The Second Function: A Payment and Trading Instrument
Being denominated in increments, money can be used transparently to clear a transaction. The applicable transactional spectrum may range from an exchange against tangible goods (food, appliances, etc.) or intangible services (e.g., downloading music from the Internet), to a simple reciprocal monetary contract (lending, deposit, etc.). Liberated from the burden of physical metal currencies or direct links to a precious metal standard, today's money transfers (payments, deposits or withdrawals) can be made by straightforward posting on physical or electronic ledgers. These postings are equivalent to closed transactions contingent on time- specific proof of the debtor's acceptance and the bookkeeper's (bank or payment service provider's) confirmation as to a repository of and command over money or lending capability.
Considering the small and still diminishing volume of remaining coinage and bills, modem money is mostly scriptural in nature (see Chapter 5). New attributes and risks are emerging alongside the non-material or intangible consistency of contemporary money. In the electronic age, money can circulate and be exchanged at the speed of light, without limitation on transactional speed – especially compared with any other means of payment. The proof of such circulation rests on electronic means and auditing follow-up. The process can be prone to forgery in a manner analogous to the risk of absence of material proof – or its verification – that democratic laws require in order to convict the dishonest. In other words, a forged paper does not necessarily designate the counterfactors specific to a transaction, but nevertheless constitutes proof in and of itself.
Given that monetary transactions require recorded evidence (physical or electronic) as proof, this fact raises new issues in the contemporary monetary environment; for instance, the need for adaptive posting methodology on regulated books (in the face of a virtual lack of any limitations on transactional speed), as well as attendant issues that relate to balancing and clearing functions, and categorization and choice of ledgers that should be utilized for recording and tracking activities – which in themselves are in a nearly constant state of evolutionary flux. A few examples may be noted: what if all transactions were to be kept open indefinitely without balancing and clearing? The resulting record-keeping function would rapidly become untenable, particularly in terms of summating transactional flow. Moreover, questions of how and when transactions should be cleared, and what constitutes a clearing function, all become critical issues in the auditing world that tracks the exchange of modem monetary bills and instruments. In addition, there are legal issues regarding competent jurisdictions and geographical territories, notions of which are increasingly impaired in the electronic age.
-  We use the words "payment" and "trading" combined for simplicity to focus later on the fact that exchanges may be paid in the sense of being cleared with any kind of exchangeable financial instrument and not only with bank bills.
-  This is the purpose of the European directive for a Single Euro Payment Area (SEPA), EU no. 2007/64, creating an automated European system of payments and regulation EU no. 260/2012 – issued as of March 2012 – for the purpose of setting technical constraints on wires and transfers.