What History's Greatest Currencies Tell Us About the Future of the Dollar | Barry Eichengreen

In Episode 468 https://hiddenforces.io/podcasts/historys-greatest-currencies-future-of-the-dollar-barry-eichengreen of Hidden Forces, Demetri Kofinas speaks with renowned economic historian and author Barry Eichengreen about the history of international currencies and the prospects for the US dollar's continued preeminence, drawing on his new book Money Beyond Borders: Global Currencies from Croesus to Crypto. The first hour traces the long arc of international currency history, from the invention of coinage in ancient Lydia through the monetary innovations of Athens, Rome, and the Byzantine Empire, to Renaissance Florence, where a city-state with no navy and no silver mines managed to make its currency the dominant medium of exchange in Europe. The hour closes with a discussion about the Dutch Republic's revolutionary contributions to modern money and finance, and the Spanish silver dollar—the first truly global currency, which circulated from the New World to China and remained legal tender in the United States until the eve of the Civil War. The second hour examines Britain's emergence as the world's first modern financial superpower, whose decline opened the door to the internationalization of the US dollar, and the role that figures like Paul Warburg, the Federal Reserve, two World Wars, and the Bretton Woods Agreement each played in establishing dollar dominance—further cemented by the breakdown of Bretton Woods and the era of floating fiat currencies. They then turn to the present, examining what Eichengreen sees as the two most serious threats to the dollar's continued preeminence: the erosion of the rule of law and separation of powers inside the United States, and the fraying of the alliance relationships that underpin global confidence in dollar-denominated assets. They close with a discussion about whether stablecoins could extend the dollar's network effects, why the Euro and the Chinese renminbi fall short as credible alternatives, and what a world without a reliable global reserve currency could mean for international trade, finance, and geopolitical stability. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Join our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 03/09/2026

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Demetri Kofinas?

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is renowned economic historian and author Barry Eichengreen, whose new book, Money Beyond Borders: Global Currencies from Chrysis to Crypto analyzes the US dollar's prospects as the preeminent international currency by chronicling the entire history of cross-border currencies, from the invention of coins in the 7th century BCE to the cryptocurrencies of today and competing currencies of tomorrow.

• 0:44Demetri Kofinas?

  Barry and I spend the first hour of this conversation tracing the long arc of international currency history, beginning with the invention of coinage in ancient Lydia, and moving through the monetary innovations of Athens, Rome, and the Byzantine Empire, before arriving in the remarkable city of Florence, where a small city-state with no navy and no silver mines to speak of managed to make its currency the dominant medium of exchange in all of Renaissance Europe. The first hour ends with a discussion about the Dutch Republic's revolutionary contributions to modern money and finance, before turning to the Spanish silver dollar, the first truly global currency which circulated from the New World to China and remained legal tender in the United States until the eve of the Civil War.

• 1:29Demetri Kofinas?

  The second hour, Barry and I examine Britain's emergence as the world's first modern financial superpower, whose decline opened the door to the internationalization of the US dollar. We retell the story of how Paul Wolberg and other prominent bankers, financiers, and politicians helped to build the institutional financial infrastructure needed for that internationalization, and the role that the Federal Reserve, two world wars, and the Bretton Woods Agreement each played in establishing the dollar's global dominance, which was further cemented by the breakdown of the Bretton Woods system in the era of floating fiat currencies. We then turn to the present moment, examining what Barry sees as the two most serious threats to the dollar's continued preeminence, closing with a discussion about

• 2:14Demetri Kofinas?

  whether stable coins could extend the dollar's network effects, the durable challenges facing the Chinese renminbi as a credible alternative, and what the most likely scenario, a world without a reliable global currency, could mean for international trade, finance, and geopolitical stability. If you want access to all of this conversation, go to hiddenforces.io/subscribe and join our premium feed, which you can listen to on your mobile device using your favorite podcast app, just like you're listening to this episode right now. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q and A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats,

• 2:59Demetri Kofinas?

  you can also do that on our subscriber page. And if you still have questions, feel free to send an email to [email protected] and I or someone from our team will get right back to you. And with that, please enjoy this exceptionally comprehensive, in-depth, and timely conversation with my guest, Barry Eichen Green. Barry Eichen Green, welcome back to Hidden Forces.

• 3:30Speaker 01

  Good to be with you again.

• 3:32Demetri Kofinas?

  That sounded a bit ominous, the way I said it. So I'm very excited to have you back on. You were, I think you've only been on the show once before, and it was in 2018 to talk about the populist temptation, unless I'm forgetting a different appearance.

• 3:45Speaker 01

  You know, I think I was with you in person in a studio in New York one time before that. In any case, it's good to be back.

• 3:53Demetri Kofinas?

  Yeah, that was at our Manhattan studio, the good old days. So is this your first book in the last eight years or so? Am I right about that?

• 4:01Speaker 01

  I had a book in 2021, In Defense of Public Debt, about the importance of government borrowing to meet all hands-on-deck emergencies. So COVID and angst about the growth of government indebtedness inspired that project. That was a co-authored book with three colleagues. One of the things I discovered is it's hard to get the big boys, the big newspapers, to review a book with four co-authors. So lesson learned.

• 4:34Demetri Kofinas?

  That's interesting. You'd think it'd actually be easier in some way because you have more people to choose from in doing the book's publicity. So your new book is titled Money Beyond Borders: Global Currencies from Crisis to Crypto. It publishes the day after this episode airs, and it's largely, I would describe it as largely, a history of international currencies that provides the analytical foundation for thinking about the current role of the dollar, its continued prospects as international money, and what, if anything, is positioned to replace it. Did you write this book because you felt that we are now entering a phase where the dollar's dominance is coming under question, and you wanted to give people an analytical foundation from which to think about that?

• 5:15Demetri Kofinas?

  Or was it the opposite? Was it that you felt that the sort of doomsaying around the dollar reflects a fundamental misunderstanding by the public about the sources of international currency hegemony, and you wanted to set the record straight?

• 5:30Speaker 01

  One of the motivations for writing the book was worry about the future of the dollar as the dominant global currency. And I wanted to bring together the political and economic strands there, looking back in history and showing how not only did international currency status have economic preconditions, that the issuer had to have a strong economy, had to be a trading power, had to be a financial power, but that there were also political preconditions. That if you go back to ancient Rome, you see how the denarius was strong during the period of the Roman Republic, when there was a senate of independent, powerful

• 6:11Speaker 01

  landowners who limited the ability of leaders to manipulate, to debase the currency. So you can see how my current worries about separation of powers and rule of law in the United States are a factor in my pessimism about the dollar's future role. So that was one motivation. And the other motivation is that we are clearly in a period of rapid financial innovation, the digital revolution and all that. So it was the combination of economic and worries about economic and especially political weakness. In the United States and the potential for alternatives to develop going forward with

• 6:54Speaker 01

  distributed ledger, technology, tokenization of financial assets that I think will open up the possibility of viable alternatives to the dollar.

• 7:03Demetri Kofinas?

  So there are differing views on the origins of money. Traditionally, the view was, at least as I learned it when I was a younger man, was that it originated with like seashells and other physical items that stood in place of the other services or goods that people consumed. The work of David Graeber that goes back now, I think, to shortly after the financial crisis, was the first time that I was introduced to the idea that maybe credit came first. Your book either, it doesn't necessarily address this question of origins of money. And in some sense, it takes for, not necessarily takes for granted, but focuses more on the national origins of money, or how the state creates the payment rails, so to speak, upon

• 7:44Demetri Kofinas?

  which the private sector piggybacks and the tensions that arise between both. Is there a reason that you didn't go into that, or how does that factor into your thinking?

• 7:53Speaker 01

  Well, David Graeber was an anthropologist, if I recall correctly. And I did have the pleasure of reading a lot of anthropology, archaeology, you have to look at archaeological evidence when you look at the origins of money, and numismatics as well. And that range of different sources makes me an adherent to the old view, if you will, the pre-Graeber view, which is the one that I'm convinced by. So I did not address explicitly whether coinage, means of payment, or credit came first, but I'm convinced by the old view.

• 8:36Speaker 01

  I actually have a good friend and Berkeley colleague, Chenzi Zhu, here in the economics department, who is kind of an adherent to the Graeber view. So it's not in the book, but it's part of our lunchtime conversation.

• 8:51Demetri Kofinas?

  So you begin the book by citing Aristotle's observation about the origins of money being tied up in trade and commerce. What do we need to understand about those origins? How trade and commerce in the ancient world differed from how we think about it today? And how that was all bound up in money?

• 9:10Speaker 01

  Well, because of what I would regard as the underdevelopment of financial markets of credit, as you put it, having a physical means of payment was critically important for commerce, having a physical means of payment that was standardized over time, you know, moving from your seashells to my ingots of precious metal to then standardized coins, where the standardization really only becomes possible with the advent of more powerful centralized states. It follows directly that coinage is kind of the intermediate state, step, if you will,

• 9:55Speaker 01

  between lumps of valued precious metal before and modern financial markets, which I think you begin to see glimmers of in the period of the Roman Republic, an empire, and then full-blown manifestations of in the period of 13th and 14th century rise of Florence, Venice, Genoa, and then really full-blown in the Dutch Republic.

• 10:24Demetri Kofinas?

  So I'm actually very excited to go through as many of these historical cases as possible. A couple more questions before we start with the ancient world and Lydia. It seems that there was a common problem that all of these nation-states and their respective currencies were attempting to solve, having to do with scaling commerce, bridging the divide of trust between counterparts that didn't know each other. If you had to articulate what those were, or the dominant set of problems that were being solved, and that led to this, what appears to be really an evolution of increasing layers of abstraction of economic affairs, what were those common problem sets?

• 11:05Speaker 01

  So when you talk about commerce, the critical transition, I think, is movement from transactions between individuals with personal ties, members of a family or a clan or a religious network, to impersonal transactions, being able to do business reliably with people with whom you do not have a personal connection. And that's where having a standard unit of account means of payment becomes important, being able to settle up with your counterparty in that commercial transaction. It is essential, obviously, and having a standardized unit

• 11:50Speaker 01

  with which to do that, again, is of immediate concern.

• 11:55Demetri Kofinas?

  Something that I failed to do initially, and I actually want to rectify right now, is define exactly what we mean by international currencies. How would you define the types of currencies that we're talking about here?

• 12:05Speaker 01

  Well, I'm talking about typically a unit that is associated with, minted by, what today we would call a kingdom or a state, but that is used across borders, that is used not only for transactions within the borders of the issuing, if I can use that word, state, but in transactions with other individuals who reside outside their borders. And a true global currency is one that is used in transactions between two or more parties, both of whom reside outside the borders of that state. So when we get up to the Dutch Republic in the 16th

• 12:50Speaker 01

  and 17th centuries, you see Scandinavian merchants or Russian merchants doing business with English counterparties or customers using the Dutch gilder as kind of the standard unit that everybody recognizes and accepts. So I would distinguish an international currency, which is used across borders, from a true global currency, which is used outside, entirely outside the borders, in some cases, of the issuing entity, the issuing state or kingdom.

• 13:25Demetri Kofinas?

  What were some of the qualities that the most successful issuing states had in common that made their international currencies so widely used, would you say?

• 13:34Speaker 01

  They had healthy economies, they were trading powers, so they did a lot of cross-border business themselves that made their currency kind of the natural habitat for those transactions. They had secure borders, so their ability to continue to issue the currency was not thrown into question. They had powerful militaries to accompany their commercial transactions. And their currencies exhibited stability over time. So nowadays, we think about the rise and fall of international currencies, how the pound sterling had a glorious century

• 14:17Speaker 01

  that ended around World War I or maybe World War II. The US dollar has been the dominant international currency since the middle of the 20th century, but it may be on its last legs, or may have entered a period of relative decline where many people around the world are looking for alternatives. If you go back to ancient Greece and Rome, if you go back to the Byzantine Empire, we see their currencies maintaining their stability for centuries, for three or four or five centuries, depending on the case in question. And again, in all

• 14:58Speaker 01

  of these cases, there are powerful constituencies with political voice who push for the maintenance of stability and push back against leaders, emperors, and the like with other pressing goals who might be tempted to debase that currency.

• 15:20Demetri Kofinas?

  So the first chapter of the book, I mean, the first chapter is the introduction, but the second chapter concerns itself with the ancient world. You begin with Lydia, you cover ancient Athens, as you said, Rome, the eastern half of the Roman Empire. What was important about Lydia? Why did you start the story there?

• 15:35Speaker 01

  Lydia is important because it is arguably where coinage was initiated or invented. So the first coins that numismatic studies and archaeological studies identify 650 B.C. were found in Anatolia, in what was then the Kingdom of Lydia. And Lydia is important as well as as an example of one of these trading powers. So trade with Greek islands led to the diffusion of this new innovation, the coin, from Lydia to Greece and eventually

• 16:16Speaker 01

  to emulation by various Greek city-states of the Lydian example.

• 16:21Demetri Kofinas?

  So Chrysus' father was the first one to coin electrum, but it was Chrysus that, if I remember correctly, he was the first one to create a bi-metal standard by stamping the coins. What was the incremental value that that innovation added?

• 16:36Speaker 01

  Well, electrum is a combination of gold and silver. And the problem with it is how many parts of one and the other metal you have in a given lump can vary. If it's more heavily gold, it's more valuable. If it's more heavily silver, less so. So if you weigh it out rather than stamp it with a uniform value, people are not quite sure what they're getting. So by giving it a uniform value and having the king standing behind it, it circulated more widely, was accepted more widely.

• 17:14Demetri Kofinas?

  Is it fair to describe it in modern parlance as an innovation that reduced friction?

• 17:20Speaker 01

  It reduced friction by introducing standardization.

• 17:24Demetri Kofinas?

  So there's so many case studies that I want to explore in the book, so I don't want to get tied down to the ancient world. So maybe my, the next question to ask you is, given the fact that you covered a number of empires here, the most successful of which was the Byzantine Empire, which, am I correctly remembering that it was actually 700 years? That its currency circulated?

• 17:41Speaker 01

  Yeah, more or less.

• 17:42Demetri Kofinas?

  Right, and it also circulated alongside the Umyad, which in some ways foreshadows what we may be embarking upon with the US dollar competing in a bipolar world with the Chinese RMB. But like, what are the important lessons that we should take away here? Both in terms of the innovations of this period that we need to understand, and also how they carried forward into what we saw in the case of Florence?

• 18:06Speaker 01

  Well, in the Byzantium, you begin to see in addition to a coin, whose stability is maintained for many centuries. Again, the importance of trade, so the Byzantine Empire was kind of astride Europe and Asia, you know, right at a critical crossroads. What's going on in the Middle East at the moment is a reminder of that fact. And you see the early development of promissory notes, what became bills of exchange. So the Florentines and the other northern Italians basically learn about the promissory note by doing business with the Byzantine Empire.

• 18:52Demetri Kofinas?

  So let's move to Florence, because it seems almost like the exception that breaks the rule. I asked you before, what are some of the common characteristics of countries that were successful in issuing international currencies? Florence seems to be the first example of a relatively weak city-state that became the dominant issuer of international currency. It didn't have a port or a navy to speak of, it didn't have any silver mines. So how did it become this real powerhouse of international commerce and currency?

• 19:19Speaker 01

  Someone asked me recently which historical case study in the book is most surprising, and I would answer Florence for the reasons you describe. It's a small city-state nestled in the hills of Tuscany, that does not have direct access to the sea, except insofar as it is able to annex or get rights to use the port of Pisa. It doesn't have the economic scale. Of the other larger empires that we've talked about in the last few minutes. But what it has is financial acumen. So it's the rise of Florence and of the Floren starts with Florentine wool merchants.

• 20:02Speaker 01

  The one thing Florence does have is a lot of free flowing water. So they could build a wool cleaning, weaving, finishing industry on the basis of that water power. And they travel far and wide in order to source the raw wool for that textile finishing industry. They go to the low countries, they go to Northern Europe, they go to England. And when they begin to purchase wool there, they do so not only with cash or coin on the barrel head, but they begin to do so with credit as well. And when they move into this financial business where the big Florentine merchant houses,

• 20:46Speaker 01

  they become multinational merchants with branches, effectively agents, and then branches set up in a wide variety of different European countries. They become merchant bankers because they can tie banking activity to their commodity purchases. And then they, to repeat the word, branch out from merchant banking related to their own commercial activities to become, becoming bankers to English kings and popes and the like. So it's really built on the back of their financial acumen and their ability to innovate

• 21:30Speaker 01

  financially that Florence and the Floren become not only Florence's money, but Europe's money, Europe's dominant money for an extended period of time. Eventually, they're unable to keep up with larger, more powerful militaries. They're unable to keep up economically with the low countries and others that are able to produce woolen and silks, woolens and silks more efficiently. So at some point, they go into relative economic. Military financial decline, but it is quite remarkable story how dominant they remain for a couple of centuries.

• 22:15Demetri Kofinas?

  Well, I don't know if you have a favorite chapter. This definitely competes as number one for me. And part of the reason is that so many of the financial innovations that show up later in the book arrive first in Florence. And in some ways Florence kind of reminds me, it's almost like the Xerox PARC or the Bell Labs of the American, you know, private economy. It's like so much of the innovation that showed up later and was commercialized later in different companies and this analogy began there. So let's actually take some time here and dig into this example of Florence. First of all, how important is it? Is another common characteristic of countries whose coinage becomes international money is another common characteristic that they have to have some domestic industry that generates

• 22:58Demetri Kofinas?

  the initial surplus needed to begin the flywheel of extending credit and facilitating commerce before they eventually get to the counter cyclical effects of building up deficits and then sort of going into decline?

• 23:13Speaker 01

  I think that's exactly right, that I described it before as commercial acumen, the ability to produce and export something that other parties value puts the economy in question in contact with merchants and kings and others outside their borders. So that creates, I think you put it a flywheel, a set of channels, if you will, through which its coin, later in time, its credit begins to flow internationally. I observe that this is kind of the opposite of the way some people think about our 20th

• 23:57Speaker 01

  and 21st century world, that nowadays people say the US has to run an external deficit so that other parties begin to have the ability to acquire.

• 24:10Speaker 01

  Claims, financial claims on the United States. Many people say that. I'm not sure it's entirely right because nowadays we have international capital flows. But I think the ability to export has to come first, putting the economy in contact with the rest of the world.

• 24:29Demetri Kofinas?

  How did commercial transactions and trading relationships occur prior to the establishment of the partnership networks and business systems that Florence innovated on?

• 24:41Speaker 01

  So companies would have travelers who would travel on their behalf. There, in the case of Florence, was something called the Comenda contract, which was basically a partnership agreement between the principal and his hired gun, the traveler. Typically, if the principal hired someone to go abroad and do a transaction for him, the principal would put up the capital, provide him with the bullion or the coins or the letter of credit that he could use to contract to purchase raw wool and have it shipped back to Florence.

• 25:22Speaker 01

  The traveler would get a third of the profits associated with the transaction. The principal, back home, would take two-thirds of the profits. The problem with that, obviously, is that if you don't have an ongoing relationship with the traveler, if it's a one-off kind of contract, the temptation for the traveler to abscond with the funds, never to come back home, is greater. So having foreign branches of your merchant house staffed by a cousin, a member of the extended family, is a more reliable, ongoing way of conducting business.

• 26:03Demetri Kofinas?

  So let me ask you this again. I wasn't as clear enough when I asked it earlier and I want to make sure I put it top of mind for the listeners and for myself. It seems to me that there were really two consistent problems here that needed to be solved. One was that economic transactions and commerce at a local level were capable even at that scale of generating a surplus. And so what do we do with that surplus? And that created the additional problem of, well, how do we scale economic activity beyond just the immediate confines of our personal relationships? And so banking and money, as it evolved through the years, and Florence is a great example in the establishment of these partnership

• 26:44Demetri Kofinas?

  networks that we're describing, sought to solve both, not simply to put the surpluses to work, but also to create a network that compensated for the lack of trust between individuals that, let's say, in the Comenda, you needed to have a relationship with the political entrepreneur that was going out, and you had to put capital at risk. And this addressed that problem directly, the problem of trust, and it also allowed for the dispersion of risk.

• 27:10Speaker 01

  I think you put it very well. I wouldn't dispute any of that. I don't even see the need to really elaborate the way you describe it, Demetri.

• 27:19Demetri Kofinas?

  Okay, so then let's talk also about sovereign lending, because this is also so fascinating. I mean, really, it's fascinating. We think about the power that bankers began to accumulate in this period and going forward. Not just power in commercial relations, but power over sovereign entities. Help me understand where the opportunity emerged for sovereign lending, and help me also, and the listeners also, understand, how was it that these private actors were able to accumulate so much power? Was it because commercial opportunities had grown so plentiful and sovereign entities understood that there was a way to mobilize resources and labor through capital outside of their own borders in order to leverage

• 28:03Demetri Kofinas?

  that for their own purposes? That, in other words, it had to be decentralized. They couldn't do it in a kind of centralized, top-down fashion.

• 28:12Speaker 01

  So it's very interesting to look at how these banking houses, be they in Florence and Antioch, later in history, be they in the Netherlands or in England with the rise of the Rothschild family, how they are at the same time centralized and decentralized. There is kind of the family or the father at the center of the network, but communications technology being what it was at the time, whether you have to have a guy on horseback or a carrier pigeon later in time to transmit information means that the branch managers,

• 28:56Speaker 01

  if you will, other branches of the widely branched merchant bank have considerable autonomy. So they are typically supposed to execute instructions from the head office, but they have an awful lot of freedom in practice to interpret or sometimes ignore those instructions. In the period we're now talking about, the early modern period, you begin to see the growth of commerce. So you get these large merchant houses. You see the growth of merchant banking because the commerce and the finance complement one another. They get packaged

• 29:40Speaker 01

  together. And you see developments on the military front, which makes waging war, either offensive or defensive, more expensive. So sovereigns, kings, they borrow for a variety of reasons, to equip the court with all the nice things that courts expect, but also to wage offensive and defensive wars. So they need to borrow more in order to maintain themselves. So modernization has these different aspects to it, the growth of commerce, the growth of finance, but also the development of military technology, which becomes more

• 30:22Speaker 01

  costly at around the same time. So the bankers grow more powerful. The sovereigns need the bankers more, if you will. The funny thing about sovereign borrowing, of course, is we call them the sovereign because they are the highest power. There is no higher earthly power. To compel the sovereign to repay. So the paradox of sovereign borrowing and lending is the sovereign can declare unilaterally his or her unwillingness to repay. And yet, this process has been of sovereign borrowing and sovereign lending has been going on for the better part of a millennium now.

• 31:04Demetri Kofinas?

  I'm glad you brought that up because traditionally, when we think about sovereign lending, at least to large developed economies with deep bond markets, we consider that to be the safest form of collateral we can get for a loan. We don't see it, in other words, as an opportunity to make more money than would otherwise be available to us. But in the case of sovereign lending at this stage in human development and civilization, it seems that all forms of sovereign lending were really emerging market style deals, where the lenders were actually taking on enormous amounts of risk in lending money to sovereigns, exactly because the returns were so lucrative.

• 31:41Speaker 01

  Right, so I described the paradox of sovereign lending and borrowing before, that sovereigns can and repeatedly did default on their debts, refused to repay, or after a period of negotiation to repay only part. Why did the process nonetheless continue? Why did the Genoese lend to Spanish kings over and over again, despite the kings defaulting over and over again? And the answer is, they were very well compensated. Interest rates, economic historians have gone back to try to reconstruct the interest rates received on these loans.

• 32:25Speaker 01

  They were typically well into the double digits. So the risk premium attached to these credits, so long as interest was paid, compensated generously, lavishly, I don't know what the best word is, the bankers who undertook the loans, the bankers could cut off the sovereign borrower if the borrower defaulted on his debts. Over time, they learned to form basically cartels. You know, the threat of curtailing market access is not very credible if there are other potential lenders. So they learned how to form coalitions with other bankers to make that threat.

• 33:09Speaker 01

  Credible, and if the kingdom in question is engaged in a conflict with another kingdom, lack of access to credit can can threaten its existence. So that could be a credible threat as well.

• 33:25Demetri Kofinas?

  So how did the success of the Florene impact the rest of Florence's economy?

• 33:30Speaker 01

  So there is some controversy. There are people who say that the Florentines took their eye off the ball. They had to have a strong economy. They had to continue to update their woolen and silk industries, but they got caught up in finance. The economy became increasingly excessively financialized. They engaged in financial business rather than attending to more mundane economic business, and that was why they were unable to keep up with the Low Countries and with the English in terms of international competition.

• 34:12Speaker 01

  The evidence there is, I think, a bit thin. There are a lot of people today who worry about excessive financialization, in the case of the United States, and whether we are similarly taking our eye off the ball in terms of maintaining manufacturing, whether we suffer from an over-strong dollar exchange rate, something that there are hints about similar worries in 15th and 16th century Florence. You know, economic rise and fall are complicated phenomena. There may be something having to do with financial markets at work

• 34:55Speaker 01

  there. There may be, in the case of Florence, a lot having to do with scale there. It was a small city-state with very limited natural resources. So I'm not sure I would put everything on the doorstep of, you know, the Florene was a great advantage for Florence until it became a great disadvantage, but there is that interpretation out there.

• 35:22Demetri Kofinas?

  So we'll have a chance in the second hour to dig into that more deeply because I actually agree with your observations towards the end of the book about the cost versus the benefit associated with being an international currency. I think, I think a lot of people who believe that devaluation is a solution to the US's problems, I think are over-indexing to the industrial period and also to a world that wasn't as fully globalized as ours is today. Because of course, a more valuable currency means cheaper inputs to your manufacturing process. One more question about Florence before we move on. How developed at this stage were the market for bills of exchange? How much discounting was going on? Were there secondary markets? And when it comes to money, at this stage, these Florentine banks were

• 36:07Demetri Kofinas?

  also issuing receipts for deposits. But were they still thought of as receipts on specific assets that were on deposit at the bank? Or was there already some thinking or inkling of thought that these were liabilities of the bank itself?

• 36:23Speaker 01

  Well, I think inkling is the right word. These primitive promissory notes that begin to circulate and increasingly claims on individual Florentine merchant banks, goldsmiths, or the like, were not really negotiable. They couldn't be sold on to other individuals. The law didn't allow the protections that the original holder of that bill of exchange enjoyed to be passed on to another individual. That only came later. We'll get there in

• 37:05Speaker 01

  the case of 17th and 18th century Holland. So they were really specific claims on specific individuals or specific merchants or specific merchant banks.

• 37:20Demetri Kofinas?

  So the next chapter in the book is Spain and Spanish silver. But actually, let's move to Holland because it fits so naturally. And then maybe we can double back to the case of Spanish silver, which offers some, I think, important lessons, especially about the globalization of commerce and currency. What did the Dutch, it seems the Dutch very much, well, first of all, they were very similar to the Florentines, though they had a large trading network and international, and a navy, and were an empire, became an empire in their own right. It seems that they really took the innovations of the Florentines and ramped with them.

• 37:54Speaker 01

  Right, so I think that the Dutch, as you know, were essentially global trading powers. The Dutch East India Company was a hybrid commercial military operation at scale. It was funded by shares that were issued to multiple shareholders. It was a permanent organization in contrast to the prior practice of investing in commissioning individual voyages. Partners would get together to fund an individual voyage and then they'd wind it up when the ship came back. Again, not as efficient way of organizing commerce as having a standing company.

• 38:38Speaker 01

  In terms of international currency use, they moved from the promissory note to the bill of exchange that was negotiable, that could be bought and sold repeatedly, where the, whoever the current holder was, had a legal ability to enforce his rights under the promise made by whoever issued the bill. So that led to the development of more active and liquid financial markets, which made it attractive to buy, sell, hold, use the Dutch gilder. It had the first central bank, a proto-central bank,

• 39:20Speaker 01

  the Bank of Amsterdam, to stand behind that market, to act as a liquidity provider of last resort.

• 39:29Speaker 01

  To the market, keeping the exchange rate and the cost of credit relatively stable. And by some definitions, it had the first fiat currency after a certain point in time. Claims on the Bank of Amsterdam could not be redeemed in precious metal. You couldn't show up with your banknote or your deposit at the Bank of Amsterdam and withdraw an equivalent amount of specie gold or silver coin. So the Bank of Amsterdam's reputation substituted, at least in part, for the gold and silver backing that had been

• 40:11Speaker 01

  the basis for previous international currencies. So, you know, in all these respects, the Dutch were critically important in the 17th and 18th century and in moving us from the early modern period to the present day.

• 40:28Demetri Kofinas?

  So this recurs over and over again in the history that you recount in the book, which is that our relationship to the tangible products of commerce become increasingly abstract. In this case, I mean, the entire notion, it was actually, it took me a little while to get my, wrap my head around it. It seems that what essentially happened in the case of Holland is that people associated receipts with very specific coins. So I gave some specific coins to the Bank of Amsterdam. I got a receipt for those specific coins, and I expect to get those specific coins back. And that what happened at some point, I think it was, what was it, 1683 or somewhere around there? Deposits that had been given

• 41:10Demetri Kofinas?

  before that date no longer had a corresponding receipt associated with the specific coins. And you simply, it's not that you couldn't get gold in return for your receipt, but you just had to get whatever the bank was willing to give you. And the institutional claim was that you trusted the bank wouldn't do you dirty and give you an honest sum of gold, if it was gold that you were getting, based on that receipt. That seems to be as, and as small, as seemingly insignificant as that is, it points to just how revolutionary that next leap of abstraction was in the mind of commercial entities at the time.

• 41:44Speaker 01

  Yeah, I think that's right. There's another very good book from two years ago now by a couple of financial historians, Will Roebirds and Stephen Quinn, on the Bank of Amsterdam, that lays out that transition, describing it very much in the same way that you just did. And they make a compelling case, and I agree that this change in the receipt system of the Bank of Amsterdam was a pivotal development in modern money and finance.

• 42:17Demetri Kofinas?

  You know, this reminds me of, the audience will permit me, hopefully, one very brief digression, a story I first learned about during my time studying information theory and linguistics. And I'm sure I've mentioned it in previous podcasts. It comes from the work of a famous Soviet psychologist named Alexander Luria, from one of his field studies, interviewing illiterate peasants in Central Asia in order to test whether or not they could engage in deductive reasoning. And he would, in the course of interviewing them, present them with thought experiments. And then, in this particular one that comes to mind, he asked them, he would ask these Uzbek peasants, "In the far north, where there is snow, all the bears are white. Novaya Zemlya is in the far north, and there's always snow

• 42:59Demetri Kofinas?

  there. What color are the bears?" And the typical response from these illiterate peasants would be, "Well, how would I know? I have never been to the north." In other words, because they'd never been there, and because they hadn't learned how to think conceptually, they felt that they couldn't answer the question, because they hadn't experienced it for themselves. Whereas the test subjects who had just learned to read and write, understood the distinction, and were able to respond with something along the lines of, "By your words, they should all be white." And this evolution in finance, and the ability to think conceptually about capital and economic relations across time and space, feels very similar. In other words,

• 43:43Demetri Kofinas?

  it feels like something that you would have to learn. And if you were to have plucked someone from 15th century Florence, or maybe even better, ancient Lydia, and asked them to engage in the most rudimentary forms of modern finance, they'd be totally lost, because this isn't something that we're born with. It's not natural. It's not part of our hardware. So, anyway, that was a bit of a digression, but one I felt compelled to make. So, we have so much history to run through, Barry. Let's go back to Spain. In some ways, Spain is a very... Boring story, but in terms of innovation, at least for me, it seems that a lot of what the Spanish did had already been invented and put into practice in the ancient world, especially by the Romans. And what they did, what was notable perhaps in the case of the Spanish, was to scale

• 44:27Demetri Kofinas?

  it to a level that we hadn't seen before. What would you say were the major implications of what the Spanish accomplished with the minting and distribution of Spanish silver that made them worth devoting an entire chapter to?

• 44:41Speaker 01

  The Spanish silver dollar was the first true global currency that circulated everywhere around the world, was used for all manner of transactions, following the Spanish discovery or acquisition of colonies in the New World that could, as you say, deliver Spanish coin and bullion at scale, at immense scale. So when I was putting the book together, I was thinking about the period we've just been discussing, the 17th, late 16th, 17th, and 18th centuries, as dominated both by

• 45:24Speaker 01

  Spanish silver and Dutch currency and credit. And I thought of one as kind of a retrograde development, the way you put it, the Spanish were still relying entirely on coinage and lumps of silver. Some of their newly mined silver was coined in the New World, in Mexico, in Peru. Some of it was simply put on the boat, shipped to Europe, ostensibly to Spain, although a lot of it was smuggled to other places like Holland and England, from where it might then be coined in Spain and then shipped on to Asia.

• 46:06Speaker 01

  There were the famous Spanish galleons that sailed directly from the New World, from Peru to Asia, another way that Spanish silver got to other parts of the world. It's worth recalling that the Spanish silver dollar often cut up into pieces of eight, eight slivers like-

• 46:25Demetri Kofinas?

  Like a pizza pie.

• 46:26Speaker 01

  Like a pizza pie was the small change used in the United States all the way up to 1857. So Alexander Hamilton famously established a mint, but we didn't have enough of the raw material. Until the California gold rush and the Nevada silver rush almost a half century later to support minting on the scale that the US required. So we imported Spanish silver dollars and gave them legal tender status all the way up almost to the eve of the civil war. So this was a global currency, the main unit used in China for cross-border transactions,

• 47:10Speaker 01

  used in North America, as I just described, used around the world. So it wasn't an important financial innovation, but it was an important demonstration, as you say, of how coinage can be scaled globally and used around the world. So my initial design for the book was to package the Spanish case and the Dutch case together. They were both sources of important international currencies in the 17th and 18th centuries. One was kind of a retrograde development. The other one was a progressive development. In the end, I ended up treating the two cases separately, just like you and I have done up until now. But it's interesting to juxtapose them.

• 47:55Demetri Kofinas?

  Yeah, I undersold the logistical innovations of the Spanish, which were formidable and which also led to the closing of a persistent and very large arbitrage, global arbitrage between gold and silver that I had not been aware of until I read this book. Maybe just tell me a little bit about that. So what, how long did this arbitrage persist? And how significant was that commercial opportunity? And why? Why was silver trading at a premium in Asia for so many decades?

• 48:23Speaker 01

  Because silver was not as abundantly available in Asia and because silver had more utility for a variety of transactions. Gold is too valuable to be used in everyday transactions in many settings. Even in Europe, in the 18th century, the smallest gold coin may be the size of a dime. Would be worth a week's wages for a typical working man. So you know, that can slip between the seams of your coarsely woven wool pockets. So you need something else with which to do

• 49:07Speaker 01

  a variety of other transactions. And in Asia, where come the 18th and 19th centuries, incomes are lower than they are in the West. Gold is impractical for everything but large value cross-border transactions. So there's a demand for silver as well as a relative shortage in terms of supply. Silver gets from the New World to Spain and Europe, and then it's exported from Spain and Europe to China and other parts of Asia in return for porcelains and silks and the other things that Asia famously supplied to the West. And as that process continues,

• 49:49Speaker 01

  that's what you described before as arbitrage, the relative price of silver compared to gold gradually declines to the point where it's more or less equal to that relative price in the West. And the trade of silver by Europe in return for porcelain and silks from Asia begins to level off, if you will, the arbitrage opportunity goes away.

• 50:17Demetri Kofinas?

  So I have actually one more question that I thought of now before we move to the second hour about Spain. That seems to me actually to be very important that I hadn't thought of. Up until now, we've talked about, especially when we're talking about Holland and the Florentines. What we were talking about in part, at least when it comes to currency, was really innovations in bank money, which was a way of expanding credit because ultimately was a liability of the bank. Even if it wasn't a liability institution, it was a liability of the bank to fulfill the promise of the receipt. In the case of Spanish silver, it was really an expansion of base money.

• 50:54Demetri Kofinas?

  And it seems to me from the reading that expanding base money did much more for lubricating the wheels of international commerce in this particular case than the expansion of bank money did. And is that, am I wrong in reading it that way? Is that just a reflection of the particulars of the time in which Florence and Holland were innovating on that? Or actually, does it say something powerful about the need for elastic currency that can't be replicated simply by expanding bank money or through credit?

• 51:30Speaker 01

  So the expansion of bank money was critically important, and I emphasize it in the other cases. We've discussed the Florentines and the Dutch, and in the second hour, the English, because it kind of presages our modern world, where it's all about bank money, or looking forward tech platform money, or something. But bank money is hard to use across very long distances and very different cultures. So you see the Florentines innovating and developing new vehicles for conveying bank money within Europe, between Florence and

• 52:12Speaker 01

  the Low Countries, between Florence and England, between the Tuscans and Spain. But you don't really see bills of exchange drawn on the Dutch East Indies or China, except when the Dutch are doing business within their own, different branches of their own company, the East India Company. But when they're doing business with locals, bank money, you know, different language, different culture, very long distance, difficulty of enforcing a written, abstract written contract, that's when you want to settle up with specie or coin. And that's why the Spanish silver dollar was used so widely in these transactions

• 52:57Speaker 01

  across very long distances, between continents, between different cultures. We are able to bridge that gap come the 19th century with the development of global banks, with a branch in Hong Kong and a branch in London. HSBC, et cetera, but you have to have improvements in transportation, communication and enforcement technology for that to become possible. And I think that explains the persistence of the Spanish silver dollar in these kind of transactions around the world.

• 53:32Demetri Kofinas?

  You know, so this ties into something else that you didn't cover in the book, but we did talk about in your appearance on Hidden Forces in 2018, which is the case of the populist demand for silver in the 19th century in America and the demand for elasticity and the decentralization of money outside of the New York banking system. Maybe that's a question I'll hold to ask you about in the second hour. But as you said, this is where we're going to get into a conversation about the United Kingdom, Britain, and what it was able to do, both in terms of innovations, but also scaling all the innovations we talked about up until now. And then the case of the United States, both the centralization of its banking system in the late 19th and early 20th century, and then subsequently through World War I

• 54:17Demetri Kofinas?

  and World War II, the internationalization of the US dollar, the end of Bretton Woods, the non-system that emerged from it, and the world that we live in today. And then what comes after, really? What are the threats to the US dollar? What would be required in order to displace it? Is displacing in a discrete, you know, binary way, the only scenario? Or could the US dollar persist alongside other currencies? And is there a risk really that that there will be sort of a vacuum, which is, I think, one of the concerns that you raise in the book? For anyone new to the program, Hidden Forces is listener supported. We don't accept advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you. If you want to access the second hour of today's conversation with Barry Eichen Green,

• 55:01Demetri Kofinas?

  head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers get access to our premium feed, which you can use to listen to the rest of today's conversation on your mobile device using your favorite podcast app, just like you're listening to this episode right now. Barry, stick around. We're going to move the second hour of our conversation onto the premium feed.

• 55:23Speaker 01

  Sounds good.

• 55:25Demetri Kofinas?

  If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter @Kofinas, and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.