What History Says About The Dollar’s Future

Transcript

I think we are seeing uh the beginnings of the decline of the dollar as a global currency as central banks are trying to hedge their bets moving out of dollar US treasury securities into gold and other non-traditional reserve currencies. The um analogy I sometimes use is uh like an iceberg which melts very slow solely until a whole chunk big chunks cav off all at once. So that's kind of the scenario I imagine.

Bankless Nation very excited to introduce you to Barry Iiken Green. He has spent 40 years studying how dominant currencies rise and fall. And his new book, which is fantastic, by the way, Money Beyond Borders, it traces the full arc from CIUS to crypto. I'm not sure we're going to get all the way back to CIUS, but Barry, welcome to Bankless. It's great to have you. So, I don't know if you collect coins, but I got to tell you, I used to as a child, and your book made me want to collect more. Um, so I had to start a question. Of all of the currencies you talk about in your book, which is the one you would most like to own right now? Which one would you like to buy?

>> Do you think somebody's answer might be, "Oh, I'd love to own the US dollar, or is there just a incompatibility?" No, I think uh it it's quite possible people will be looking back nostalgically at the dollar 500 years from now. Uh uh another fact I was reminded by in the course of of writing the book is that the dollar hasn't been the dominant currency in the United States uh for the entirety of this country's history. So, Alexander Hamilton uh famously created the US Mint in the early 1890s, but there was such a shortage of um gold and

silver in the country before the California gold rush and the Nevada silver rush that the um dominant unit used for transactions were Spanish silver coins, pieces of eight, you know, Spanish pesos or or dollars that were cut up like a pizza uh eight slices. Uh it was legal tender in the United States as late as 1857. You know, after the gold rush, the mint got up and running, but the dollar has not always been with us. And as you imply, it may not be with us forever.

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>> That's uh interesting. There's a lot of questions that that stem from that. Um I I think we want to get back to the Daenerius maybe later in the story and and you can talk about maybe its rise and its fall and how you see the parallels in the US. But but maybe since you brought us to Spanish pieces of eight, this was one of the interesting facts I learned actually from your book, which was I I would maybe I don't know if you'd go as far as to say this, but it seemed like Spanish silver, Spanish pieces of eight were the original US currency. this preceded the dollar, but um from the time of the revolution all the way to the California gold rush and the then the creation of the green back, it was really Spanish pieces of eight that was the dominant uh currency in the

in the fledgling United States of America. Can you talk about why that was? Because Spanish pieces of eight did something that no other currency that preceded it has done, which it it kind of dominated the globe. So it was on every continent and every local market that it entered it seemed to out compete the local market uh or the local currency that that that was uh why did Spanish pieces of a take off in such a way in early America and then in other locations around the globe? Well, part of the story is that uh the 13 colonies before the US gained its independence were prohibited by the Brits from operating a mint and coining money. So,

uh Americans had to look around for something with which to um conduct make payments, conduct transactions. and they looked south to Mexico and Peru where the Spanish were minting high value silver coins. Um, Spanish uh, silver was widely available because of the uh, uh, immensely large silver deposits in Peru, present day Peru and and Bolivia and elsewhere that uh, the coin was uh, minted in uh, large amounts in Peru and Mexico. Uh in addition in Spain itself,

you know, bars and ingots were uh shipped across the Atlantic back to the mother country, if you will. And then that Spanish bullion bars of silver and coin were used to settle transactions with Asia. So uh the Europeans would import uh silks and ceramics and all manner of exotic goods from Asia and they would make payment in in silver which was the coin of the realm if you will in China as well. So the Chinese would uh take payment in Spanish silver for the goods that they um exported to Europe.

Meanwhile, the uh Spanish were shipping silver uh uh across the Pacific. The famous Manila gallons, these big ships that would typically sail twice a year from Peru or um Mexico to Manila in the Philippines where they would be offloaded and and transferred to other ships doing business with China and India and other parts of of of Asia. That's how Spanish silver basically uh encircled the world and as you say it was in a sense the first true global currency in that earlier international currencies like the Dutch Gilder they

got to Asia via the Dutch East India Company you know trading company/military power but they never got to Latin America they got to the Caribbean but no you know Dutch Dutch islands in Caribbean, but no further. Spanish silver got everywhere. >> So, a country like China, maybe that was using copper coins, maybe they were using silver ingots, these types of things, pre Spanish silver, pre Spanish pieces of eight, when they were hit by pieces of eight, what would happen to the previous currency that that was dominant in that local environment? Is this an example? There's a there's a law we talk about on bank list often which is Gresham's law. The idea that bad bad

money drives out good and uh the good money in the economy is kind of kept those that the uh the individual actors believe is is superior. They hold that money and they spend the bad money. And I'm wondering if if like for what reasons Spanish pieces of eight were perceived as as the better money and why were they such an apex predator when they entered a a country like China? >> Well, as you say, China uh relied on copper coinage in various periods. It relied on on on paper money. You know, the bank note was essentially a Chinese invention much like the compass and the clock and gunpowder and other other

things. Um, but copper is uh inconvenient for large value or significant value transactions. Copper is not a very it's abundant. It's not very valuable. uh people had to carry around uh large numbers of copper coins on a necklace around their neck or in their pockets. They needed something of higher value and silver was convenient for regular commercial transactions in China. They used uh gold coin occasionally for very high value international transactions, but silver kind of matched uh the needs

of the economy. Copper coin continued to circulate just like pennies circulate alongside uh I haven't seen a penny in a while, but like pennies have traditionally circulated alongside dollar bills and so forth. of all the examples in your book of of currencies kind of um dominating and then following a cycle of of getting displaced, um Spanish silver to me in pieces of eight seemed like it most maybe benefited from a a technology advantage if that makes sense. So the coin itself being superior wasn't wasn't like uh Florence maybe which were much more plugged into a banking network. It was almost a decentralized bottomup adoption. Would you say that's true? No, I think um it was fairly centralized in

in in that the Spanish crown would basically um appoint or or or sell the right to be the equivalent of of of the mintmaster and send people out to verify that the mint was coining uh units coins of the relevant weight and relative purityness. It it it it it it's called. And occasionally there were scandals when uh the mintmaster would coin uh stamp out coins that were less pure than required and and and you know be able to keep more for himself. And in Possi uh uh the

main mint in in in Peru there was a famous such scandal in uh if I recall the um 16th century. But by and large this process worked well. You know just like the comproller of the currency keeps careful watch on the quality of the banknotes that are uh printed in in the United States today. Um, the Spanish crown had a a mechanism. There were there could be slippage. There were sometimes what economists call principal agent problems where the agent didn't quite do what the principal wanted, but by and large the quality of the coin was maintained for three centuries and more

and that's what made for its wide acceptance. I'm curious of the logistics behind cutting up the coin into eight pieces because it seems like that would be a coordination challenge for people to accept. Was how did that happen? Was that a topdown decree from some authority saying, "Hey, we do this now. Uh we can cut up our coins into eight pieces and uh this is just how this works." Or was it more bottom up and it was just like, "Hey, this I I'll cut my coin in half and you can have half a coin." And then they just did that a couple more times because like there's how do you divide them equally because I could imagine that like oh that that piece of eight slightly larger.

>> Yes. >> Maybe I want that one. How it feels like there's a coordination challenge with all this. How did this story come to be? >> You you guys are demanding hosts. You expect me to not know everything. Th this is one where I am not confident of the answer but I think the answer is that it became a convention >> and people took it upon themselves to make small change and it created all the problems that you uh allude to that not every piece of eight was equivalent to every other. Uh and and people might be uh you know uh weigh them in their hands and and and and pick the ones uh from their customer that they uh particularly

preferred or or weigh them more more technically. Um it it was surely an awkward relation awkward arrangement compared to regular coinage of small change. >> I'm going to have to go back and find out more about the answer. Barry, if your if your coin of choice then is um the Daenerius and I guess silver successors pieces of eight, I actually want to talk about my coin of choice. The one actually I I do plan to buy after reading this book. I I don't have an extensive coin collection, but I plan to start building one maybe. Um because this really gripped me is the uh the Solidus. Uh am I pronouncing that correctly? The Solidus. Is that is that how you say it?

>> Um so this was a a Byzantine Empire coin. This was in some ways the successor to the Roman Daenerius. This was a gold piece. I believe it's a fraction of an ounce of gold. It's something like uh 0.14 uh ounces of gold. You can buy one of these by it. It costs, as I've done my research, you know, like $400 to $1,500. It's about 40% higher than the price of the actual gold. So, they're very affordable and they're in plentiful supply. But the thing that really gripped me was not only is it gold, but was it it had the longest reign of all the currencies that you talked about in

your book. So, this was a hard asset and it had a 700year reign. It didn't get debased until its later stages as many of the other currencies died from debasement, which I'm sure we'll talk about. and it was called the dollar of the middle ages. In fact, one historian you quote in the book said that the solidist surpassed even the US dollar in the 1950s in terms of stability and intrinsic value since this is one I plan to buy and collect. Can you tell us about the the Solidus? Well, I'll I'll tell you first about the historian Robert Lopez, longtime Yale historian uh from whom the the quote uh you mentioned

comes and and the phrase dollar of the Middle Ages. So he was trying to uh impress on a 1950s readership, a postw World War II readership that in a period when the US dollar really reigned supreme, when it was the only currency standing, we were the only country with open financial markets to the to the rest of the world. So Lopez trying to um impress upon his readers the uh durability and reputation of the Byzantine solidists made the analogy with the dollar even more important than the dollar if you can believe that was basically what he was uh saying. Um the

Byzantine Empire gets short shrift in my view. um it uh uh was characterized by fiscal prudence. One of the things that was important was that uh for many centuries despite having hostile uh rivals and enemies on all borders, it basically lived within its budgetary means. So the pressure to debase the currency to issue more coins of less value in order to divert more resources to the government and the military that pressure was not so intense. So uh that enabled if you will um uh the solidist

to retain its value for a long time. It circulated uh uh around the uh Mediterranean but also into Asia and uh into India uh and elsewhere. This in the period from like 500 AD until 1,200 or 1300 AD. So there there are your seven centuries or so. uh a remarkably um durable international currency if you will.

>> Yeah. And this this gets to some of the lessons that I think we collect in this book because um you know part part of the the fun of this book and the interesting thing about this book is is these lessons throughout history we can then start to apply today. And maybe one thing that we can take from the solidus is that if you want to have a currency, an international currency that persists throughout the centuries, fiscal prudence is an imperative. Uh without that, you faulted debasement as as maybe the the Roman daenerius did and as many of the currencies did in your history. M maybe this gets us to to some of the the patterns that you see with all of these currencies. So can you talk about how a currency becomes an international

currency? So every empire maybe has their own form of of currency or money, but what are the preconditions that are necessary for it to launch into something that is more internationally used? So I think there are two sets of of preconditions. one set that international monetary specialists, economists have been talking about and studying for many years and and and another set of preconditions that we're only now really beginning to understand. So the first familiar set of preconditions has to do with uh commercial economic commercial and financial prowess if you will. If a country or kingdom or state does a lot

of trade with uh the rest of the world with other countries, kingdoms or states uh uh th those others will encounter its currency and coin. They will probably want to acquire some of it to to ease their trade with the country in question. So uh having a strong economy that trades a lot with the rest of the world means that uh the rest of the world comes into contact with your currency. Um financial development is important because it's not only trade but lending and borrowing across borders that needs a vehicle and the currency of

the country that does a lot of that lending and borrowing is kind of a natural vehicle for that kind of crossber um finance. Having liquid capital markets, financial markets at home so the currency is easy to buy and sell. you can get it when you need it and you can dispose of it when you want to. Market liquidity makes a currency valuable uh not only to residents but to investors and others around the world. So those are the kind of factors that economists have been studying for a long time. But I think there are are also political preconditions that uh the currency

uh should hold its value over time if people are go around the world are going to be willing to hold and use it. Um and uh that brings us to the government has to live within its means. issues that we were talking about Ryan a few minutes ago. Um there has to be uh checks and balances on uh arbitrary action by the executive uh Emperor Nero going back to Rome one more time uh had an ambitious canal building program. He wanted to build himself a 300 room palace in Rome. And back in the day, back in the day of the Roman Republic,

there was a Senate to say, "No, no, no, you can't do that." Uh, come the Roman Empire, the emperor was imperial. He was the king and he could do what he wanted and what he wanted wasn't always good for the stability of the currency. So, you can kind of guess where I'm going here. Subtext about what's going on in the United States at the moment. Checks and balances, rule of law are important for inspiring confidence in the currency not only domestically but around the world. And uh the strength of a country's alliances are important is important as well for uh widespread foreign use of its

currency. uh governments, central banks like to hold and use the currencies of their alliance partners because their alliance partners are trustworthy. They're good stewards of the reserve holdings of the foreign central bank and holding and using the currency of that alliance partner is a show of good faith in that partner. we value our our uh security alliance with you and here's some money on the barrelhead to um demonstrate that fact. So I I I I think there are both standard economic uh commercial and financial preconditions

for the rise of an international currency, but there are also political preconditions domestically, rule of law, internationally uh in in in terms of uh reliable alliance politics. What about a third and this maybe this does fit in political which is uh military dominance or or military strength and and how would you weight that? Because I I think in in many of the examples um of of currencies throughout the ages that that you go through, we do see some superior military dominance, but not in all examples like Florence is an example which did not have an impressive military and and appeared to have uh bootstrapped the the Floren into some level of of uh international currency

status and dominance just by route of trade and and financing. But but how would you rate the the role of of military dominance? Is is that most commonly a prerequisite to have an international currency? >> It is commonly uh associated with international currency status. So I used to say the uh the recipe for an international currency was um uh size, stability and liquidity, big economy, stable economy, liquid financial markets. But I would add security as a fourth ingredient. Military security.

First, the ability to defend your own borders. Secondly, the ability to uh protect your trade routes. I had been making that argument for a long time before our attention was attracted to the straits of Hormuz. um uh being able you know the the Dutch East India Company, the English East India Company, they uh were basically paramilitaries that did all the things that their respective national militaries did to uh protect their ports uh on the Indian subcontinent.

uh their um treaty ports in China uh and you know they would bombard the locals if the locals threatened to restrict their access to that market. So um both the ability to protect the currency issuers borders, the integrity of those borders and to protect their um shipping lanes and and and commercial um activities I think have been important in history and you do point to the exception exception that proves the rule. The exception is Florence whose Floren was probably the dominant currency in Europe from the late 13th

century into the early 15th. They were not a first class military power. They were too small, a city state in Tuskanyany with modest tinterlands and no natural resources to speak of, but a lot of commercial prowess. and the first uh true international bankers. They used finance to project uh financial power and encourage use of their currency despite the fact they that they weren't a dominant military. But every other case I talk about in in in the book does point to the importance of security.

What role would you say uh does a rule does the rule of law play with the acceptance of a currency? A a strong fair just legal system like judicial branch. Is that a relevant variable here? Or or maybe that's just a secondary input to thriving capital markets. Uh and it's actually capital markets that's the more fundamental. What would you say to the idea of just like strong property rights, strong rule of law as it relates to the strength of a currency? >> Yeah. No, I think uh rule of law, economic and financial transparency, separation of powers uh have throughout history been associated with global currency status. So in in uh in in Rome

in the period of the republic there were the treseri these uh bureaucrats who oversaw the operation of of the mint and reported to the senate where property owners and and and and uh uh land owners and others uh had voice. uh they were basically um subordinated to the whims of the emperor when the republic gave way to the empire and those checks and balances that transparency that rule of law if you will uh began to uh to crumble. So I uh in in in the present context I I worry about um

uh the willingness of those who manage our finances and determine the course uh of the dollar to defer to the courts, defer to the congress um respect the independence of the Federal Reserve which I think is im important in this context as well. So I have I I write in the book about the Chinese renmanb. I don't know if you want to go there later or not but um when I go to China I had the pleasure of going twice last year and give talks related to this. I one of the points I observe uh is that every leading global currency in history with

maybe the exception of of the Spanish dollar that we were talking about before has been the currency of a political democracy or republic where there is separation of powers and rule of law and the fact that the polic bureau in China, President Xi in China is all powerful and can wake up tomorrow morning and change the rules of the monetary Ian financial game game arbitrarily uh will cause central banks and investors of other countries to think twice about parking their reserves in Shanghai. So I think you know uh this rule of law issue is a challenge for

Chinese aspirations to internationalize their currency as well. So when I make this point, my Chinese audiences are always respectful and they you can see their thinking, but they don't say anything in response. >> That is fascinating, isn't it? The the idea of checks and balances as as being crucial to exporting an international currency. May maybe this leads into the story. We do want to bring this to current day um later but maybe this leads into the the other pattern which is not the preconditions for rise of an international currency but the preconditions maybe for the fall of an international currency and how that happens and were there some patterns that you saw in each of these that that um are common. So one of them certainly

seems to be debasement, another seems to be maybe military loss. But what what are the patterns that you see for how an international currency loses its status and dies essentially or falls away and and gets superseded by another. >> So you mentioned debasement and military defeat and often they go together. you know, uh, military challenges that cannot be met are, uh, financed for a while. The day of reckoning is put off by debasing the currency and and channeling more resources toward the military. The other fundamental um, obvious fundamental is uh, inability to

keep up uh, economically uh, deteriorating international competitiveness. So the Florentines were on a they they were basically uh cloth finishers. They took raw wool from nor imported from northern Europe and they uh cleaned it and dyed it and finished it and exported it. But after a while they couldn't keep up with the more sophisticated uh textile makers of the Netherlands, of the low countries and of England. Uh if you want to talk about the pound sterling in the 19th and 20th century, the first industrial nation, England in the early 19th century becomes the sick man of Europe by the

mid 20th because various internal issues uh prevent them from keeping up economically with the rising powers the US and um Germany. So that's an interesting case in that Britain is overtaken by the United States in terms of GDP in 1870 and by Germany uh around the turn of the century. But the pound strollering hangs on as an international currency until uh World War II that there is this association between economic decline on the one hand and decline of an international currency on the other hand. But there are what

monetary economists call long and variable lags between the one and the other. >> Barry, if you had to project out maybe to current times, of course, we're in an era of uh US dollar dominance, the dollar is the global currency. I'm sure we'll talk more about the dollar in detail, but just want to ask this question here. If the dollar were to fall sometime, lose its status as an international currency or the reserve currency in the years to come, how do you think it would fall like from history? Would it be would it fall in the way that the gilder fell or that the pound fell or more like the uh daenarius and in Roman times through debasement?

What's the analog here that fits? So I um am reminded of what uh famous international economist Rudy Dornbush said about currency crisis that they always take longer to arrive than you thought they would and then they occur more violently than you ever imagined they could. So um you know it's like who who said there are two ways of going bankrupt slowly and then rapidly. So um I think uh uh we are seeing uh the beginnings of the decline of the dollar as a global currency as central banks

are trying to hedge their bets moving out of dollar US treasury securities into gold and other non-traditional reserve currencies. Um I think the the um analogy I sometimes use is uh like an iceberg which melts very solely until a whole chunk big chunks cav off all at once. So that's kind of the scenario I imagine. Uh and so I can give you a scenario. I can't give you a date.

First rule of forecasting is never to give both. But is there a currency that comes to mind in in that it will be most like this maybe the the daenarius when Roman emperors kind of uh removed from all checks and balances started to to mix the silver with with lesser metals and so it went from what 80% silver all the way down to 5% through the course of of many decades. Will it be like that? Will it fall more like the pound and that there the US has to lose a world war or some sort of war in order to be under the receiving end of that? Will it will it fall in the way that the floren fell which is just that wool which was their primary export? Uh it no longer becomes the competitive commodity from

that era of the world and it gets superseded maybe by more industrial technology. The the US loses its competitive edge. If you if you had to name a threat vector, what where's it coming from here? >> So, I can't um answer that question because there are multiple threats. You know, we talked about uh US debt rising rapidly and foreign central banks beginning to hedge their holdings of treasuries because they wonder whether US Treasury securities are going to hold their value. There are um questions about US politics, questions about uh our uh whether our European friends, former friends in Europe regard us as uh

trustworthy alliance partner or not. There are lots of moving parts. So I don't know which part is going to move, which part is going to force the issue. Um, I like to use history more to point out differences than similarities. So, you know, history doesn't repeat, but it rhymes. Uh I don't I don't think we can find a uh an exact analogy with the Florentine Floren or the Dutch Gilder or whatever, but it can kind of point us to a few similarities and maybe to what's distinctive about the current conjuncture, which is that the dollar uh potentially faces threats from many sides, most of which emanate from within

the country itself. But there multiple reasons I think to worry about the dollar where you look back at these earlier cases and there typically was one or two. When you say currency crisis tend to happen slowly and then suddenly do you mean how acute do you mean when it comes to the US dollar like will there be a like Wikipedia entry saying you know in the year you know 20 something something I don't even want to give a decade but there will be like a Wikipedia entry that sites like this is the when the dollar went through an acute event and people lived through it like do Do you mean that level of like

acute crisis or maybe just something maybe a little bit more diffuse than that? H how acute do you mean when you talk about the inevitability of the US currency crisis? So I I um may not sound like it, but I'm basically an optimist. I look back at the behavior of the dollar over the last 25 years and as a reserve currency held by central banks around the world, it has lost one half of a percentage point of global market share a year over year after year after year over that period. So it's global market share has declined from a little over 70% 25 years ago to a little under 60%.

today about 1 half of a percentage point per year and the number of countries around the world that peg to the dollar has similarly been declining very gradually that analogy with a melting iceberg again. So I'm hopeful that uh the transition will continue in that fashion. It will be gradual and that will create time for the euro area and China to get their acts together so that their currencies can more meaningfully supplement the dollar. But if uh foreigners conclude that the people running the US government are crazy and they're apt to do crazy things and they

flee from the dollar sooner rather than later uh before um China and the Euro area have gotten their acts together. That's a scenario where interest rates shoot up, markets crash, and all kinds of dislocations occur. So, I am an optimist. I prefer I hope for the first scenario, but I can't rule out the second one. >> Bankas isn't just a name. It's a genuine belief that you shouldn't need permission from an institution to use your money. MetaMask has been around since the beginning of Ethereum, and they carry the same DNA we do. MetaMask was my first wallet, and well, if you haven't opened up the app recently, let me tell you, they've been shipping, creating the one app to finally replace

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I've been following him for years. And this year we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes. They're short. They're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast YouTube Apple Spotify or find a link in the show notes. There's a new episode waiting for you. Now, >> let's talk more about the the dollar then and where we are today. So, um 40% of global trade invoiced in in dollars, 50% of global GDP in dollar linked countries, 90% of global FX

transactions. So, anytime you're converting from one uh currency to another, 90% of that is going to involve US dollars. As you said, 58% as a store of value held in central banks. Um, pretty massive dominance. And it's been this way since the end of World War II, since Breton Woods kind of established this, and you go through this this history, um, you know, uh, quite well in your book. Um, really enjoyed those chapters. In the grand scheme of all international currencies as you compare it to history, how remarkable or unusual is the dollar? And I I think of each of the currencies that you mentioned as as having a a superpower, you know, so the uh the Athenian uh owl and and maybe the

the um uh Lydia coin out of that. There was the first time we ever did a coin, for instance. The the Solidus had this superpower of having, you know, persisted across 700 years. Incredible. foreign added kind of banknotes to the picture. Each of these currencies added and evolved on the last and and created something special. What's special about the dollar and how remarkable is it compared to previous? >> Well, I think um the dollar became special after uh a first after World War I when we created the institutions needed for its international use. uh Federal Reserve system to kind of backs

stop the market in dollars was was the most important precondition. Uh after World War II when we were the only major and industrial economy standing only country as I said earlier with deep and liquid financial markets open to the rest of the world. So there was no alternative to the dollar no uh meaningful rival of any sort. um anywhere in the world. The only other currency that was held widely was the British pound sterling in 1945 because Britain's colonies uh had been force-fed pounds in return for the raw materials and stuff that

they provided the war effort, but they couldn't use them. So, it was it was all about the dollar after World War II. What's remarkable about the dollar, I think, is that the world has changed quite dramatically since 1945. And the dollar does remain as dominant as you described it a moment ago, Ryan, that the dollar's dominance was um cemented by the creation of the Bretonwood system in 1944 when only the dollar was convertible into gold at a fixed price and uh it had this special status. The Bretonwood system collapsed.

It disappeared in the 1970s, but the dollar remained the anchor currency for much of global trade and finance. Now we have the rise of China. The dollar still remains the dominant international currency. I do see uh kind of some fraying around the edges of that dollar dominance as I described before, but uh um durability and persistence in the face of quite dramatic structural changes I think is what stands out. Um, another answer, you know, I could give you is we haven't seen a dramatic decline in the global

dominance of the dollar. I've been predicting such for many years now, and I'll keep predicting it until I'm right. You you may be right at some point in the decades ahead. I uh as as I was reading about these various currencies, the most remarkable thing to me about the dollar was um you 50 years off of the gold standard in a pure fiat non-pegged sort of um system since 1971. I mean, it hasn't been pegged against gold. That seems unique. I mean, has any other international currency persisted for as long in pure fiat forms?

Well, uh, in a sense, the Dutch gilder, um, was not fully freely convertible into specy, into precious metal for much of the 18th century when it did play an important international role. So um uh the Dutch Republic uh established a central basically what was a central bank, the bank of Amsterdam where people would uh deposit their gold and silver coin and they would get a note from the bank and those notes became they were banknotes. They were notes issued by the

bank of Amsterdam and they were used for all kinds of everyday transactions. Initially, people could take them and redeem them, get gold and and and and silver in return. That changed in the 18th century when only certain people who deposited their gold and and silver with the bank before uh a specified date could redeem uh their notes in that way. And then those notes were subsequent notes were basically fiat currency. They knew that the bank had gold and silver and stood behind them, but they were not freely convertible into gold and silver, >> but that is an it. So, I think that was an important step in the direction of

what you're describing, fiat currency, >> but um we've taken many more steps >> in that direction in the 20th and and 21st centuries. >> We've certainly supercharged it. Um there was this point that you write about when Bretton Woods was being discussed and there were multiple proposals for this. Um John Maynard Cades had this idea for something he called Bangor. Maybe that was manifested later in these um uh SDR type rights that the IMF managed. Is there a world? Hey, I I must want to ask the question about money from the perspective of like what experiments didn't work and and Bangor was never able to take off and SDR was never able to take off either. I is there a world you could see where

those currencies and and those plans and those strategies could have been successful or do you really need some of the other preconditions that we talked about earlier which is kind of like empire and military and tradebased? I mean in another world do you think Bangor could have been the world reserve currency at this point? Um I think uh absent a global government uh it's hard to imagine a global currency and bankor was designed to be an important step toward a global currency. So in an earlier incarnation uh I worked as a senior adviser at the International Monetary Fund and my boss

an eminent economist Michael Musa used to walk down the corridor that led to the IMF cafeteria um where uh the currency notes of all the 180 IMF members were framed and on the wall and he would pound his hand on the wall and he would say one country, one currency or one government, You can see it here. Um, Europe, the Euro area is an exception, I think, because of it its very special history. But the euro is not widely used as a global currency. It's used in Europe's neighborhood in Eastern Europe where parts of Eastern Europe where where um they're not formal members of the Euro

area and North Africa but not more widely because the Euro area doesn't have a treasury doesn't have a common fiscal policy. it doesn't have uh a source of high quality treasury securities to be held and used by central banks and governments and firms uh uh around the world. So uh I do think there would be efficiency advantages from having a global currency just like if everybody spoke Espiranto. We find it easier to communicate but nobody speaks Espiranto and we don't have a global government. So uh I'm dubious about our moving in that direction. It's something that looks

good on paper, but once you apply it to the real world and and geopolitics and the power dynamics and the coordination required, it just doesn't seem like it could ever be possible. >> It kind of seems like if uh the UN tried to make a currency just at face value, I just know that that wouldn't work. >> Wouldn't work. It wouldn't work. Well, you know, the IMF, which has issued occasionally special drawing rights, um it it its own paper monetary claims, is a United Nations organization. So, um David's right, that would be um hypothetically the entity to do it, >> right? And we got to almost see how that experiment tried to play out and just

like couldn't pass muster. There there is some question though uh for Americans in the US and I think most realize that we have the the dominant currency though they may not appreciate uh the pain it took to actually get here. Um you you write often about the uh dollar dominance being almost like a national inheritance right so some countries are endowed with fantastic natural resources. This is not a natural resource, but it is an inheritance that we've um gotten from, you know, institutions of the past that our forefathers in previous generations have worked hard to create. It's almost like the constitution is an inheritance of US citizens. Uh others are starting to see the dominance of the dollar as something

that's more of a millstone around our necks rather than some great endowment that we've been blessed with. Then they point to things like trade deficits, the hollowing out of of manufacturing in the US, the financialization of everything. They'll even point at things like wealth inequality and the populism that that stems from it. Uh how would you steal man the argument that the dollar reserve status of the world is actually bad for America? Can can you make the case there? So I would acknowledge that uh the balance sheet of dollar dominance has two sides benefits and costs. Uh the benefits and include the convenience of being able to do crossber business in

our own currency. Uh the fact that we can place treasury debt at a lower interest rate than otherwise. and the fact that we get kind of automatic insurance when a bad thing happens. Uh war breaks out in the Gulf. The dollar strengthens because traditionally it's been a safe haven currency. People like to move into dollars because we're a big country with liquid markets. Makes us a safe haven. Those are the benefits. And the costs would be that because people move into dollars, the dollar exchange rate is stronger than it would be otherwise. and that creates headwinds for US manufacturers and exporters seeking to compete internationally. So

that is a valid argument. The question is how much importance you attach to it. Um, when I think about what are the fundamental determinants of of US export international competitiveness, I think education and training of our workers, how many smart innovators and entrepreneurs there are in the Silicon Valley and other places, how successful we are at investing and updating our capital stock and building the infrastructure needed for our economy to function. um how good we are at developing our financial markets which provide liquidity for economic growth and somewhere down that list item number 10 or 11 would be the dollar exchange

rate. So I think these other fundamentals are much more important determinants of how well the US economy is doing. Absolutely. And relative to our competitors and the dollar exchange rate is down the list. I I agree with you on those other determinance as being more important um particularly on paper. But let me push back on on one item which is the fact that we do have this exorbitant privilege and we can export dollars to the world and we can effectively sell our dollars like dollars are a product of the United States. Doesn't that just pull all of let's say the profits and the talent and the knowhow and the capability into a

narrow financial set of the economy where we're not able to focus on the education, the exports, the manufacturing, the technology, and the other determinants that you mentioned because it's just not as profitable as selling a dollar that we can print at any point in time. So on paper, I get what you're saying, but haven't we run this experiment over the past 50 years? And we've seen that financialization and selling dollars becomes a gravity well for the United States and impairs our ability to actually dedicate resources and uh I guess national um like a national push towards manufacturing in the US.

>> I I I do worry about excessive financialization. um think we saw uh its pernitious effects during the global subprime crisis and the global financial crisis between 2007 and 2009. And I worry about private credit and and and AI investment in the pres present context. Other countries have suffered from excessive financialization. Uh the UK is a place where they worry and complain about it a lot as well and it reflects the legacy of sterling's historic role as an international currency and London's

present role as which devolves from that as an international financial uh center. But uh I I I I don't think it's the dollar's international role that is primarily at work here. It's simply that uh um our highly developed financial markets are attractive places for highly compensated people to play and um concoct new financial instruments uh in in in in ways that may be ch channeling resources into activities that don't have the highest possible payoff. So um you know finan the

financialization of the US economy that the um ratio of financial assets and liabilities to output is as high as it is reflects a bunch of things and I'm not sure it primarily reflects the fact that dollars are used by foreigners. >> I think another way to get at this question or the the um the idea behind the privilege is is to ask what it would feel like if it was taken away. So if if suddenly let's say this year at some point in time the dollar lost its global reserve dominance or or maybe this happens over a decade in a more gradual way so we're not imagining a cataclysm here. What what would the average American lose? Maybe you can explain

this in sort of a version a truck driver let's say from Ohio would understand what would change about their life. Well, the person who was um I I I I don't know if a truck driver in Ohio would be eating French brie and drinking Italian wine, but um it would become more complicated to import those things into the United States because everybody wouldn't be using our currency. uh people would have to go through their bank and their bank's correspondent bank abroad or some high-tech market in order to get the foreign currency that our counterparties were demanding instead of dollars. uh interest rates would be

higher than otherwise because the Treasury would uh not have kind of a um uh automatic insured market for additional Treasury debt uh from foreign central banks and governments. So they would have to offer higher interest rates to place that debt and we wouldn't get that uh automatic insurance when a bad thing happens. In 2008 when Lehman Brothers failed, we did the bad thing but the dollar strengthened uh safe haven flows. So uh the price of our imports went down. Our financial markets did not all collapse because

funds flowed in to the United States. In this alternative scenario, they would flow out just like they have been flowing out of Asian countries in the last uh three or three or four weeks. So, I think those effects that it would become harder for us to import and export uh interest rates would be higher and higher treasury interest rates spill over into higher mortgage rates for your Ohio truck driver and that uh automatic insurance that the reserve currency country enjoys would go away. You said Barry that you would continue to uh to to share the message that the um you know the end of dollar dominance is is

nigh uh into the future. And I'm wondering what makes you think that message is particularly relevant now versus say the 1970s when others were saying it particularly after Nixon clo closed uh the gold window and the dollar uh got off the the gold standard. I mean people in the 1970s were saying this is the end of the dollar. Gold was rising relative to dollars. we had rampid inflation and then we had of course a a restoration of dollar dominance and an increase in dollar dominance. Um couldn't that same thing happen now? And I will also add this element which is uh seems to exist now. In the 1970s there

wasn't an obvious competitor and so the world does it seem prefer to consolidate to one um network law kind of winner for a currency. it tends to converge on on something that's dominant and it's not obvious what the competitor would be right now. So, aren't we in a similar position as we were to the 1970s? Isn't it too early to cause a uh to to call it a a death of dollar dominance? >> So, I do think the um 1970s and the Nixon era are a good comparison to make with what we're going through at the moment. It was not only Nixon's decision to break the link between uh the dollar and and and gold and uh uh remove the

constraints of the Bretonwood system, but it was also Watergate and corruption and all that. But remember what happened at the end of that process. Nixon was forced to resign by the threat, credible threat of congressional impeachment. the Congress was able to reign in the excesses and uh re and and affirm the fact that the US was a country with separation of powers and rule of law. Um you you guys have been um admirably apolitic uh so far I I commend you for that. But uh you know whether the same will be true today that the congress and the

courts will uh be able to restrain executive power. Um there were strains in the 1970s similarly between the US and our allies that was the era uh the Vietnam war the first half of the 1970s. Um but those strains are are considerably greater at the moment. So I I I I I think the political dimension is what makes um this time different from the early 1970s. Um and you know I think the hold of network externalities, it pays to hold and use the same currency everybody else is holding and using. Uh uh those network externalities are being

undermined. They are being weakened by the digital revolution. M >> you know it's now easier to trade currencies and use a different currency than your interlocator is using because you can exchange one currency for another using a device you carry around in your pocket. That was not possible in the 1970s. Barry, uh one of the points you make in the book of course is a point that that uh I made a little bit earlier which is that the dollar does not have too many strong competitors. We already talked about why the euro is is not a strong competitor. Lack of kind of a bond market, treasury market. Certainly not the depth of liquidity. China though it

seems has the GDP, commerce, trade, manufacturing, demand for goods capability that maybe Florence did or maybe uh the US did at at the at the turn of last century. And so you sort of see some of the key preconditions that we talked about emerging in China. Yet the renimi is is just like woefully um you know it's kind of dismal with respect to its its usage numbers and it's it store value usage numbers that sort of thing. I in what world or or can you think of a set of a scenario by which the renimi actually becomes the global reserve currency and exceeds the dollar? Is does that world even exist in

your mind or is it just an impossibility? I I I I I think the renmanb uh can come into more widespread use among countries that are uh geostrategically allied with China but not globally that the problem is not that China trades too little. It's the leading trading partner uh uh leading trading power around the world and it's increasingly important in terms of foreign direct investment in Africa and Asia and other parts of the world. But there are those political constraints that uh uh Chinese authorities can change the rules of the

financial game tomorrow morning. The people's bank of China is not uh independent of the government. it is required to take marching orders from the executive branch if you will. So I think that will cause uh hesitations on the part of foreign in investors. Um I think countries in the west certainly the United States but also to an extent the Europeans view the Chinese not only as an economic but a geostrategic rival. Do they want to be dependent on China or uh their international financial business? That would be the

implication of using the Chinese renmanb and using its China's clearing platform the crossber interbank payments system which is the way it moves money between banks in different countries. uh in the same way people worry about the US we weaponizing the dollar and the US correspondent banking system and swift the messaging system for crossber payments. Western governments would worry about China weaponizing its system and and would worry about our becoming too dependent on it so long as we and they are regarded as um geostrategic rivals.

So, if China is unlikely to win for some of the reasons you stated, and we talked about the euro being unlikely to win, doesn't the dollar just win by default and continue winning by default even if some of the checks and balances are impaired and some of the, you know, uh, fiscal restraint is removed, it's still, I think, use the term the the cleanest shirt of all the dirty shirts. >> Yeah. So um certainly the fact that there is no um viable alternative at scale tends to uh support continued use of the dollar other things equal but it doesn't guarantee continued support continued use of the dollar if there is

an economic financial political crisis in the United States that leades leads foreigners to seriously question the wisdom of keeping funds on deposit in the US and using the dollar for their crossber transactions. They will um flee dollars for whatever is around whatever is available um for gold for um we haven't said crypto yet but we could um for uh non-tradition currencies of reliable uh countries like Canada. Bar Carney is a former central bank governor both of Canada and of uh the UK. Um you know the

currencies of the middle powers if you will uh and if as a result of that there isn't enough liquidity to go around that's the bad scenario we were talking about before where globalization as we know it comes under under threat. So I I I would agree that the fact that there is no uh perfect substitute for the dollar out there tends to encourage continued use of the currency, but it doesn't guarantee continued use.

>> Barry, since you mentioned gold, maybe let's talk about gold now and then we can get to to cryptocurrency. So So gold is not the main character of the book because this is a book about um currencies in particular, international currency. It's not a book about let's let's use another term money right which is maybe more of a kind of a a store value base type thing whereas an international currency it seems like often emerges from a money but is kind of a network or a powers um additional uh you know refinement of that money into a into a currency type product. So maybe that's somewhat of the difference.

But what what role does gold does gold keep serving in these international currencies? Cuz it seems to be like present at two main points. It seems to be often present at the beginning of these new currencies in order to back them and also seems to be present as they start to get um debased and devalued and as one regime shifts to another. So what what is the goal of a hard money asset like gold and why does it keep coming up in these currency uh in these currencies throughout history? >> Well, because uh historically it has been a reliable store of value. Um it can be used in payments and financial transactions

if it's coined. And today, if it is held on deposit at the Bank of England or the New York Fed or the London Metal Exchange, it can be used as collateral in financial transactions. It can be lent and and and and borrowed. Um there are liquid markets, well- reggulated markets in gold in London and New York and and a few other centers. So, uh the history favors gold. the fact that central banks have of the advanced countries have inherited lots of gold reserves from the past and that they can use them in financial transactions if

they so choose works in its favor uh as well. So in the last week uh the Turkish lera has been falling due to the events in the Middle East and the central bank of of Turkey has gold uh on deposit in London and it's been selling it in order to get the the dollars and and and euros needed to intervene in foreign exchange markets and prop up the currency. The other other thing that's relevant at the moment, of course, is that if you worry about being the target of sanctions, >> you put that gold on a boat and you bring it back home, you vault it at home where it's safer from sanctions than our dollar deposits or US Treasury

securities. But if you bring it home, you can't use it for anything. It become it it's hard to use for payments. It's dense and and if you've ever picked up a gold bar, you know it's dense and heavy. Um, and it can't be lent pledged as collateral, whatever. So, there there is a a trade-off there. But, you know, for the last few years, uh, uh, emerging market central banks, which did not inherit gold from their past, have been buying it as a way of diversifying their reserve portfolios. they didn't want to hold all their reserves and financial securities. So adding some gold on the margin was a sensible commodity play

uh and because gold has a bigger more liquid market than many other commodities that central banks might consider holding it was the logical thing to do. It seems like the reoccurring role that gold is playing is as a um a restraint on debasement for the sovereigns that are meddling with their currency. I is that the reoccurring role? >> Well, I think uh that has been the historic role and that was supposed to be the role of the dollars linked to gold under the Bretonwood system from 1945 until 197173.

The dollar was supposed to um uh be valued, gold was supposed to be valued at $35 an ounce. >> Mhm. >> And any foreign central bank or government that brought dollars to the Fed was supposed to get uh gold at that price back. And the idea was that would restrain US prevent US fiscal excesses. And it turned out that there were more important political considerations driving US fiscal policy, the Vietnam War, LBJ's new society, uh things like that. So, historically that has been the role. Um now that uh currencies are not pegged to gold

anymore. The way that would work is that if people lose confidence uh in the dollar, central banks will be looking uh for to sell their dollar securities and buy something else and gold may be one of those things. So that's the way the restraint would work. Presumably a rational, thoughtful US government would worry about that scenario and uh a rational prudent Congress would get its arms around the chronic budget deficit problem to avoid that scenario from playing out.

Let's talk now about another store of value competitor for for some of the listeners who are quite passionate about cryptocurrencies and that is um Bitcoin and and other assets like it. Uh I know you mentioned Bitcoin briefly in your book as a a possible contender as a currency, but you dismiss it as a currency just simply because it's it's um too volatile right now and it's it's not really in usage. And I think that's probably a good point when it comes to the medium of exchange and unit of accounts, international currency type use cases. However, for something like gold where it serves as a a scarce store of value where it acts as sort of a a debasement hedge and alternative, it does have some properties that gold

doesn't. One of which is it is highly portable. Uh and so you don't need to load it into airplanes and you know send it from from one country to another. uh that it it has some other properties that that make it attractive as well relative to gold. What would it take do you think for Bitcoin to compete with or replace gold as a hard money? And can you imagine a scenario where that actually happens in the future? >> So, I'll get around to your question in in in one minute. Before I do, I would observe that there's nothing that prevents a large holder of gold from tokenizing that gold and putting it on a blockchain. Uh, you know, there there's

been uh there there have been efforts to create gold backed gold linked stable coins as well. Haven't really taken off, but they're out there. The way I think about it is that the consequential innovation that's going to change uh the international monetary sphere in which I work is uh blockchain distributed ledger technology. This is a new set of payment rails that everybody will be able to use. And the question is what will run on those payment rails? Will it be plain vanilla cryptos like Bitcoin? Will it be stable coins linked to the dollar or something else? Stable coins as

envisaged by the Genius Act. Will it be uh central bank digital currencies, the tokenized equivalent of uh Federal Reserve uh Treasury money in the United States? Or will it be tokenized bank deposits? the bank deposits. Most of us, I know this is the bankless podcast, but there still are lots of us with bank deposits which can be tokenized, put on the blockchain, and transferred between part different parties doing business. So my uh view at this point is that plain vanilla cryptos are still volatile and therefore they're uh

least likely to be used in actual payments on a day-to-day basis and if they're not used in payments that will limit their use for other things that stable coin the case for stable coins is yet to be proven. Will they really be stable? Will they be fungeable? If Walmart can issue a stable coin and Amazon can issue a stable coin, will you be able to use Walmart coin at Amazon and vice versa? Um, I think central bank digital currencies are coming. Central banks for centuries have shown that they change with the times. They change with developments in technology.

We now have this thing called Fed wire where the Fed can uh move money between banks 24/7 in a matter of seconds. So why not on some kind of distributed ledger technology in the future? And I think commercial banks are thinking the same thing to hold on to their business. One of the things they're going to have to do is tokenize bank deposits and put them on blockchains. So, I would put my money, I think, on a combination of central bank digital currencies and tokenized bank deposits, not on stable coins and uh bitcoins.

>> Barry, this was uh one of the best books on monetary history I've ever read. I can't recommend it enough to our audience. It's called >> Money Beyond Borders. I've read many of them. This was just very comprehensive and and well done. That part alone was fantastic. Uh the other parts when we get to the dollar is a fantastic history as well. Um one of the things I'm taking from this book of course is I've got to expand my coin collection to some of the coins that you mentioned. Uh we have a lot of investors listening as well Barry and investors today have never gone through a shift in monetary dominance where you know one currency diminishes while some other currency wins out. Do you have any lessons for investors in

this book? And and what would you tell them about the, you know, the the transfer from one dominant money to another money system? What do they have to be wary of? >> Well, I I I I would tell them read more history. Um, I would tell them that the shift from one dominant currency to another is rarely smooth. It comes with disruptions. And we all know that the best um defense against disruptions is diversification. Not putting all your eggs in in in one basket given all the stuff that's going on in the world at the moment. Uh I think uh uh sometimes the obvious advice can be the best advice.

>> We'll leave it there. That is fantastic advice. There is no single safe asset anymore. Maybe it's a portfolio, a diversity of multiple assets. Barry, thank you so much for joining us today. It's been a pleasure. >> Yeah, it's a pleasure. Guys, >> Bankless Nation, got to let you know none of this has been financial advice. Crypto is risky. You could lose what you put in, but we are headed west. This is the frontier not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.