A currency is stored, a medium of exchange is used right away (or traded for a currency).
> Is there a definitive reason why a less stable medium of exchange cannot be a substitute for a stable one?
Yes. Since it is unstable no one can rely on it. Since no one can rely on it people are unwilling to collect (and store) large quantities of it.
> To me, it seems that knowing (and potentially being able to predict) the variable forces that are affecting the volatility of a medium of exchange
If you can predict it, so can others. If I predict it will go up, everyone else will too. So everyone will hoard it - easy way to make money right? That means everyone wants to buy it, no one wants to sell - the price will skyrocket. Till it collapses, since it eventually will.
Then it collapses, people see the collapse, and everyone sells, the price goes to zero, and the process reverses.
To be a currency it must be stable.
A currency is simply a medium of exchange that is widely recognized, where "widely" is subjective. Most modern currency also is notable because it has no intrinsic value (gold coins, for example, have intrinsic value). I think bitcoin certainly qualifies as a currency, albeit an unstable one.
When I said that gold coins have intrinsic value (the same is true for copper coins, etc.), I mean that regardless of what nation minted the coin and what value appears on its face, it will always be worth at least its weight in gold.
No one willingly stores unstable currencies. The only time people use unstable currencies is if they are forced to by law, or if they are speculating.
When you hear people talk about "the stability of a currency" they are talking about fluctuations of a few percent, not 10s of percents.
From the sound of it, you defined currency as "a stable medium of exchange" which by definition prevents any unstable currency from being a currency.
Is there a definitive reason why a less stable medium of exchange cannot be a substitute for a stable one? Especially with today's technology when increasingly many things are being done in "real time".
I'm not an expert on currency and I'd appreciate further education. To me, it seems that knowing (and potentially being able to predict) the variable forces that are affecting the volatility of a medium of exchange is, in the long run, more valuable to its users than artificial relative stability provided by a governing body.