spend. A token that is “up 20%” in some other unit means little until you know what it is worth in pounds, dollars or euros, because that is the unit in which your rent and your taxes fall due.
Do not confuse acceptance with legal tender. A shop or a website that takes bitcoin has chosen to, and can stop. In the UK and the US, a shop that refuses your banknotes is usually within its rights too; in France it is not.
Ask who owes you. A bank deposit is a claim on a bank. A stablecoin is a claim on its issuer, and under MiCA in the EU you have a legal right to redeem at par. Bitcoin is a claim on nobody: what it is worth depends on what the next buyer will pay.
Money has not always taken the shape it has today, and the three jobs explain why each new form either spread or faded. The next lesson, a short history of money, follows that story from commodity coins to bank balances, so the arrival of crypto can be seen against what came before.
