But is it money?

( Brother Steve says that I use too many abbreviations.  PDVSA stands for Petróleos de Venezuela, S.A.  It is Venezeula's state oil company.  Venezuela is the world's 5th largest oil exporter and arguably has the world's largest proven oil reserves (see here). )

Here is an article on Venezuelas general level of indebtness and here Morgan Stanley predicts that Venezuela could default on its debts in 2013 due to its precarious financial situation.   Earlier this year the presidents of both Finland and Switzerland wrote to Hugo Chavez requesting that Venezuela pay its debts to a Finnish-Swiss engineering company.  More on Hugo Chavez paying suppliers with debt rather than with money.

So my question is in what ways in Venezuelan debt "money"?  When most people hear the word "money" they think of currency.  But what about bank deposits (aka demand deposits)?  Certainly that is money too?

Economists defines "money" as any object which serves as a (1) a medium of exchange (2) a store of value and (3) unit of account.  Different objects have different degrees of "money-ness" - meaning how well the object fulfills the three requirements of money.  Economists have defined a number of different monetary aggregates ranked in order from most to least money-ness.   The below are taken from here

(1) M0 = currency held by the public

(2) MB (monetary base) = M0 + deposits held on record by the federal reserve for banks.

(3) M1 = currency held outside of banks + demand deposits at banks + travelers checks + other checkable deposits

(4) M2 = M1 + most savings accounts +  money market accounts + retail money market mutual funds, + CDs < 100K USD.

There is also M3, MZM, M4-, M4, and L each including a different group of objects or accounts. Where you set the dividing line for what is an is not money is a bit arbitrary.  It really depends on what you want to measure.

So how well do Venezuelan government bonds fit the three criteria for money?

Are Venezuelan government bonds a medium of exchange?  Can you exchange them directly for goods and services?  Probably nowhere - not even in Venezuela.

Are Venezuelan government bonds a unit of account?  No.  Products are not denominated in Venezuelan government bond units.

Are Venezuelan government bonds a store of value?  This is where US Treasury bills and notes have some claim to being money as they are pretty good store of value.  And if you are afraid of inflation then US government TIPS.  But do Venezuelan government bonds hold their purchasing power?  It depends on what units they are denominated in.  If they are in Venezuelan bolivars then probably not very well.  Venezuela's inflation rate is somewhere between 20% and 30% (here and here) so I guess that depends on what coupon rate they are paying on the bonds.  But I would say no.  If PDVSA is handing out these short term Yankee bonds (ie dollar denominated bonds) then maybe - so long as you are certain that they won't default on you like Morgan Stanley is suggesting they may.

Maybe I should try doing this.  When my next rent bill comes due I will give my landlord a twenty year bond and see how well that works.