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Stocks and shares, partially fulfilling the functions of money

As we have already elucidated, in order to consider any product as money, it is necessary to prove that it fulfils the functions of money.

Securities, depending on their type, can, in suitable conditions, fulfil all the functions of money to some degree (fig. 22):

  • there exists a widespread practice of mortgaging securities (principally corporate shares) as a guarantee when taking a loan. Thus, mortgaged securities fulfil the function of money, serving as a measure of value. Moreover, market estimates of corporate shares reflect the value of the company;
  • during mega deals, involving acquisitions of companies in the USA, transactions are usually carried out with the shares of the companyabsorber (parent company), which serve as the means of payment.174
    Equally, company shares, estimated on the market, sometimes fulfil the function of circulation during the resolution of disputes. For example, on the 10th of August 2004, the company Yahoo! agreed to drop its patent lawsuit against Google, in exchange for 2.7 million shares in the latter175
  • the intended purpose of such a security as a bank cheque is exactly one of the functions of money: to serve as a means of payment;
  • the direct intended purpose of deposit certificates is to serve a means of accumulation;
  • a bill/promissory note can fulfil the function of a means of payment (if the issuer issues it together with a payment of some monetary sum at the time of a deal of one kind or another), the function of a means of saving/accumulation owing to a discount and the function of a means of circulation. Well-known issuers, such as the company Gazprom, fulfill the last function.

Let us consider a concrete example: cheques.

According to Article 877 of the Civil Code of the Russian Federation a cheque is recognised as a security, containing an unconditional instruction by the cheque-giver to the bank, to make a payment of the sum specified on the cheque to the cheque-bearer.

From the point of view of legislation, transactions made by cheque are just as common as transactions made by payment order. It is obvious that cheques fulfil the function of a means of payment and a means of circulation. Their measure of worth is reflected by the sum inscribed on the cheque. However, the function of saving/accumulation is essentially reduced in a cheque, insofar as it is valid for a relatively short period of time. Although, one must acknowledge that 2030-year old banknotes also become invalid in a number of countries.

The following example is Minfin bonds, known in Russia as OGVVZ (Obligations of the State Inner Currency Loan).

It is obvious that they fulfil the function of a means of payment, although not in a very wide sector. The main ideologue, which attaches the payment function to OGVVZ, was and remains the Russian Ministry of Finance (Minfin), which offers the possibility to use Minfin bonds for clearing a debt, buying debts of foreign governments, carrying out mutual tax-related settlements and regulating/classifying payments.

In transactions between Russian parent companies and their subsidiaries abroad Minfin bonds are used extremely often as a means of circulation and even as international currency. Often they are used as a means of giving credit to subsidiaries abroad. It is necessary to note that, in contrast to the use of local currency, the use of securities as a means of payment requires the agreement of the receiver (beneficiary).

A means of accumulation easily manifests itself theoretically by the very nature of a bond as a means of saving, and practically, via the analysis of fund portfolios of banks, insurance companies and various funds, which are the most active investors into Minfin bonds.

The measure of value is reflected by the documents face value and its market rate.

Generally speaking, we are concluding that if one or another security fulfils the function of money, then it is possible to recognize it as money.

In economics, there are many things of which it is impossible to talk in precise terms.

For example, do types of money such as coins actually fulfil the function of money, in super-wholesale transactions of 1 billion roubles (33 million US Dollars)176 and over? No, they do not. Does this mean that coins are not money? Things are not at all simple. It is not possible to describe one type of money with 100% certainty as ideally fulfilling the function of money, because:

  • non-cash money is impractical for small transactions;
  • cash is impractical in the case of a delayed shipment of goods, where a letter of credit would be more convenient;
  • in remote regions payment in commodities (vodka, ammunition etc.) is preferred;
  • transactions involving company acquisitions and mergers are often paid for by shares of the acquirer-company.

Not one type of money ideally fulfils the function of money; each type of money is convenient in one or another situation (fig. 23).

For example, coins serve the sector of transactions well, when the sum to be paid does not exceed the value of the 10 highest denominations of coins, and, in case of banknotes, when the sum to be paid does not exceed the 300 highest denominations of currency. In relation to bigger deals, cashless methods of payment are more convenient. In a cash-orientated economy, it is not unheard of for expensive property to be bought with cash, but this is moving away from the area of the theory of money, and more a case of the theory of efficient taxation.

Thus, some shares also fulfil the function of money, but not ideally, and they are only used in some sectors of economics. For example, bills/promissory notes of the Russian companies Gazprom and Sberbank RF were widely accepted as payment during real, high-pressure deals for metal and metal products in the regions.


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