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  Currency, Carry and Entropy Things ain’t what they used to be or How currencies are not stores of value   One of the standard attributes that money is claimed to have is that it acts as a store of value. “Store of value” tells you that it is the current holder’s intent to keep the currency for a while before exchanging it and that during that time before the exchange, the currency is expected to hold its purchasing power. Money, however, has a “particular requirement “that is the proverbial fly in the ointment. That characteristic has interesting and not so often mentioned consequences on how to view the “store of value “attribute of money. Gold bugs like to mention how gold has maintained its value over time and how that value has never gone to zero or completely disappeared, like many fiat currencies have done. This may be true, but it is a grossly incomplete statement of affairs. What is always missing in that observation is the storage cost, the negative carry, that c

[This is a recap of a more expansive discussion of our monetary system including bitcoin. When the larger version is complete it will be posted here] Crypto currency appears to be a new development and a step beyond traditional banking as we know it. However, when you take a closer look it will be clear that this is not the case. In fact, crypto currency is in a way a full circle back to the day of gold and silver coins. In the olden days, coins were the medium of exchange, and a store of value as well as a unit of account.   As the global population and economic activity grew shortages and practical issues ensued.   As a result physical precious metals were replaced initially by receipts from the safekeepers, then by currency. Initially that currency was 100% backed by p recious m etals (“PM”s) then, over time less and less. The reason for this is not necessarily nefarious. If the quantity of currency is determined by the quantity of p recious m etals, the amount of gold/silver