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Understanding the Current System

In: Redefining the Monetary Standard in the Digital Age

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  • Livio Stracca

    (European Central Bank)

Abstract

The chapter explores the evolution and fundamental role of money in modern society, emphasizing its necessity due to the impracticality of barter systems. It discusses how money acts as a ledger for transactions, representing a net position of credits and debits over time. The chapter also highlights societies tend to converge on “worthless” tokens with purely symbolic value. It examines the three textbook properties of money: store of value, medium of exchange, and unit of account, noting that while desirable, these are not strictly necessary. In summarising the economics of payments, the chapter introduces the “payment trilemma,” which suggests that no system can achieve universal access, perfect security, and complete privacy simultaneously, with physical banknotes being an exception. Finally, it touches on monetary policy's role in fostering economic stability, notably during the Great Inflation and Great Moderation periods. At the same time, the effectiveness of monetary policy is surrounded by considerable uncertainties.

Suggested Citation

  • Livio Stracca, 2025. "Understanding the Current System," Springer Books, in: Redefining the Monetary Standard in the Digital Age, chapter 0, pages 13-53, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-89840-2_2
    DOI: 10.1007/978-3-031-89840-2_2
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