Money Talks: 500 Years of the Dollar

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2:29Hello and welcome to Money Talks. I'm your host, Elizabeth Spires, and today I'm joined by Brandon Greeley. And we're here to talk about his new book, The Almighty Dollar, 500 Years of the World's Most Powerful Money. So Brandon, introduce yourself and tell us what your new book's about.

2:44Brendan Greeley: My name is Brandon Greeley. I was a journalist for 20 years. I covered the Federal Reserve for Bloomberg and for the Financial Times. For that, I worked at The Economist and in U.S. Public Radio. I left all that behind and started a PhD several years ago at Princeton in financial history. And that PhD came as a result of writing a book. I was asked to write a book about the history of the dollar. When as a journalist, you get asked to write about something, it doesn't matter whether you know what you're doing or not. You just say yes. I've got a phone. I can make some phone calls. I feel like the normal route is the reverse.

3:12You start in academia and then you write a book.

3:15Brendan Greeley: I did this 100 % the wrong way. The first thing you do is you get your degree and you write your dissertation. Then you write another monograph. Then if you're lucky after the second monograph, maybe 10 years into your career, it might be enough for you to write a sweeping history that brings in a lot of other secondary research. I did that first. And this history can't serve as my dissertation precisely because the dissertation is supposed to do something different. It's supposed to be a very specific look at the archives. But what I realized as I started working on the book was that a lot of the things that I thought I knew about money didn't provide very satisfying answers to the questions that I had.

3:48Brendan Greeley: What was your primary question? And the challenge was where to start it. I knew that the dollar was dominant. So I thought, okay, well, I'll start in 1971 when Nixon closed the gold window, the end of what we think of as the gold standard. And then I thought, well, no, that's a problem because I have to explain why money still had value. Why did the dollar still have value when we took away the gold? So then you end up in 1913, the foundation of the Fed. And then that doesn't really make any sense because why did we need a Fed and what did we do before the Fed? And eventually I arrived at what I've started calling the 1776 problem.

4:15Brendan Greeley: I think a lot of us were taught to assume monetary sovereignty. You have a new country. That country decides what its new money is. It picks its new money and it goes. So if we apply that to the United States, we have a real problem because new country, new money. But what they chose as their money, what they chose as their peg was a Spanish coin with Mexican silver that had a German name. And that doesn't make any sense if you think that the dollar started with America. And then I realized that I was not writing the history of a country, but I was writing the history of a currency. And those things aren't necessarily the same thing.

4:49Brendan Greeley: And then I felt a little lost because I realized that everything that I had learned said money is now fiat. It comes from the state. Very skeptical of the word fiat, by the way. I don't think that describes our monetary system at all. I think it veils more than it explains. And right now, high-powered money comes from the Fed. That trickles through banks through what we call the money multiplier and becomes money in our hands. You can't really explain money if you're trying to explain what's going on by assuming sovereignty and assuming the primacy of the central bank if you look back at 1776.

5:18Brendan Greeley: 1976. So I went back to school because I started having my own ideas about this. And if you're in a little room behind your garage alone with a dog for six years and you start to have ideas, one of two things is true. You have good ideas or you've become the Unabomber. So I went back to school just to sort of make sure that the things that I was reading that were not treatments. Well, the Unabomber also produced a manuscript. The only good manuscript is a done manuscript. It's not what they say about writing. So what I realized was there is a different tradition of money from historians than there is from economists.

5:53Brendan Greeley: And I became much more interested in that tradition. So with profound apologies, some of my best friends are economists. I sort of went back to rewrite the story. And this is how I ended up in 1520, which is if you have ever held a silver dollar in your hand, increasingly rare now, I used to get them as presents when I was a kid for my birthday. that silver dollar is the direct inheritor of a coin that was produced at a mint in Bohemia in the early 1520s. That's where the story begins. And that story starts 250 years before the founding of America. And in fact, Alexander Hamilton called the silver dollar the ancient dollar.

6:29Brendan Greeley: It was very clear to them that they weren't just making up a random unit of account, but that they were pegging their money to an existing coin. I wanted to call the book the ancient dollar. And my editor at Crown said, do you plan on selling any books ever? So that's why it's called the almighty dollar instead of the ancient dollar. Let's go back to the 1500s. You talk about the manufacturing of a coin called the, I mean, see if I'm pronouncing this right, the Wachumstaller? Joachumstaller. Joachumstaller. And that's where the, eventually the word dollar sort of is a legacy of that. And you tell this fascinating story of this guy, Stefan Schlink, I think.

7:03Schlick. Stefan Schlick. Stefan Schlick, who you sort of describe as not really a con man, but not the great figure that he's described as in many of the histories. He's a guy who basically declared an area full of silver his property out of nowhere, and then built a kind of silver mining operation based on financing it externally. And that coin that he ended up minning is sort of the basis of every other coin that eventually led to the creation of what we understand to be the American currency.

7:36Brendan Greeley: Yeah, absolutely. And that coin, what's really important about that coin is that it took the shape it did precisely because the mine was illegal. So Stefan Schlick brought in Saxon investors and Saxon miners. Silver mining in the 16th century was very expensive. A lot of upfront costs. You've got to build these massive wood structures on top of the mine with windlasses and cupolas to actually pull ore and water out of the mine. Very difficult, very complicated, and you need expertise. So Saxon investors who sort of came over the border in secret to start this mine would have expected their dividends to be paid in the form of a big silver coin.

8:10Brendan Greeley: So that's exactly what the mine produced. It produced dividends of a big silver coin. So that coin was not supposed to be money. And in fact, it's way too big for us to think about as money. That was worth about two weeks of labor or 27 pounds of bacon. I found a book that looked at prices in the 16th century in that area of Germany. So very quickly, these coins that were not meant to be coins of the local realm, they were meant to be dividend payments for silver investors, become very useful for one group of people, and that's merchants engaged in long-distance wholesale trade. So you start to see Jachimstall, and that just means that they come from this valley, Jachimstall in Bohemia, escape into the Baltic, and then you start to see them copied in Sweden, in Denmark, in Lubeck, in Hamburg, and other northern German cities.

8:54Brendan Greeley: And then you see it expand out to Antwerp. In 1539, there's a painting called The Money Changer and His Wife. We've all seen it, where The Money Changer is assiduously tallying up all of his coins, and his wife looks on. And she's beautiful, but also a little bored. And you begin to realize that maybe money is not everything. Okay. On his desk is our precisely recreated Joachim Stoller. It's very clear to the painter, trying to be accurate at the time, that silver had already taken the form of this big silver coin, copies of the Occam's Taller. So it gets copied again and again. And this is where the theory came in.

9:27Brendan Greeley: Carlo Cipolla was an Italian medievalist or early modern historian from the 20th century. And he wrote about what he called big money, moneta grossa. There are different kinds of money. We assume now that money is and should be fungible. He recognized that it wasn't. And I think we can argue that it's not fungible even now. But at the time, he was saying, look, you have big coins, and those are for long distance wholesale trade. Those are for merchants. And then you have little coins. Those are for local retail purchases. And those coins followed completely different rules. And crucially, it's really important for the finance-minded who are listening to this, the cost of production of the small coins per unit is much higher than the cost of the big coins.

10:06Brendan Greeley: Because no matter whether it's a high-value coin or a low-value coin, you still need somebody called a moneyer who straddles a stump and bangs two dies together with a coin in the middle with a sledgehammer. It's an industrial process. I've seen it. It's very loud. So you got to do this for every coin, whether it's a big coin or a little coin, which means that the relative costs of producing little coins are very high. And private mints hated doing it. It's much easier to sell a lot of big coins than to sell a lot of little coins. And so you get this constant complaint, constant historical complaint everywhere, not just the areas we're talking about, not enough small change.

10:37Brendan Greeley: And so the beauty of the mine at Jachimstall for the dollar is that because it was illegal and because the only people who mattered were the Saxon investors, all they produced was the big coins. They felt no obligation whatsoever to any kind of local markets. Again, it was not the coin of the realm. It was a dividend that was being paid out to silver investors. And in fact, the miners at Jachimstall struck several times. And one of their main complaints was, we're not getting paid in the same quality pennies as these big high value Jachimstallers that are going to silver markets in Leipzig. So the size of the money matter, but it was also like you get this incredible volume of what we would think of now as high-powered trade money flooding into the Baltic and Spires copies.

11:17Brendan Greeley: That's why I think, and a lot of this comes from work done by a numismatist from the Czech Republic named Peter Vorl, but that's why I think it's so important for us to step back from this assumption of sovereignty and say it wasn't sovereignty. It was markets that were spreading this. It was merchants who found it useful. And lots of theories. Robert Mundell, who won a Nobel Prize for his theory of currency unions said, great currencies are the children of great empires. Man, I don't know. I hate to disagree with Robert Mundell, but I don't see any empires here. I mean, he has a, look, he has a Nobel prize and I don't, but I don't see any empires here.

11:48Brendan Greeley: The Holy Roman empire did not back the Joachimstall or in fact, they hated it for complicated reasons. So what you eventually, what you get is a coin without a country spreading, being copied, moving into markets already in the early 17th century. The word dollar is in Shakespeare. It's in the Scottish play and it's in The Tempest. And the reason it's in Shakespeare is every groundling at the Globe Theatre would have known that a dollar was a big silver coin that came from the low countries to pay for cloth. It was not part of the pounds, shillings, spent system of the domestic currency system of England.

12:19Brendan Greeley: So again, that's spreading without an empire. Nobody planned that. It just happened because a big silver coin was really useful. So one of the recurring themes in the book is just the different kinds of money for different kinds of people. And to go back to the taller being used primarily by merchants. And we still kind of have that system, you argue, progressively through the book. So where do we see it now? Oh, absolutely. So money is now credit created by a bank. When a bank makes a loan, it marks up its own balance sheet with brand new dollars. It didn't get those dollars from the Fed. It just created them on its balance sheet.

12:52Brendan Greeley: In fact, I'm reluctant to use the word creation for money because it implies that there's some sort of magic. It's not magic. It's just finance. The bank makes a loan. The loan comes in the form of a deposit. Those deposits are brand new dollars. Okay. You have the exact same challenge with bank money, with loans, as you do with coins in a mint. And that is the relative cost of production of a lot of little loans is way higher than the cost of production of a few large loans for the same reasons. At the mint, it's called brassage, the cost of production. When we look at banks, we call it back office cost or underwriting cost.

13:24Brendan Greeley: They've got to do the same amount of work for a small mortgage as they do for a big mortgage. All things being equal, they'd rather write the big mortgage. They'd rather do the big industrial loan. It's a constant challenge in American banking. How do we support small businesses? Very difficult to get banks to make small business loans. They don't like to do it. Most businesses in America, I wish I had the exact data, but an overwhelming number of small businesses in America are not funded through loans. They're funded through family savings. So the bigger a money is, the more likely it is to be used by merchants, investors, the wealthy, the more likely we are to be well supplied with it because the cost of production is low.

14:00Brendan Greeley: We have the same problem with small transfers. This is an eternal problem, small change. How do you make sure that you, at a loss, produce enough small change that everybody's purchases can clear? We have that problem now. In America, we're really bad at transfers. So we just start making pennies. Well, we just stop making pennies. Yeah, but I'm talking bank-to-bank transfers. They're hideously expensive in the United States. They're effortless. There's zero friction between small interbank transfers in Europe. Yeah. And that's because those countries are capable of making their own banks behave and accept that certain things are just important for the infrastructure of finance, and you have to either not make a profit on them or accept a tiny loss.

14:37Brendan Greeley: There's a movement called Bank On in America, which encourages banks to provide low-fee checking just to get people into the banking system. This is really important work. And I think this is the analog to the problem of small change. The problem of small change didn't go away. We're just looking at the problem of small transfers, small loans, small deposits. And if you aren't in a bank, your money is very expensive. You get a check from your employer. You've got to take that to a check cashing place. They take a steep discount. It's not worth the same as if you have a bank account and you have direct deposit.

15:09How's the cashless economy infecting all of that?

15:12Brendan Greeley: Oh, I think to make the cashless economy work for everyone, you have to build from scratch a system that is supposed to work for everyone. So when you look at what they did in Brazil, they've got the system called PIX. Transfers sit on the balance sheet of the Bank of Brazil, and they forced the commercial banks in Brazil to cooperate. And as a result, there's a QR code on every street vendor in Brazil, and you take a picture, and you can then transfer your reals to the street vendor free under a certain amount. I think it's a pretty high limit. It's 200 reals. So that works. But they had to decide that it was going to work that way.

15:47Brendan Greeley: And they had to design it to work that way. So they have much more effective digital cash in Brazil than we have here. And it's because banks don't like to make small transfers. It's a pain. They lose money on it. And it's very difficult for both legal reasons and structural reasons for the Fed and Congress and the Treasury to convince banks to do that. So I don't think the problem of big and small money went away. And in fact, one of the inspirations for this book was we were talking about the problem of small money in a conference for historians. I was still a journalist. I was at the conference.

16:15Brendan Greeley: And one of the historians said, well, we solved that with the Fed. And I was sitting there as a Fed correspondent thinking, no, we absolutely did not solve that with the Fed. That's our viewpoint. What was his argument there? That money became fiat and so we could produce it in any increments we wanted. You disagree with the term fiat. Why? Well, fiat says it's the command of the state. Let it be done. So when I look at how money is produced in America, I don't see the command of the state. What I see is a lot of commercial banks producing their own loans. Now, the state's involved, right? The state has to regulate these banks.

16:46Brendan Greeley: We have to provide federal deposit insurance. It's an important part of it. But it's not coming from the state. People who follow modern monetary theory have a huge problem with this when I say this, because they think that money should come from the state. That's fine. We can have that argument. I'm just arguing right now, no matter what you think the ideal system is, the system we have right now, we decided in America, money's going to come from the banks. That's the system we have. So if you say money is fiat, then you get what economists call hand wavy. You don't have to think about how exactly it works anymore.

17:15Brendan Greeley: And I've always found it strange that economists, these like macro economists in particular, these like hard nose data driven people, when it comes to money, they're like, I don't know, man, it's just like a social convention. Like Greg Manku, I took macro in 1995 at Tulane University. We used Greg Manku's textbook and he said, money is a social convention now. It's fiat. Kids are still taught that at universities. I just looked at a more recent edition of BankU. He still says, now it's fiat. Now it's a social convention. Yeah, sure. You think that's partly because we don't have a full or completist explanation for why the dollar held up when Nixon took it off the gold standard?

17:53Brendan Greeley: Oh, yeah, absolutely. I think that's absolutely right. Yeah. But we can look at why. If we just say it's a social convention, like, I don't know, that's like saying the bond market is a social convention. It is, but we're capable of analyzing the bond market. We're also capable of analyzing money. Yeah, I think that's a really important point. One of the things that we can look at is before the Constitution, even under the Articles of Confederacy, states produced their own money. It had financial backing. They were called bills of credit. Then there's this clause in the Constitution that said states may not issue bills of credit.

18:23Brendan Greeley: That's hard to understand if you don't have the historical context, but it's basically saying the states of the United States may not print their own dollars. Okay, so now the states have a problem. They charter banks to do it for them instead. Banks produce banknotes when they make loans. They produce brand new bank deposits when they make loans. And a combination of local shop credits and those banknotes and those bank deposits become America's money. The problem with that system is it keeps blowing up. Banknotes and bank deposits only have value if the assets on the other side of the bank's balance sheet have value as well.

18:53Brendan Greeley: And so periodically assets blow up. In 1837, the cotton market blew up. You could not get a price for cotton in New Orleans. You got what we now describe as a run on the banks in New Orleans. And people were literally running from bank to bank, holding their bank notes, trying to get silver back for their bank notes. The banks shut their windows, decided that they were not producing silver anymore. So people in New Orleans started running around to bars to see if they could give their notes for silver at bars. Bars are, again, this really important source of financial transactions. People pay each other on bar ledgers.

19:21Brendan Greeley: The bars stop handing out silver, but they do say, look, we'll take your notes for drinks. And there's this great quote in the Picayune, which was already in existence then, still now is the Times Picayune, a great paper in New Orleans, said never in the history of New Orleans was so much liquor drunk in one night. But the panic of 1837 also produces reform. So you get stricter reserve laws to keep banks safe. that got to hold more silver in a lot of states. You get free banking laws, which basically say anybody who wants a bank charter can have one, but y 'all got to follow the same rules, which erodes at some of the privileges of the old bank chartering system where you needed to have a friend in the legislature basically to charter a bank.

19:58Brendan Greeley: We get state controllers of the currency, just somebody who's in charge of making sure that banknotes still have value. We still have those. We get bank reporting. It's very difficult to see what's on bank balance sheets before 1837. After 1837, this stuff is regularly published and compiled. We have really good, we can get a really good look at what's on a bank balance sheet after 1837. We still can today. We get the call report from banks. Somebody had to decide that data was important, right? So crisis after crisis, panic of 1857, I think was still fresh in the minds of Congress in the early years of the civil war.

20:29Brendan Greeley: They create a national bank charter. So instead of the states chartering their own banks, they have to get out of the business of printing their own bank notes. The federal government actually has its own bank charter. So if you have a first national bank of your city, it was created underneath that charter. There's a controller of the currency for the United States. Somebody in charge of making sure all these banknotes have value. And crucially, if you want a national bank charter, and if you want to print your own banknotes as a national bank, you have to back them 100 % with federal debt. Now, a cynic would say the United States needed to fund its war.

20:58Brendan Greeley: Absolutely. But we get the beginning of what we now think of as what makes money valuable, which is it's tied one-to-one on a balance sheet with federal debt. 1907, we get the Federal Reserve. There's a panic in the copper markets, and that starts the process that eventually creates the Federal Reserve in 1913. I don't think the Federal Reserve was a massive departure from what was done before. It took a lot of techniques that banks had for protecting themselves in a crisis and put it in a few central banks. Banks in big cities already had agreements with each other to protect each other in a crisis.

21:25Brendan Greeley: So we just turned that into one reserve bank in major financial cities. So this also is when hostility toward the federal system began. Why do you think it's been so pervasive over the years? There's a lot of conspiracy theorizing around the Fed now, I think in part because the Fed is pretty secretive. So it's easy to imagine what they're doing because they won't often tell you. I think the Fed sees great value in being unclear. As a journalist, I began to realize covering the Fed, I began to realize that they saw me as part of their system. It was my job to explain what they were doing to normal people.

21:58Brendan Greeley: They needed to be opaque. They really believed that they needed to be, you know, and their deliberations are secret for a long time. There's still a lot of stuff in the New York Fed archives, for example, that's not publicly released. You've got to sort of know someone and go in there and dig around. I can see why that would be fertile ground for conspiracy theories, even though I don't believe the Federal Reserve is a conspiracy theory. It's also true that it's really easy as a journalist in Washington now to get captured by the Fed and sort of, without thinking about it, put them in the role of the good guys.

22:27Brendan Greeley: Yeah. Because they're all thoughtful, and they all have PhDs, and they all genuinely want what's good for America, which makes it very difficult, particularly if you cover Washington, D.C., where that's not true of everyone. It makes it difficult to sort of be critical and tell them that they're not doing their job and ask them to do a better job. I don't think we're very good at that, those of us who cover the Fed, mostly because we really need the Fed because what our readers are most interested in is rate decisions. Yeah, and there's not really, on the right in particular, I'm thinking the hostility toward Fed reform doesn't really go into, actually, it's not reform at all.

23:00You know, they want abolition. So it's hard to sort of not think of it as a dichotomous kind of two options.

23:07Brendan Greeley: But if we go back to this question of why did the dollar have value in 1971 after Nixon closed the gold window? If we keep running this forward, the Federal Reserve's original job, again, in response to the crisis in 1907, was to make sure that banknotes, which had value for the exact same reason that national banknotes had value, they were backed one-to-one by federal debt, could get out to rural banks in a crisis. National banks didn't find printing banknotes very profitable anymore, so they were getting out of the business. So we needed a federal bank to jump in and supply the right amount of notes when people's liquidity preference changed and they didn't want deposits anymore.

23:39Brendan Greeley: They wanted to hold on to actual bills. So 1932, we get the breakdown in the deposit system. Banks close their doors all over America. We get for the first time federal deposit insurance. Massively important. I always say like of the great things that America's produced, the Great American Songbook and Barbecue, like somewhere on that top five for me is federal deposit insurance. We just don't have small bank runs anymore. And when things blow up, they tend to blow up outside of the FDI system. The exceptions are notable because it used to be several hundred a year. It's now usually none and sometimes one or two spectacularly.

24:12Brendan Greeley: So all of this is to say before 1971, there was 150 years of crisis reform and the reforms built up layer by layer, the scaffolding that supports the value of the dollar when we finally remove gold from the edge of it. So that's not magic. That's history and it's finance and it's regulation and we can understand it. And when we say it's just fiat, it's a social convention, I'm not sure why I make Greg Mankiw sound like a hippie when I do that. If we do that, then we sort of throw up our hands and say, well, I guess we can't understand money. And that means I guess we can't make sure that the Fed and the Treasury together are doing a good job with our money.

24:53We'll be right back here on Money Talks.

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27:03Can I hire more people? Should we get a bigger office space? Don't lose sleep over the small stuff. Keep focusing on the big things. AT &T Business built to work. Get AT &T Business at business.att.com. You had an interesting chapter in the book where you sort of float the theory that after we went off the gold standard, we were sort of thinking about gold sort of being replaced by oil and the idea that arguing that there's no such thing as the petrodollar. What was your argument there?

27:35Brendan Greeley: Well, again, because we don't have very precise ways of talking about money, instead what we end up with is stories of why the dollar is valuable. And so one of those stories is American empire made it possible. And it made it possible in a specific way when you get this spike in oil prices, agile diplomacy by, among others, Henry Kissinger ensured that the Saudis would buy treasuries with their wealth and oil would be priced in dollars. And that's, you know, we basically took away gold and replaced it with oil as the commodity that guaranteed the value of the dollar. There are a couple of problems with that story.

28:06Brendan Greeley: One is Saudis don't buy treasuries the way they used to. They invest in other things. For a long time, China bought treasuries, but now they're investing in other things as well. You've got cycles of people moving in and out of treasuries, and still the dollar remains powerful. When you look at how oil came to be priced in dollars, there's another market that's so hard to understand and so important, which is what we call the euro dollar market. Now, that has nothing to do with the euro, the currency. But in the 50s and 60s, people in the United States noticed slowly that what was happening was a couple of things.

28:38Brendan Greeley: One was countries that sold things to America got paid in American bank deposits. That should have initiated a process where, say, the German company sells those deposits to the Bundesbank, and the Bundesbank eventually goes, you know, Germany's central bank, goes to Fort Knox and says, thank you very much, we'd like gold for this. That didn't happen. People just held on to them. And it turned out that they were very useful to trade back and forth access to these deposits without ever having to redeem them for gold. This was not by design. Bankers figured out how to do this, because as you and I know, bankers are very creative and profit-oriented.

29:09Brendan Greeley: It's the great thing about bankers. And so the Fed started realizing that this was happening and actually sent an economist over to the city of London to just ask around. He comes back and he's like, you guys are not going to believe this. They're holding access to American deposits and they're trading them like dollars. And people are calling them continental dollars and euro dollars, which is the word that we have now. And so then banks start floating bonds in London priced in dollars, euro bonds. And then Milton Friedman makes this argument in the late 60s where he's like, I'm looking at the volume of dollars that are in London banks, and I don't think they can all just be access to American deposits.

29:45Brendan Greeley: I think there's brand new money there. I think money is being created in dollars in London. And when you look at the logic, it's hard to disagree. An internal memo from the Bank for International Settlements around the same time agreed like the banks are just doing exactly what American banks do. They are marking up their own balance sheets with brand new deposit dollars. And they're not doing it with the permission of the Fed or the Treasury or Congress, they're just doing it. People make their own money. And when we look back to early modern theories of dominant currencies, the idea of this sort of Carlo Cipolla idea, this Italian economist or Italian historian I mentioned earlier, who said big money inspires what he called more or less faithful copies, right?

30:23Brendan Greeley: So just like we got this copy of the Jakobs Taller all over Europe and eventually in Spain, you get copies of American bank dollars. They're just other banks are marking up their own deposits. That's still going on now At the time, if you had wealth, that's where your wealth went. So well before the oil price spike, we have rich evidence of Saudis and Kuwaitis arriving with wealth, dollar wealth in the euro dollar markets and saying, what do I do with this? Right. And so they begin. So even in the early 80s, David Spiro is a political economist who sort of tried to compare all this this traffic.

30:57Brendan Greeley: Well into the 80s, there's still more money, more oil wealth going into the euro dollar markets, offshore dollars in London than are going into treasuries. So we can't understand the story of what we now call the petrodollar unless we really take a hard look at offshore dollars, at euro dollars. Now, they're still growing. When you look at the sort of scale of euro dollar production, they're right now, according to the Bank for International Settlements, at about$14 trillion. If you take all of what we call M1 in the United States, which is Federal Reserve dollars and bank dollars, you only get to$19 trillion.

31:31Brendan Greeley: They're at a comparable scale, offshore dollars. And that number is rising. It has not declined over the last 10 years. To the contrary, it continues to shoot up. And it does this because America is uniquely willing to let other people copy its currency. It's super useful for us for a lot of reasons to let other countries' banks do that. And the Federal Reserve has what it calls swap lines where it will bail them out in a crisis. The Federal Reserve will, for a few central banks that it trusts, lend them, sort of briefly swap its currency for theirs. They then have brief access to dollars, which they can then briefly give to their own banks for liquidity.

32:06Brendan Greeley: And sort of the Federal Reserve will give short dollar loans to support the global dollar system that ultimately land in foreign commercial banks. After the crisis, they unwind all of this. And it's fine. It doesn't cost the Fed anything ultimately to offer these swap lines. But they extended the swap lines in 2008 and again 2020. 20. And it's clear to everybody that if you want to use dollars and you're part of a country with a responsible central bank, the Fed will be there for the next crisis. So none of this follows the assumption of sovereignty. If we say countries create their own money, we don't have an explanation for euro dollars, something comparable in scale to the dollars that banks produce domestically.

32:45Brendan Greeley: If we start with the banks and say, okay, this is just an activity that banks do. They can choose how to denominate their brand new deposits. We have a much more compelling theory that helps us look at the world and understand what's happening with the dollar here and abroad. Yeah, I think of your 30 ,000-foot thesis as kind of, we don't own the dollar, the dollar owns us. Yes. Is there anything that would really imperil the dollar in that sense? Is the world's reserve currency? I had a real challenge in the book. I wanted to give the dollar agency. Of course, it's an inanimate object. We all create it together.

33:16Brendan Greeley: Of course, it doesn't have agency, but maybe it is that the merchants who need the kind of money that the dollar represents have agency. And they have every bit as much agency as politicians and bureaucrats within a country. So yeah, absolutely. I think we chase the dollar and try to pin it down and regulate it. And it always gets away from us. If we look at the euro dollar system, to answer your question, I think that there are three things, three legs in the stool that holds up the global dollar system. It's the FDIC, incredibly valuable. This vast pool of insured deposits just doesn't exist anywhere else.

33:47Brendan Greeley: Jointly insured, I mean. The Fed swap lines, the next leg. And then the last leg is this sort of fuzzy institutional value of the dollar. Like that's America's stable, so the dollar is reliable. And it has to do with we're going to pay down our treasuries. Treasuries are part of the dollar system. It has to do with we trust Americans to continue to regulate their banks. Of all of the three of these, the only one that's seriously in question right now is America's institutional strength. There is some discussion in Europe of what they would do if the swap lines were taken in a way. That is a direct consequence of how aggressive Trump has been with the Fed.

34:20Brendan Greeley: So far, the Republicans in the Senate have protected the Fed from Donald Trump. I've always found that fascinating. There isn't a lot they protect, but man, you cannot touch the Fed because that's where they keep the money. I mean, I think that's a function of Republicans generally being business friendly and understanding that the Fed helps. I'm so sorry. My dog is whining again. He has walked all the way around the house and is trying to come in the other side. My daughter asked for the dog and she sort of snuck out one morning when she was seven and unwrapped my FT. and wrote, can I please have a puppy?

34:49Brendan Greeley: And then rolled the thing back up. So I went out there. There was like a banner ad on my FT. I thought that was funny. I put it on Twitter. I woke up the next morning. There were like 12 ,000 retweets. And it was because J.K. Rowling had found it in the middle of the night somehow and retweeted it. So there became a celebrity movement. Hashtag team puppy. Important people instructing me to get my daughter a dog. You can't say no to millions of celebrities. No, I can't. Right. They're right about everything. I'm sorry. You were talking about this. What would imperil the dollar? Yeah, what would imperil the dollar?

35:16Brendan Greeley: I also don't see anyone else wanting that job. China seems to want some trade to be denominated in yuan, and they've offered swap lines. The swap lines seem to have political strings attached, but I think they understand that being the dominant currency provider is a real pain. Because once your currency becomes monetized for the rest of the world, it becomes way more valuable than it should be, and it becomes difficult to export. Lots of reasons why American manufacturing collapsed over the last 40 years, but I think the strong dollar is one of them. So given your area of expertise, how often do you get accosted by cryptocurrency people who want to tell you that the dollar is going to collapse?

35:50Brendan Greeley: All the time. What do you say to them? What do I say to them? Man, I think the real problem is that they're two different epistemologies at work. You know, their epistemology is, and I understand this, this isn't inherently bad. If you're an investor, you sort of want this. They believe that the success of cryptocurrencies, in particular Bitcoin thus far, is proof that they're working, is proof that they're the best possible scheme. So there are so many different kinds of crypto, right? You have tokens, you've got stable coins, which are pegged to the dollar or the euro. Then you've got Bitcoin, which is its own thing.

36:17Brendan Greeley: I think of all of it as finances if the past never happened. Yeah, I think of it as just a different asset class that you wouldn't compare to cash, even with the stable coins. Right, but it's an attempt to recreate cash in ways that we've recreated cash before. So if we just take the stable coins, we know what a stable coin provider is. It's a bank, right? It's got runnable liabilities on one side and assets on the other side. The runnable liabilities have value because the assets have value. That's not that hard to grasp. And yet they keep saying there's this constant trend in American banking regulation where something new comes along and they're like, ha ha, we're not a bank, we're a schmank.

36:52Brendan Greeley: And that's why you can't regulate us like a bank. We need schmank regulations. And then like, what happens? The schmanks all blow up and everybody's like, oh God, it was a bank the whole time. So like, we're about to start this process again. In fact, we have started this process again. So stable coins, we get this legislation that sends banking regulation back to where we were before the Civil War, which is there's no deposit insurance and everything is regulated by the states. I mean, there could be states that do a responsible job with that. I've looked at the Wyoming stablecoin legislation.

37:18Brendan Greeley: It's not terrible, but like, I don't, do we want that race to the bottom? Because it happened before and it's hard to think that it's not going to happen again. I don't know. I just feel like people who are deep into crypto do the exact same thing that other people have done in the past and they think they're special and different. And I just see a recreation of the stock market, a recreation of banks, and a recreation of interesting assets. I think that that's endemic to the tech industry. A lot of people will recreate something that already exists, but because they didn't know it existed, they have to go through the entire process again.

37:49Brendan Greeley: Absolutely. I keep hearing from crypto enthusiasts, well, we have to iterate on money. No, we iterated. We've been iterating on money for several thousand years. We have the records. I mean, we've done this before. That's my frustration with crypto. Look, let's say the wildest dreams of Bitcoin holders come true and they become base money for the world. Okay, it's deflationary. That's a problem. We've forgotten how bad deflations are. People tend to hate them. So that's a problem. But even if for some reason that weren't a problem, you still have to build a credit system on top of that asset. Assets just sit at the edge of promises made on paper.

38:24Brendan Greeley: And so if Bitcoin or Satoshi's are what clears on the edge of all these private credit transactions, we still need banking regulation and consumer protection. And we eventually end up with a system that looks pretty much like what we have now, except all of it pegged to Bitcoin or all of it sort of cleared by Bitcoin on the edges. For that reason, I don't find Bitcoin that interesting because it's the rest of the system that we spent so long getting right. So last question, what's the biggest misconception people have about the dollar that irritates you? I think it's this simple story that we were told if we ever learned about this in school, that first there was barter and then we had coins and then pieces of paper represented the coins.

39:07Brendan Greeley: And then we took the coins away and now the paper has value because fiat. That story makes it impossible to have rational conversations about what the dollar is, how it works, how it might it work better. And so there's a different story, which I find just as frustrating, what we call chartalism that says money was always fiat. Coins were just a special form of debt. The king paid it out and then demanded it back in taxes. I don't know. I don't see the state producing the money. We could imagine a world where it did, but that's just not the world that we have. And so these theories that say, look, we can do whatever we want.

39:42Brendan Greeley: There's a group of people that thinks that's good. The state should do whatever it wants. There's a group of people that find that bad. We should take money back away from the state. Both for me, any explanation is necessarily a simplification. But the simplification of fiat, man, it is so frustrating because it prevents us from having rational conversations about what the dollar is. If I do anything with this book, it's to get people questioning the word fiat. So what's your dissertation going to be about? The Guinea. Man, the worst thing you can do is ask a PhD candidate about their dissertation.

40:13Brendan Greeley: Why would you do that to yourself? So the standard explanation for the English financial revolution is institutional. And Northam Weingast wrote a very famous paper in the 1980s. They eventually won the Nobel Prize for that paper, among others, saying it was parliament constraining the king that made finance more predictable and sort of set off the financial revolution in England. I don't find that story very satisfying. And in part, I don't find it satisfying because right before that, you have with the chartering of the Royal African Company, a flood of new gold coming into England. And they were minted in the form of guineas.

40:45Brendan Greeley: And at the same time, you get this uptick in gambling behavior, horse races, bets over backgammon, and you get an increase in investment behavior, chartered stock companies. And so this brand new source of big gold coins, I think it had to have had something to do with the growth in finance at the time, which weakens the institutional story. I have spent some time already doing work on that. I've been to the National Archives in London, have looked at some regional archives in Kent and up at Oxford to look at investors in the Royal African Company. And they certainly treated gold differently. And they treated the gold guinea, which was like the Yachim's taller, a dividend paid out to investors in the Royal African Company.

41:23Brendan Greeley: They treated it differently in their books. It was special money. It was different money. It was money for a different kind of risk. Reading cash books and old ledgers is maddening because they almost never spell out what cash was. Like you got to figure it out as a historian. They knew. Why would they tell you, future historian, what they're thinking of as cash? There's a huge exception in all of these ledgers that we're looking at in the 1670s, 80s, 90s, and that's guineas. They show up on their own as a special coin. You wrote down that you received something in guineas because they had a different job in that economy.

41:52Brendan Greeley: That's my dissertation. I hope to talk about it again in a year and a half. If it turns into another book, I'll have to send it to us. Thank you so much. So that's it for Money Talks. Thank you to our guest, Brandon Greeley, for joining. And thanks to Jessamyn Molle of Seaplane Armada for producing. We'll be back on Saturday with our regular edition of Slate Money.

42:14Slate Money is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Listen to Washington Wise, an original podcast for investors from Charles Schwab, to hear the stories making news in Washington right now. Host Mike Townsend, Charles Schwab's Managing Director for Legislative and Regulatory Affairs, takes a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement savings, taxes and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors, and even the entire market.

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