I was reading about M2 and it somehow got me asking this question: did Bitcoin, by merely popping into existence, increase the money supply of the world? Is it classified as "near money"?
The concept of “money supply of the world” is vague. I think there’s at least two ways of looking at it.
- Economics is normally concerned with the formal definition of “money”. Money is associated with a currency. One key property of money that its value is (nearly) fixed (some broad money definitions allow short-term debt instruments that have a fixed value in the near future). Bitcoin does not have a fixed value in any country’s currency, and will not be part of the money supply. If we somehow aggregate all countries’ money supplies (not obvious how to do), it would not change.
- The obvious response to the above is that Bitcoin is a new currency. One could argue that it should be added (somehow) to all the other money supplies. The problem with this is that the domestic money supply figure has some theoretical relationship to transactions in a country. There is no obvious relationship between the supply of Bitcoin to any country’s domestic transactions, nor is there any reason to believe that a “global money supply” figure is meaningful.