INSTITUTIONAL THEORY OF MONEY. THE ESSENCE AND LEGAL STATUS OF MONEY AND SECURITIES

Academus Publishing
2015

INSTITUTIONAL  THEORY 

OF  MONEY

THE  ESSENCE  AND  LEGAL  STATUS  
OF  MONEY  AND  SECURITIES

A. YU. GRIbOv

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© Publisher, Academus Publishing, Inc., 2014
© Translators, Daria Kulesh, Emma Fenwick, 2008

The right of A. Yu. Gribov is identified as author of this work.

Translated and copyedited by ELSE Professional Business Editors, Moscow 
Literary Editors, Translators: Daria Kulesh, Emma Fenwick 

ISBN 10: 1 4946 0000 5
ISBN 13: 978 1 4946 0000 6
DOI 10.12737/6433

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Introduction

The aim of this study is to deduct and demonstrate current definitions (which are essential for the normal functioning of a country’s 
financial system) of a security, money, currency and, most importantly, of the rules of circulation for different forms of money and 
securities.

Definition of a security
A security is a document that has been completed in the prescribed 
manner and in accordance with compulsory requirements, and which 
secures a sum total of property rights and non-property rights that are 
subject to certification, concession and unconditional realisation as 
prescribed by federal law, and which may be alienated by the rightpossessing side to any party, regardless of the wishes of the legally bound 
side. 
In some cases, for example, with acceptance of a promissory note, 
the legally bound side can change without the agreement of the rightpossessing side.
With the alienation of a security, all rights (obligations) secured by 
it transfer in the aggregate.
A security has an obligatory nature regardless of which bearer it is 
filled in for.
A security of which the owner’s rights are secured in a special register (ordinary or computerised) is a registered security.
In a case provided for by law or in accordance with it, for the realisation or alienation of rights certified by a security, evidence of these 
rights, which is kept in a special register, is sufficient. 
A security for which the right-possessing side is the owner of its 
bearer is called a bearer security. A bearer security is completed in a 
single copy.

Rules for circulation of securities
Securities, with the exception of bearer securities, are treated in 
accordance with liability laws.
Bearer securities are treated in accordance with laws of estate, but 
they are issued and redeemed in accordance with liability laws. 

IntroductIon

Definition of money
Various property goods can be used as money — objects, liabilities 
and entity-liability combinations, which fulfil the following functions 
of money:
• a measure of value;
• means of circulation;
• means of accumulation.
Money can have value:
1) either on the strength of its natural useful properties — use value 
(commodity money):
• precious and other metals;
• rare minerals;
• hides, grain, livestock;
2) or as containing a liability (credit money or financial money):
• promissory notes;
• banknotes and billon coins containing an insignificant amount of a 
precious metal;
• deeds for accounts in banks and registers;
• bonds;
• cheques;
• other securities;
3) or as entity-liability combinations, for example, coins with a specifically valuable content of a precious metal1.

Definition of currency
Currency — liabilities, stipulated for circulation, of a State bank 
(treasury, reserve system) — State cash or non-cash money — is defined 
as bearer securities issued by the State without a time-limit for presentation in the bearer’s name with an endorsement, which must be accepted in all regions of a country in accordance with the norms of its 
public law.

1 Extremely rarely encountered in practice. The circulation of money as entity-liability 
combinations with components that are comparable in significance is not included in 
this study.

IntroductIon

Rules for circulation of different forms of money 
The rules of circulation of different forms of money are defined by 
the rules of circulation for those material goods that fulfil the functions 
of money.
According to the circulation rules, all forms of money can be divided into three broad categories: entities, liabilities and derivative 
securities (derivatives).
Entities:
1) natural, non-standardised commodity money;
2) metal ingots of exact weight;
3) full-weight metal coins.
This type of money (entities) is treated in accordance with the rules 
applied in the law of estate/proprietary law.
Pure liabilities:
1) registered securities in cash form:
a) registered bills;
b) registered bonds, promissory notes of banks, and other quasimoney;
c) nominal shares and other stock valuables;
2) nominal accounts in non-cash form:
a) non-cash currency (deposit money, cheque accounts);
b) any business-type accounts, which reflect:
• promissory notes;
• bonds, banks bills, and other quasi-money;
• nominal shares and other stock valuables.
This type of money (liabilities) is circulated in accordance with the 
rules applied in law of obligations.
Derivative securities, where the right to own an entity, which is the 
bearer of the liability, generates a legal binding relationship with the 
debtor:
1) ordinary bearer bills;
2) banknotes from private banks;
3) cash currency — State bank notes and coins;
4) bonds, bank bills, and other quasi-money in the form of bearer 
securities; 

IntroductIon

5) shares and other stock valuables in the form of bearer securities.
Such derivative securities are circulated in accordance with laws of 
estate, with the exception of their issue and redemption, in which case 
they are circulated in accordance with laws of obligation.
In this study, use has been made of detailed quotes from Russian and 
foreign researchers into the legal and economic nature of money, in 
order to deduct and demonstrate these definitions and rules.

Part I 
WHY IS AN INSTITUTIONAL  
THEORY OF MONEY NEEDED?

On errors in the legal treatment of the concept 
of money and securities and their consequences 

In 1995, during Russia’s first banking crisis, the largest of the ruined 
banks was the Moscow interregional commercial bank (MMKB) — 
formerly Promstroibank of the Moscow region. Despite the considerable sum of its assets, the bank returned very little in the way of funds 
to the creditors. The bank’s lawyers played a large role in this, taking 
an extremely interesting stance, which contradicted the economic 
treatment of the category «money».
Relying on the Civil Code of the Russian Federation (CC RF), 
which had been adopted a year before the crisis, they maintained that 
money is not a liability, but an entity. And since the money which remained in the assets of the bank was the money of investors — natural 
persons, then the creditors — legal persons — could not demand from 
the bank entities that did not belong to them.
There was some legal logic in this, and it led to certain results. If the 
clients of the bank — legal persons — could claim from a legal point of 
view that their monetary relations with the bank were subject to liability laws, and not laws of estate, then they would have succeeded in 
recovering much more from the ruined bank. 
The described legal risk of keeping and using money through a bank 
system is becoming extremely high, which leads, throughout the Russian economy, to a reduction in the amount of non-cash monetary 
circulation in the country, and, consequently, to a fall in gross domestic product (GDP). 
Thus it is vitally important to take away this legal risk, not only for 
the benefit of the banking sector, but also in order for Russia’s economy 
as a whole to develop normally.
Having begun to take shape, the practice of market relations has 
nevertheless defined non-cash money as a liability of a bank, for current 
accounts and for thrift accounts, respectively.

Part I. Why is an institutional theory of money needed?

But in relation to paper money, the country’s leading legal experts 
did not waver. Paper money is a physically tangible entity, as they said 
and wrote in Article 128 of the Civil Code of the Russian Federation 
(Art. 128, CC RF): «Entities, including money and securities, are objects 
of civil rights…»

The ambivalence of the economic nature  
of money and its legal definition

Natural law is the law established among people by natural 
reason.

Institutes of Gaius

The development of economic market relations exposes the contradictions that have accumulated between practice and theory, both in 
economics and in interdependent legislation.
The country’s leading economists pay too little attention to the 
drawing up and expert examination of economic legislation that already 
exists and that is being developed, which regulates, in particular, turnover of funds and financial turnover, which leads to a disparity of leading legal treatment of money and securities to their economic content, 
which must determine their legal formulation. The rules incorrectly 
defined by legislation for the circulation of money and securities have 
a negative influence both on turnover/circulation of monetary funds in 
the country and monetary policy as a whole.
These kinds of relations are known as ambivalent, because, in a 
material sense, developing social relations are the origins of law, and 
these relations are linked to the method of producing material goods, 
the material conditions of the life of society, the system of economic 
ties, forms of ownership as the ultimate cause of origin and actions of 
law.
Are we able to accept the provisions of Article 128 of the CC RF, 
knowing that they do not correspond with basic economic principles?
Cicero affirmed that, «true law is a reasonable tenet that corresponds 
with nature»; «natural law came about earlier than any written law»; 
«law is established by nature, and not by human decisions and decrees»; 
«a law established by people may not violate order in nature»; «the con

the ambivalence of the economic nature of money...

formity or disparity of human laws with nature (and with natural law) 
appears as the criterion and standard of their justice and injustice»1.
Karl Marx later concluded that law and the State relate to superstructure with regard to basic industrial and economic relations. Legal 
relations arise from economic relations, serve them, are a necessary 
form of their expression and existence.
Since the economy is the basis of a State, and the State and law are 
its superstructure, if we continue the analogy, we must come to the 
conclusion that theory must be the foundation of legislation.

Basis
Economy
Political economy
Superstructure
Law and State
Legislation

In one of his letters to C. Schmidt, F. Engels explained: «…the effect 
of State power on economic development can be threefold. It can work 
in the same direction — then development is made more quickly; it can 
work against economic development — in which case, now, for every 
large people it crashes over a certain period of time; or it can create 
obstacles to economic development in certain directions and push it in 
other directions. This case eventually leads back to one of the first two. 
However, it is clear that in the second and third cases political power 
can cause the greatest harm to economic development and can waste 
an enormous amount of effort and material»2. 
Legislation that contradicts its foundation — economic theory — is 
an obstacle to the development of a country’s economy.

1 A History of Political and Legal Studies / edited by V. S. Nersesyants. Moscow, 1998. 
pp. 84–86 (История политических и правовых учений / Под ред. В.С. Нерсесянца. М., 1998. С. 84–86).
2  K. Marx, F. Engels. Complete works. 2nd edition. Vol. 37, p. 417 (Маркс К., Энгельс Ф. 
Соч. 2-е изд. Т. 37. С. 417).

Part I. Why is an institutional theory of money needed?

Methodological foundations of analysis:  
theories of money and the institutional  
approach 

The problem of money has been considered by many schools 
of economics, but, unfortunately, it occupies little space in 
institutionalist theory. Institutionalists most commonly examine property rights, transaction expenses, the essence of 
companies and the role of the State in the market economy. 
The problem of money is usually posed only from the point of 
view of defining money supply and demand for money.

The provisions of neo-institutionalism, and especially the 
economics of law, which allowed interrelationships between 
economics and legislation to be revealed, became the methodological basis of analysis.

I.P. Nikolaeva1

Theories of money

Russian examiners of questions concerning the evolution of the essence and forms of money traditionally take the classic approach, on 
the whole understanding money to mean a particular type of goods. 
This approach dates back to the Marxist tradition, although these days 
it is experiencing significant modifications.
Researchers in other countries treat money on the basis of a whole 
range of theories, which should be categorised as follows:
1) on the influence of money supply on the economy:
• the quantitative theory of money;
• I. Fisher’s quantitative theory of money;
• the Cambridge version of the quantitative theory of money;
• modern/contemporary monetarism;
2) the functional theory of money;
3) the theory of the proper essence of money:
• commodity;
• metallic;
• nominalist;
• State, etc.

1 Comment of the official opponent on A. Yu. Gribov’s dissertation on the subject of «The 
institutional nature of modern money and securities».