PAYMENT TOKENS AND THE FUNCTIONS OF MONEY

Abstract

The purpose of the article is to investigate whether payment tokens perform such basic functions of money as measure of value, means of circulation, means of payment, means of hoarding, and world money, and whether they can replace fiat currencies. The relevance of the topic of the article derives from the exponential surge in cryptocurrency operations worldwide over the past decade. It holds particular relevance for Ukraine, as it featured among the top ten countries globally in 2022 and 2023 in terms of the proportion of its population engaged in cryptocurrency ownership. The author determined that such a type of payment token as CBDC comprehensively fulfill all the functions of money, as it represents a novel form of currency. They study delves into the performance of other payment tokens, including stablecoins and cryptocurrencies, in performing the functions of money. Notably, it concludes that the level of performance of functions of money is higher when the volatility of the digital currency is lower. Stablecoins, particularly those backed by fiat currencies, excel in serving as a measure of value and means of circulation. In turn, unbacked cryptocurrencies, as well as stablecoins, which are backed by a different type of asset than fiat currencies, exhibit limited capabilities as a unit of account and medium of exchange due to their lack of physical presence, rendering price setting for goods and services less convenient. Moreover, the means of payment function is constrained for all cryptocurrencies, primarily because of their volatile exchange rates, which hinder their suitability for medium- and long-term transactions. Additionally, resistance from many financial regulators worldwide impedes the use of cryptocurrencies as a means of payment. The study also identifies that cryptocurrencies offer a restricted means of hoarding, even though their use for this purpose is steadily increasing. Notably, asset-backed cryptocurrencies have a higher potential for value appreciation, yet they carry increased risks of devaluation, leading to their predominant use as speculative instruments for profit generation. In contrast, stablecoins, which are backed by fiat currencies, are more frequently utilized as a store of value. Furthermore, the research suggests that cryptocurrencies could potentially outperform certain fiat currencies in serving as world money. Their borderless nature and absence of transaction costs for currency exchange operations make them a universal international financial instrument, transcending geographical and national boundaries.