 |
May 11, 2015, 12:27:27 PM |
|
Liquidity is sometimes defined as the possibility to convert an asset into cash quickly, or convert it to cash without affecting its price quickly, which could be considered related. This definition can not be used for money, since money is cash and is by definition infinitely liquid.
We need a definition of liquidity that also works for money to distinguish the liquidity of different money types. The goal is to find a measure that describes the hurdles you have to go through to convert the money value to something of intrinsic value, that is the normal goods and services you buy. Just out of my heart i define the most liquid money to have liquidity 1. If you have to sell your money once, to get the most liquid money, then sell those again to get your consumable stuff, those money have liquidity 2.
So as a first attempt, dollar rectangles in your pocked can be transformed to usable stuff in one trade, and therefore have liquidity 1, and more generally, the money commonly used in an area, also called currency, have liquidity 1. But since there are restrictions on cash, they can not with absolute ease be moved over a border, and, if you want to trade internationally, you need to use the bank system, and if your trade partner uses another fiat, you need to convert somwhere in the process. So generally, we can say
USD liquidity 1.1
Gold ounze coins may only in special circumstances be used to buy directly, but can normally easily be converted to local fiat anywhere in the world, giving them liquidity 2. But it could be difficult to transport them over borders, and remote payments is a hazzle. So we give gold coins
Gold coins liquidity 2.1
So to bitcoin. Normally you need to sell them for currency, giving them 2. But sometimes you can use them to buy directly, moving over borders and remote payment is no hazzle at all. So I give
Bitcoin liquidity 1.8
What do you think?
|
