How Do Governments And Banks Create Money? With Paul Sheard

Paul Sheard is the Wall Street Journal best-selling author of The Power of Money: How Governments and Banks Create Money and Help us all Prosper. As a financial markets economist Paul has extensive experience including previous roles as Vice Chairman of S&P Global, Chief Economist of Lehman Brothers, and Senior Fellow at Harvard Kennedy School.

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Episode Transcript

(00:00):
You know, are we comfortable giving this ultimate power to
these unelected officials? Yeah.
Now the central bankers will sayyes, but we're acting to
maximize social welfare. We only have good intentions and
we need to be given this independence because essentially
history has told us and taught us that you can't trust
governments if you just let themhave unbridled access to their

(00:25):
own printing press. Hello, I am Cody Allingham and
this is the Transformation of Value, a place for asking
questions about freedom, money and creativity.
My guest today is Paul Shared, Wall Street Journal Best
Selling, author of The Power of Money, How governments and banks
Create money and Help Us all prosper.
As a financial markets economist, Paul has extensive

(00:47):
experience, including previous roles as Vice Chairman of SNP,
Global Chief Economist of LehmanBrothers and Senior Fellow at
Harvard Kennedy School. Paul, welcome to the show.
Thank you very much, Cody. It's a pleasure.
Yeah. Starting off with your book The
Power of Money, I wanted to understand a little bit about
the background to that, Paul, and what made you want to write

(01:08):
that. Oh, good question.
You'd need to have a strong motivation to write a book.
So mine was that I spent the best part of 2324 years in
various disguises and guises as a market's economist, chief
economist at various institutions.

(01:30):
You mentioned a couple of them in your intro.
And, you know, so a lot of that job entailed, you know, on a on
a daily, weekly, monthly basis explaining to clients through,
you know, weekly reports and client visits.
You know, what's going on in theworld of monetary policy, fiscal
policy, you know, regional globe, national, regional,

(01:53):
global economies. And in the course of doing that
job, and I started out, kind of came out of Japan in terms of my
academic background expertise, gradually moved from Japan into
a more global role. But Japan in the 1990s and you
know, 2000s up until, you know, fairly recently was a little

(02:13):
laboratory of monetary economicsand fiscal issues.
And so I had a lot of a lot of my job was sort of explained to
clients what was going on in Japan.
What was the Bank of Japan up towhat is this thing called
quantitative easing? How should we think about that?
And it and, you know, cut a Longstory short, by the time I sort
of hung up my boots and went up to Harvard Kennedy School for

(02:36):
four years to, you know, write the book, I was really motivated
by the fact that, you know, my view was a lot of these issues
are not well understood even in the professional investing
class, financial market participants and even central
bankers and, you know, government officials, you know,

(02:58):
they had certain paradigms, certain ways of thinking about
monitoring fiscal issues, which were not always the most
accurate or helpful in understanding the underlying
issues. So basically the book was an
attempt to explain how a lot of this stuff works, as I
understand it, in a way that kind of ordinary people, rather

(03:19):
than economists or policy makerswho sort of have developed a
certain framework and jargon would, would think and talk
about the issues. Yeah.
And I certainly want to dive into that a little bit later on.
But kind of coming back to the power of money, I guess at a
high level, it seems to me, my observation is that you're

(03:39):
really asking the question abouthow money works.
And it, it seemed, I don't want to put words into your mouth,
but it seemed as if it's lookingat this through a Modern
monetary theory lens and MMT lens, maybe with some slight,
you know, changes into sort of exactly what that means.
But this MMT theory about the mechanics of money creation and

(04:00):
circulation is, is really interesting, but it can also be
seen by some as a prescriptive political ideology about how
money ought to work and how we should think about the role of
the state. So starting off at a high level,
I mean, what is Modern Monetary Theory and how have you sort of
looked at that when when it comes to your book?

(04:20):
Yeah, great. Great question and observation.
So, but maybe just backtrack a little bit there.
So, you know, I'm sitting in Japan in March 2001 in front of
my Bloomberg screen and the Bankof Japan announces a change in
its monetary framework, which became known as quantitative
easing. And you know, now of course, all

(04:42):
the central banks, pretty much the all the major central banks
have done quantitative easing. It's kind of old hat, but at the
time, if you're a market economist like myself, whose job
it was to explain to clients what this means, you know,
what's going to happen, etcetera, you have to kind of
understand it. And so I started to kind of
delve into quantitative easing, try to understand the balance

(05:04):
sheet mechanics and, and as I did essentially travelled along
the path where I came to an understanding that was kind of
quite similar to what became, well, has now become known as
sort of MMT or modern monetary theory.
So, you know, I've got to know quite a few of those folks, you
know, Randy Ray, Stephanie Kelton, been on panels even with

(05:27):
Warren Mosler and, and, and others.
And so kind of, you know, my friend of the family, I guess.
And so a lot of, So what I try to do is just kind of understand
the sort of nuts and bolts of how the monetary and fiscal
system works as sort of accurately as possible.
And then sort of So what are theimplications of that?

(05:50):
And you know, what you find withwith sort of what I write about
in my book, and I think what a lot of MMT sort of sort of
writes about is that the conventional way that central
bankers and governments and fiscal authorities and therefore
the press, journalists and, you know, the general public kind of
think and talk about these issues is not really accurate.

(06:15):
And and so that's kind of what I'm trying to do in this book.
First half of the book in particular is kind of explain,
well, what is really going on here?
How do these things fit together?
You mentioned with MMT that, youknow, there's a sort of a
political angle to it. So I don't, you know, I don't
sort of sell myself as an MMT. You know, there's a little bit

(06:36):
of an MTT community or tribe andthey're very much kind of, you
know, take potshots at the mainstream economists.
And I guess, you know, I've comeout of a mainstream kind of
economics world, but I'm just more interested in like, you
know, how do these things reallywork?
What's the closest thing, if youlike, to the truth?
And, and, and how should we base?

(06:58):
How should we think about sort of public policy issues?
I'm a little being a little bit abstract, but when you have
this, what you call MMT lens, you, you kind of realize that a
lot of the way we think about things is kind of backwards.
So for example, and, and I thinkthe key insight of MMT, which
sort of again, I've sort of arrived at this understanding

(07:20):
myself, is that, you know, moneyin the modern world, in this
Fiat monetary system that we live in that you're very
familiar with and particularly when it comes to.
So you have you, you have to think about.
So how does money come into existence?
And you know, the subtitle of mybook, which talks about how
banks and governments or governments and banks create
money and help us all prosper, is really sort of giving the

(07:43):
game away that there are fundamentally two ways in which
money comes into existence. How does it get into the system?
How does it kind of come into being into circulation?
And one is through bank credit creation and money creation.
And the other way is through government's, you know, printing
money. Government's printing money
means government's essentially running budget deficits.

(08:06):
Budget deficits just means the government is writing more
checks into the economy than they are taking out of the
economy through taxation. And when you understand things
that way, you, you suddenly realize a couple of things that
take taxation, for example, mostpeople think of the government
taxing as being, well, they needthe money.

(08:28):
And so they sort of, you know, they, they tax the money, they
tax, they get money and then they spend that money.
Whereas what taxation really is,it has a number of purposes, but
when governments tax, they're just taking money out of
circulation. It money being essentially a
government liability. And so governments don't don't

(08:49):
need to tax in order to get their hands on money.
They actually destroy money whenthey tax.
You must say, well, hold on, that doesn't make any sense.
Why would they destroy money? Well, taxation withdraws
purchasing power from the economy and, you know, reduces
aggregate demand. And governments through fiscal
policy, need to be doing a little bit of that in order to

(09:11):
keep inflation running at 2%, although they don't see that as
their primary goal. That's the central bank's goal.
And another, you know, perhaps even more controversial issue is
government debt. And, you know, if you're in this
country, I'm in the US, we're forever hearing about the now
it's about $35 trillion of debt,this mountain of debt.
Cody, you're in Japan, so you'realways going to hear about the

(09:33):
mountain of debt, 240 percent, 250% equivalent of GDP.
And somehow the idea being, well, the government has
borrowed this money, and if they've borrowed this money, can
we call it debt? This is the language issue.
We call it debt. That means they have to repay it
and they're not going to repay it.
Now it's going to be our grandchildren that have to repay

(09:56):
it. So we get into all of this sort
of idea of government debt has to be repaid and it's a burden
on our grandchildren. And it's irresponsible of us to
be running budget deficits todaybecause our grandkids and great
grandkids are going to have to repay it.
Well, who do they repay it to? They have to repay it to
themselves essentially. The point being that governments
actually create money when they run budget deficits and so they

(10:21):
don't, they never actually have to repay the money that they
create. Now, they they might look like
they're repaying it and from time to time they might actually
repay debt or pay down debt. But it's not true when you
really think through these issues that governments have to
repay their debt. Now, that's a controversial

(10:42):
statement. Some very famous economists
would say, no, you've got it allwrong.
But that's certainly my understanding of things.
Yeah, that's fascinating. And I think for me that this
really begs the question, Paul, you know, if this journey of
going on effectively arriving atan MMT place, which has helped
you describe the reality of how money actually works.

(11:04):
I mean, that makes me wonder, isthis actually something that is
knowable though, in the sense that I often think of like
language and the English language where you've got the
parts of speech, you know, verbs, nouns and all of that.
But actually the way the Englishlanguage has come to be is a
mystery deep in the human soul somewhere.
And trying to apply that same kind of logic where we can look

(11:28):
and describe the flows of money,but actually is the way that it
works something much deeper thatmaybe is is hard to really grasp
or conceptualise through language potentially?
Well, kind of yes and yes and no.
I mean the yes bit, and I'd say more of the no but than the yes
bit. I mean, somewhere in my book I

(11:49):
quote the Israeli historian anthropologist.
Yeah. Yuval Noah Hariri.
Exactly. Yeah.
And he's got a. And I think I put a quote in
there because I really like thisquote where he said something to
the effect that money, you know,is a shared imagination.
So a lot of a lot of institutions, a lot of norms, a

(12:09):
lot of things that we take as, you know, true and indisputable
and sort of facts are actually kind of products of our shared
collective imagination. So you can put money in that
bucket and he makes that kind ofargument.
But, you know, if we come back to sort of, you know, the 21st
century of Wall Street and the Federal Reserve and, you know,

(12:31):
Treasury and the nuts and bolts of these things, then I, I do
think you can sort through this.And, and some things are
actually, you know, true and some things are kind of kind of
false. But one of the things that
complicates that Cody is, and I make this distinction in, in my
book, that there's, and this is one of the reasons I think that
people talk past themselves. You know, the MMT and the

(12:55):
mainstream economists in particular tend to talk past
each other's, or if not, you know, shove pitchforks at each
other, is that I make a distinction between the sort of
underlying sort of fundamental way in which money works again,
in the monetary, in the fiscal system, and then the way that it

(13:17):
works through the institutional framework.
So in other words, what's true and a sort of underlying
fundamental when you strip the institutions away and you say,
well, does water flow downhill? Yes, it does.
You know, can you pump water uphill?
Yes, you can. But fundamentally water flows
downhill. You you get a similar kind of

(13:38):
thing where you say, well, in actual fact, when when
governments write more checks into the economy than they
withdraw through taxation, they are effectively creating base
money, monetary base, high-powered money, what
economists call. And so, yes, they do create
money. And I think most economists
would say, yeah, of course they do, we know that.
What are you banging on about? But but if you look at the

(14:02):
institutional framework, things are set up precisely because
governments can in a Fiat money system create money at will.
They will tend to do so. And of course, you know, too
much money chasing too few goods, as Milton Friedman said.
That's only half of his quote, by the way.
He said a little bit more than that.

(14:22):
But people leave out the second-half of the sentence,
which basically says in as much as that leads to more spending
than the the, the, the economy'scapacity to satisfy that
spending, that's rather important.
It's not just the money, it's the money and the real economy.
It's the purchasing power versushow much is being produced.

(14:43):
Too much money chasing too few goods will cause inflation.
So we know that, you know, unbridled government spending
will tend to, we have many historical examples of this,
lead to high inflations, if not hyperinflations, sometimes the
breakdown of the whole monetary system.
So, you know, over the course ofthe 20th century, particularly
the second-half, you know, society figured out different

(15:05):
ways to put shackles on the ability of governments to create
money. And some of the shackles
essentially through the institutional framework, create
a situation where it is true that governments sort of have to
borrow money or it appears to betrue.
And it appears to be true that they have to somehow pay that

(15:25):
money back. So if you have a 10 year
treasury bond, at the end of 10 years, the government, you know,
has to find that money to pay back investors.
Of course, in reality, what's happening is that money is just
refinanced back into the system.And so government debt
continually increases over time.But it makes it look like, you
know, has to be repaid at these maturity dates.

(15:47):
And lo and behold, the people who own the bonds do get a check
in their bank account. The Treasury did repay them.
So it sort of hangs together at that level.
But again, I think that it's very important to sort of
understand both levels and understand when water is flowing
uphill because it's being pumped, as opposed to it's
flowing downhill because that's the natural order of things.

(16:10):
Yeah, no, that's fascinating. And I think that's exactly what
I was getting at. The way I often frame this is
thinking about the, the laws of physics versus the rules of
football and that there's kind of this distinction between, you
know, this, this broader conceptof money, which maybe we can put
aside just for a moment. And, and then sort of focusing
on where we are at today, which is that there is a fair money

(16:33):
global system. There is a network effect with
the US dollar and just the post post war consensus.
All of these things have come together to lead us to this
moment that we're in right now. But clearly that moment is also
under constant change. And you mentioned fiscal and
monetary policy kind of being joined and then sort of being,

(16:54):
you know, split apart. And obviously this is something
that was quite relevant in New Zealand, one of the first
countries to develop that. And for for a while there in the
1970s, a very famous Prime Minister, Robert Muldoon, who
was both the Prime Minister and the Minister of Finance and LED
to a massive inflation in the 1970s, which took some reforms
into the way the New Zealand central banking system was

(17:16):
working to kind of unpick that. But as you say, I mean, that's
kind of an artificial shackle that's been put on.
What would you know, would otherwise be, you know, the, the
will to power or, or something. And, and so that means, I guess
when we are talking about MMT, it seems as if we are talking
about the a modern current moment and there's maybe a

(17:37):
broader concept of money, you know, out there that we can also
reference. But I mean, would you say that's
true? There's sort of we're, we're,
we're still describing where things are at today when we talk
about this kind of thing. Yes, I, I mean, I think so.
And I think that, you know, thathistorical perspective I think
is, is important Again, you know, if you're in the, if
you're in the financial markets,you know, you're an investor,

(18:00):
you're focused on what's Jay Powell going to say next.
You know, he said something today, everyone is, is sort of
hanging on the next, you know, sentence that comes out of the
mouth of a, you know, Jay Powellor a Fed official and likewise
in in the other countries. But yeah, yeah, it, it, I think
what you're saying and what, youknow, again, I think this
hopefully comes across a little bit in my book as well.

(18:22):
It's not a book of the history of money or the history of
monetary policy. But yeah, the fascinating thing
is if you go back 1020, thirty, 40-50 years, these things are in
constant evolution and, and, andand flux.
And you know, even as we speak today, Cody, the Fed is doing a

(18:44):
review, as you probably know, a 5A review after a 5 yearly
review of its monetary policy framework.
The last one was published in August 2020 and was, you know, a
complete flop, essentially. You know, I don't want to beat
up on the Fed too much, but if you go back to 2020 and before

(19:08):
COVID, the concern was that the interest rates were too low.
And what central bankers and economists call the the natural
rate of interest sort of equal the real equilibrium rate of
interest. It's just a, it's a theoretical
concept. It's not something that's
actually observable, but this isvery instrumental concept in

(19:29):
monetary policy making, saying it's too low.
And because of that, central banks are hitting the zero
bound. And, you know, we had that
experience after the financial crisis and Japan's had, you
know, 25 years experience of that.
And so the, the problem that policy that monetary policy
makers thought they had was thatinflation risked becoming too
low and getting sort of anchoredon the downside of their

(19:52):
inflation target. And so they come out, the Fed
comes out in August 2020 with a framework that basically says we
have to tilt our framework towards creating a little bit
more inflation. I'll spare you the gory details.
And then, of course, what happens next is we have the
biggest inflation since the 1980s.
And so now the Fed has kind of like ditched that framework or

(20:15):
is in the process of ditching that framework.
Effectively, they had ditched it.
And already, and now they're sort of, you know, gazing at the
navels trying to figure out well, how should they now modify
the monetary policy framework for the conditions that they see
as being dominant? When I look at that whole
process to me and this has been one of my sort of kind of button

(20:39):
points for the last, you know, few years to a large extent
again coming out of my Japan experience is that I think the
separation of monetary and fiscal policy, which is
something that developed in the 1980s, nineties and you know,
beyond and is still with us. But it's been tested.
You know, we've, we've sort of gone too far in that direction.

(21:00):
And the idea that managing the macro economy that is keeping
inflation low and stable, which is taken to be around about 2%.
I did listen to Don Brash's podcast that you did with Don
Brash and interesting little vignettes about the zero to 2%,
but you know, around about 2% and keeping the economy at full

(21:23):
employment. This so-called dual mandate that
the Fed has, which by the way isa misnomer.
It's not a dual mandate, it's a triple mandate.
But that's a whole other issue that, that, that, that, that too
much sort of weight, if you like, too much responsibility
has been given to monetary policy and fiscal policy other

(21:46):
than in periods of crisis like the global financial crisis or
the COVID deep recession, temporary deep recession, fiscal
policy is kind of not held really accountable.
I mean, I've been challenging that and I've been arguing for
more probably more than a decadenow, that a better framework
would be to recognize that both monetary and fiscal policy

(22:08):
affect obviously economic activity, inflation, employment,
and that there needs to be some division of Labor and then some
coordination, communication, coordination, maybe joint
action. And that policy frameworks
should recognize that fact. However, that's essentially
anathema. That's heretical because

(22:31):
economists, you know, for good reasons, and policy makers
worship at the altar of central bank independence.
And so anytime you talk about, well, maybe fiscal and monetary
need to complement one another and maybe they need to talk to
one another, maybe they need to coordinate raises this red flag
with economists, particularly inAmerica, less so perhaps in

(22:53):
Japan, even Australia, maybe NewZealand.
So yes, the the systems are evolving and what we have today,
and I'm sure you're going to start talking about Bitcoin
pretty soon, but the monetary system is always sometimes very
slowly, maybe glacially, you know, evolving not least of all

(23:14):
because technology evolves as well.
Yeah. No, certainly.
And one of your closing reflections of course is you
know recognition that monetary policy is a solid lever, but
also fiscal policy is really important especially when you
are close to the those lower bounds and some coordination
there. And again, I mean, this really

(23:36):
brings us back to this idea of central banking and the state
and what I think you call the sorry consolidated state, which
is those two things, even thoughsort of legalistically separate,
they do effectively have controlover what happens.
And I, I guess this belays an idea which I, I wanted to ask

(23:57):
you is, I mean, we are in this modern, you know, nation state
project where I mean, the government and arguably the
central bank does see itself really at the centre of things.
And I think to look at this MMT framework, maybe taking the
broader private sector of banks and into that as well, really
they see themselves at the, at the centre of the flywheel of

(24:17):
the economy. And I think this is a certain
kind of viewpoint or perspective, which is very
interesting. And, and I wanted to ask you, I
guess in your experience, you know with central bankers,
financial leaders, I mean, how do they fundamentally see
themselves in relation to their cycle of money and, and kind of
how money works? Do they do they see themselves
at the centre of that and somehow as custodians of that,

(24:37):
or is there other ways of looking at it?
Yeah, I'm, I'm always reluctant to speak on behalf of other
people, but if if I have a stab at answering that in my own way,
I think again, one of the thingsthat I've kind of, you know,
increasingly kind of become uncomfortable with and being
somewhat kind of critical of is the the central banks and

(25:01):
monetary policy being king of the castle, as I put it in a
paper I wrote many years ago. So, you know, things have swung
a little bit back with COVID andin with the global financial
crisis. But let's say prior to the
global financial crisis, the orthodoxy in in policy circles,
macro policy circles, among macro economists, anybody who

(25:23):
was involved in this area, was that the job of managing the
monitor of the macro economy. That is price stability, full
employment. And you probably would throw in
financial stability because without financial stability,
you're not going to get price stability and probably and full
employment. So sort of goes together that
that that job could be given to a group of people called central

(25:47):
bankers who were technically that.
I mean, in the modern world thiswas not always the case.
But central banks are part of the government.
So the term I use is consolidated government rather
than consolidated state, but youcan use that term if you like.
So central bank and the government, the fiscal
authorities, they're all part ofthe same thing, which is the

(26:10):
government. But within the government, the
central bankers are treated, puton a pedestal and they're sort
of independent technocrats whosejob it is to manage the economy.
Now, if you're going to ask a group of people and, and so why
the central bank? Well, the central bank, why do
we call it central bank? It's the bank to the bankers.

(26:35):
And so, you know, historically, let's not forget the Federal
Reserve only came into being in 1913.
So it's only a little over 1000.Sorry, 100 years, money's been
around for thousands. And so you, you, you, you, you
say, OK, your job is to manage the economy.
And there's something, and I think maybe you, this will

(26:57):
resonate with you and maybe thisis your intuiting this.
There's something kind of a little bit uncomfortable or or
wrong about the idea that and and very non Hayekian about the
idea that 17 people, but in particular 117, that being 17
members of the FOMC Federal OpenMarkets Committee, and in

(27:19):
particular this one individual, the chairman of the Fed or what
they now call the chair of the Fed to be gender neutral.
This sitting in this room in theMariner Eccles building in
Washington, DC of all places, rather divorced from the
financial markets, divorced fromthe economy, and sitting in this

(27:40):
room and getting a stream of data can sort of sit there and
make decisions, Turn this littleknob And somehow the whole, you
know, 330 million people in the US and not to mention everybody
globally, because anybody in financial markets is looking at
the Fed somehow adjusts their behavior.
So there's something, yes, kind of a little uncomfortable from

(28:03):
that sort of Hayekian perspective.
Now, how does central so, so there is a sense in which it's
easy, I think. And I've never been in that
seat, but I could imagine that if you're in that kind of seat
to become a kind of prima Donna.I'm not really accountable to
anybody. I'm I'm, I'm a technocrat.
I've been given this job, I've been given independence.

(28:26):
So the government can't even kind of, you know, interfere in
what I'm doing, can't even sack me until my term ends and I'm
kind of ruling the world, rulingthe economic world.
It it it's very I imagine it's quite difficult to be in that
kind of position and not developa little bit of hubris,
particularly if the the the world is is constantly hanging

(28:49):
on your next word. Now, how do economists, you
know, square the circle, so to speak, what they they do be with
monetary policy? Because they would say, well,
all the central bank is doing isjust, you know, moving usually
the interest rate and it's only the overnight interest rates,
just a short term interest rate and everything else.

(29:13):
And that interest rate of coursedoes influence other interest
rates and security prices and all sorts of stuff.
But basically monetary policy upis held to operate through the
financial markets, through Wall Street and then into the real
economy. So it's it's this strange, very

(29:34):
non hierarchian thing of centralplanning.
You know, in some sense monetarypolicy is some, you know,
ultimate form of central planning.
But with the kind of alibi or excuse that we're not really
doing central planning. We're just, we're just sort of
tilting and turning knobs and sort of trying to guide the

(29:55):
economy, but we're leaving everything to financial markets
and we're leaving everything to the real economy to kind of sort
itself out. So we're very kind of
libertarian or free market in that respect.
We're not sort of dictating to people what they do.
However, of course, they have models which are predicated on
trying to understand how the economy is going to work.

(30:17):
And, you know, that's the basis of their decisions about how
they turn those knobs. But yeah, there's something kind
of brought from that position, from that point of view.
The other thing, which I think is kind of questionable, but
nobody's come up yet with a better answer, is that this idea
of, although Paul Tucker, formerdeputy governor of the Bank of

(30:40):
England, made a valiant try in his opus magnum unelected power,
came out from Harvard UniversityPress a few years ago, about 600
pages, which is kind of about this conundrum.
But the conundrum is in a democracy, do we really, you
know, are we comfortable giving this ultimate power to these

(31:03):
unelected officials? Of course, they're appointed by
elected officials. They are accountable in the
sense of they have to explain themselves to the Congress or
the parliaments and you know, they are given they operate
under legal strictures, a law, acentral banking law, which tells
them what they can do, what theyshould do, their objectives,

(31:25):
their tools, etcetera. So they're not completely sort
of freewheeling agents, but nonetheless, they get to decide
if inflation is high, whether wehave a recession or not, whether
people lose their jobs or not. So they have a lot of, if you
believe that monetary policy works, of course, they're not
trying to create recessions, butthey're trying to restrain

(31:46):
demand when inflation picks up, and that means some people will
lose their jobs. So if you believe that monetary
policy works, and if you believethat that's really the key tool
for managing the whole economy implicitly you must believe
that, otherwise you wouldn't be in that framework, then you are
giving an enormous amount of power to essentially, you know,

(32:09):
technocrats, unelected bureaucrats in a sense.
And so there's a kind of anotherdiscomfort kind of between,
yeah, now the central bankers will say yes, but we're acting
to maximize social welfare. We only have good intentions.
And we need to be given this independence because
essentially, history has told usand taught us that you can't

(32:31):
trust governments if you just let them have unbridled access
to their own printing press. But it leaves you in a spot
which is a little bit uncomfortable.
Yeah, no, it's fascinating. And that sort of brings up a
point you mentioned, you sort ofoutlined this difference between
the real and the monetary economy, which I think is

(32:51):
something maybe a lot of people don't really think about.
They can flight those things together.
But really an economy is the productive output of goods and
services and the monetary economy is is sort of the
accounting and for that. And and as you say, it's the
thing that sort of oils the wheels for that.
And so in a sense, these tweaks or nudges of monetary policy are

(33:12):
in a sense trying to affect the monetary economy, which then
slightly longer term has an effect over the real economy.
And it's there is real world affect.
You know, people lose their jobs, house and their mortgages
go up and mortgage payments go up.
And so there is this kind of omniscience of that this can be
quite an incredible thing to really grapple with that, you

(33:34):
know, these these unelected people can have that impact on
your life. But identifying that there is
those two sides to that, which Ithink is arguably part of the
subtitle of the book where you talk about the prosperity stuff,
right? Because it's the fact that you
have these, this kind of virtualmonetary economy that enables
the real economy to, to, to develop, if if I'm not mistaken.

(34:00):
Yes, that's right. And you know, I guess in that
subtitle, I wanted to get 2 points across.
First of all, the sort of analytical point that money is
created through these two quite different channels.
And one kind of corresponds to fiscal monetary policy, that is
bank credit creation, and the other corresponds more to fiscal
policy, which is, you know, run governments, running budget
deficits. But I also wanted to put in

(34:22):
that, you know, the prosperity point that, you know, again, we
probably don't have a perfect system.
There are lots of, you know, issues that you inequality,
financial crises, hegemonic behaviour by economies like the
US, for example, The, you know, the world is not without its
problems. But the fact that we have this

(34:44):
sophisticated monetary system which is capable and does, you
know, feed enough money into thesystem to keep the wheels of the
economy turning, it does underpin our collective
prosperity. Yeah, that's fascinating.
And I guess that does now bring us on to obviously wanting to
talk about Bitcoin, Paul. And I think, you know, all the

(35:08):
things we've discussed so far, you know, it seems like there is
a framework of thinking that belays all of this stuff that,
no, there is governments, there's nation states, there's
kind of this historical development that has LED us to
where we're at today, Though that can change as we have seen
with the nature of central banking, you know, sort of
always trying to navigate itself.

(35:29):
And there is an argument that maybe it's hasn't got much else
to go, you know, hasn't got thatmuch more wiggle room.
There's also the argument that maybe it can find a way.
But I think zooming out and recognizing that there is a
reality now that we have things like Bitcoin which exist outside
of the state and they kind of a new framework of thinking that

(35:49):
just simply wasn't possible before, but also incorporates
maybe certain Austrian economists takes on sort of what
is money and that sort of thing.You write about Bitcoin quite a
lot in the last chapter of your book.
And it's, it's interesting because you you say contrary to
the hopes of some crypto evangelists and crypto

(36:11):
anarchists, it is very unlikely that crypto currencies will
seriously challenge, let alone display sovereign money.
So I guess those two framings, Imean how, how do you see those
sitting alongside each other, this nation state sovereign
money system and something new like Bitcoin?
Right. And you know, when I, when I
make that statement, Cody, because I'm, I'm not, you know,
I'm not steeped in the Bitcoin world.

(36:33):
I mean, it's obviously the development since 2000 and
eight, 2009 with the mysterious Satoshi Nakamoto and you know,
and everything that's happened since then.
It's it's a fascinating new development in technology with
the blockchain and entrepreneur innovation, you know,
entrepreneurship. It's so it's, you know, you

(36:54):
can't be an economist these days, let alone in this kind of
world and not, you know, pay attention to to what's going on
in Bitcoin world or, you know, cryptocurrency world or crypto
asset world more generally, because you know, obviously
Bitcoin is the genesis. But you know, there's a lot of
other stuff out there as I understand it and stable coins
and Ethereum and all these, you know, and I think I cited, I

(37:17):
looked up Coinbase, I thought there were 20,000
cryptocurrencies. I don't know what the number is
now, but it's probably a long tail and even all the non
fungible tokens and everything else, blah, blah, blah.
And so it is a fascinating kind of development.
But I when I made that statement, I was a little bit,
you know, because I'm not steeped in it.
Is that a straw man argument? I mean, because I'm not sure
exactly what your average Bitcoin fan or person who has

(37:41):
boiled Bitcoin and loves Bitcoinactually thinks the future will
look like. Maybe and probably there's not a
unanimous view about that. But you know, if you take the
kind of the potential straw man of saying, well, this is and
that's why I said crypto evangelists and anarchists,
perhaps the that extreme, you know, wing, if you like.
I mean, you know, I just find itvery hard to believe that for a

(38:02):
number of reasons that, you know, Bitcoin in particular is
going to like displace. We're going to be.
And I think you there is a word for this.
You yes, hyper bitcoinization orsomething like that.
I mean, it can anything's possible.
And you know, I think you have to, if you've lived through the
20th century and you know, I wasborn in 1954.

(38:25):
So you know, my grandmother was,you know, God knows when she was
born. You know, you know, I could talk
to a grandmother who knew horse and buggy world.
And you know, I lived in a pre Internet, pre hyper connectivity
world, etcetera. So anyone who's lived in the
20th century, particularly the second-half, and now we're 1/4
of a century into the 21st century, you've got to be

(38:46):
tremendously humble about where technology might go and what
society might look like in 50 years time, 75 years time, 100
years time, whatever. Who knows?
But now we have AI and everything else but fusion of
biology and man and machine and everything else.
So, you know, it's science fiction.
But you know, a lot of what we have today, 50 years ago would

(39:09):
have been science fiction on steroids.
But if we just take, OK, but let's come back to the put our
feet on the ground, you know, the next year, the next two
years, the next 10 years, I don't think that these crypto
currencies or Bitcoin in particular will seriously
challenge the sovereign monetarysystem.

(39:29):
And there's a number of you might say, why is that?
Well, you know, 1 is just the incumbency, the incumbency and
advantages of the sovereign monetary system.
And I do think also there's probably an onus on the sort of
Bitcoin evangelists, if you'd like, if I don't know if that's
an insult or that's a good word to use, but just for one of a
better word, probably the onus is on them to sort of explain

(39:52):
why it is that, you know, this new phenomenon will overturn the
sovereign monetary system. And another point, of course, is
that the, as you may have insinuated in in some of your
comments so far, is implicit maybe deep down.
The state will fight back, you know, the, the, the, the ability

(40:13):
of the state to create and manage money both through what
we call fiscal policy, creating money, spending money, taxing
money, and through the control of the banking system money
creation channel, which is, you know, in terms of aggregate
numbers, probably bigger than the government's role.

(40:34):
And certainly that's where monetary policy is most focused
on the banking system and creditcreation, financial conditions
in the economy. You know, this is really like
integral to the state. It's you know, the state has
monetary power, fiscal power, military power, legal power,
etcetera. So they're not they're not going
to give that up easily. And that would be another reason

(40:56):
for being somewhat skeptical. But you know, again, in
second-half of that last chapterthat you cited as you know Cody,
and maybe that's your next question, you know goes into the
central bank digital currency kind of discussion.
And what has clearly happened inthe last 15 years or so is that
blockchain, Bitcoin, cryptocurrencies as an in as a

(41:20):
both as a new and, you know, revolutionary technology, which
I think it is. And having that monetary
dimension and the ability to challenge, not displace, but to
at least challenge through creating a what you would call a
non state based or, you know, monetary system and form of

(41:42):
money. That certainly got the attention
of the central banks and governments and has triggered
this last 10 years, I guess or so, maybe a little bit longer
now with central banks. Pretty much every central bank
in the world is being looking atblockchain, tokenized money,
central so-called central bank digital currencies and you know,

(42:06):
there's prototypes out there andeverything else.
So I, so I see the, I think I see two things.
One is that I think Bitcoin certainly has enough going for
it and cryptocurrencies more generally.
It is a store, I would call it arisky store of value.
I don't think it's money, or at least it's not a very good money

(42:26):
in the sense of being a unit of account, a medium, medium of
exchange, least in a widespread sense, or a stable store of
value. But it is like any financial
asset that it is a way to transfer purchasing power
through time and, you know, government money, both say bank

(42:47):
deposits or, you know, government bonds, They're pretty
good ways of transferring, you know, purchasing power or sort
of money points or money into the future, which is a really
important aspect. But but all financial assets do
that. The question is, are they are

(43:07):
they good financial assets? How risky are they?
How do they perform over time and what Bitcoin seems to have
going for it? And, you know, and of course, as
you know, opinion is very divided on this among what you
might call well, makes mainstream economists, I guess,
again, reluctant to speak for them.
But, you know, a lot of people are still very skeptical, very

(43:30):
cynical about cryptocurrencies and think it's a Ponzi scheme.
And eventually the whole thing'sgoing to come crashing down.
And a lot of people are going tolose a lot of money, money being
Fiat money, and their Bitcoin won't be worth very much.
But there might have might be a lot of billionaires generated
before that actually happens. So on the other extreme, you

(43:51):
know, there is this argument when I talk to my friends in
this world who, you know, do themath and say, well, look at the
population with the number of Bitcoin users and the
uncertainty about the future of the monetary system.
So I may tell you, I think the sovereign monetary system is
going to survive and adapt and everything else.
But you know, you might believe,wow, there's a 5% chance that

(44:13):
the whole thing goes haywire. And, you know, I want to risk
hedge. I want to hedge against that 5%
risk. And if the diffusion of Bitcoin
is still relatively constrained and there's a lot of people who
haven't been born yet, they might have a different view from
me when they're born. And as you know, the bit

(44:36):
cryptocurrency are more and moreestablished over time.
And we just had, for example, just last week, was it Coinbase
being put into the SP500? You know, we have crypto,
Bitcoin, ETFs and everything else.
So step by step the regulatory framework is kind of being put
in place. The acceptability is growing.
So you could make an argument that while Bitcoin is risky as

(45:01):
an asset, so it's a risky form, a risky store of value, there's
a certain one sidedness attachedto it in the same way that there
is with stocks that stocks for the long, long run, stocks at
well diversified index of stocksover time tends to go up.
So putting all that together, I think a fairly strong argument

(45:25):
can be made that the genie is not going back in the bottle.
And that these crypto assets, ofwhich Bitcoin is perhaps the
most prominent and famous, may have a permanent niche, at least
a niche position in financial portfolios as ways of
transferring purchasing power into the future, as ways of

(45:46):
hedging against different scenarios.
And so that they're they're theymay be a permanent addition or
complement to the normal sovereign monetary system.
And meanwhile, their very existence and the technologies
that they incorporate may are disrupting and will disrupt and

(46:11):
force central banks and maybe governments and fiscal
authorities to innovate, you know, central bank digital
currencies. But I think at the moment my
criticism of that debate, and again, central bankers are very
conservative people, but at the moment the central bank digital
currency, it's a central bank digital currency discussion.

(46:32):
It's not a tokenized fiscal money discussion.
It's not a discussion which is saying, OK, now that we have
this technology, rather than just like bolting a little bit
onto the existing sovereign monetary system, can we rethink
the way the sovereign monetary system works, what we call

(46:55):
fiscal and monetary policy? And can we incorporate, can we
evolve the system in a way that incorporates these technologies
but also kind of maybe maybe improves the system at the same
time? So I think that, you know,
again, you're not going to hear that from a central banker, But
I think it wouldn't surprise me if in 1020 thirty years, if we
look at the way monitoring what we now call monetary and fiscal

(47:18):
policy operate, they may be quite different in 1020 thirty
years time. Yeah, No, thank you for that.
And I think I mean if, if I may respond to that, I think from my
perspective, I see this, this nudge that Bitcoin provides,
which I think you allude to in your final chapter.
It's sort of a it's sort of Damocles kind of thing.

(47:41):
It's, it's sort of dangling there that well, now there is an
opt out available and certainly many people are taking that and,
and it comes with some politicalideological baggage, I guess to,
to sort of decide to want to optout.
But once you do, you realise actually, look, this is viable.
And you know, certainly you can live off Bitcoin, though it can

(48:02):
be a little bit tough sometimes it can also be pretty good as
well. And that's, that's a very
interesting proposition because we haven't had that for a very
long time or arguably ever. And, and so I'm sort of the way
I, I, I frame this in my mind isthat there's this kind of dance
between this sovereign state money and, and Bitcoin where

(48:23):
there's a push and a pull, but eventually you start to see
crossover. And we really, you mentioned the
ETFs and that, you know, there'sthis kind of colonization of the
legacy financial world with, youknow, Bitcoin, which when it
comes to monetary policy, Bitcoin has its own monetary
policy and it's absolutely separate from any government.

(48:45):
And, and that's a very interesting proposition because
up until now we've been talking about, you know, this kind of
legalistic divide and how, you know, you're arguing maybe we
need to sort of revisit that potentially.
And, and it's kind of changing all the time.
But with Bitcoin, you know, absolutely it's locked in stone
that there is a, there is a monetary policy and no one can
change it. And that sort of is a really

(49:05):
interesting kind of finality that could be quite a disruptive
idea, you know, and we haven't really dealt with that before.
And I kind of come back to something like the printing
press or the Internet as a fundamental, you know, you
mentioned it, it is revolutionary technology, but it
also has this kind of 2nd order effects, which are pretty hard

(49:25):
to to imagine. But, you know, once that genie
is out of the body, out of the bottle, and you have monetary
policy that is absolutely separate from from any state
that cannot be censored or stopped in any way, it's almost
as if the state and the legalistic frameworks have to
mould themselves around that newreality.
And when that happens, you know,I wonder if if another way we

(49:47):
can also look at this is that you have, you know, maybe a
sovereign money system where youstill have to pay your taxes
using the, you know, the script of the state.
But there's actually another whole economy developing at this
kind of a decentralized economy.And just like the, you know, the
Internet, decentralized communication, you know, what
does a decentralized money mean for the way we do things?

(50:07):
So I mean, those are all just ideas to to throw at you.
But I think recognizing that there is a change and that there
is an incumbent system, there isnew systems, and that there is a
dance between those 2 is really important I think.
Yeah. And Cody, when you say that that
Bitcoin has its own monetary policy, you're talking about the
21 million coins that can only ever be printed and the halving

(50:29):
every was it 4 years? That's right.
And then what goes out to 2140? Kind of that's right.
That's the moment, Yeah. So it's sort of monetary policy
on autopilot in a way, right. Pre programmed autopilot yeah
well, first of all, just I mean let's if if I think I think that

(50:49):
again, you know I've I've got anopen enough mind on this that I
think the over time the and again, whether it's you you you
seem very keen on Bitcoin. I, I, I don't know if you're
also keen on Ethereum and all the other crypto currencies or
stable coins or whatever it's, but anyway, you're asking me

(51:10):
questions, not the other way around.
So I'm sorry, but oh. Mainly to answer, I mean mainly
Bitcoin. That's that's really what my
focus is. Yeah, right, right.
But I looked on the stuff, if you know, for academic purposes.
Right. So I mean, you know, I again, I
could, I could imagine that again, what do you call this Web
3 or you've all these terms. I'm not really familiar with

(51:31):
them, but you know, as the Internet and virtualization,
digitalization, you know, we're,we're perhaps in the very early
stages as that terrain grows andgrows and grows and you know,
more and more people, you know, they grow up on the Internet
like my grandchildren do now. You know, for me, it's, it's
something that's a tool. It's not something, it's not my

(51:54):
habitat in the way it is with with many other people.
And so, you know, on the Internet growing use of Bitcoin
or other cryptocurrencies. And you know, I could certainly
see that happening, I guess 22 points just when it comes back
to sort of the monetary policy aspect.
And again, and, and, and I guessyou would argue that on the in,

(52:16):
in that world, in that sort of Internet world, digital world,
virtual world, the ability for Bitcoin to start to develop the
characteristics of real of money, which of course is unit
of account and medium of exchange.
And I think, you know, if you godown that, that economists
always start, say unit of account, medium of exchange, and

(52:39):
then store of value in that order.
But I think Bitcoins probably going the other way that it's
strongest kind of characteristicis store of value, risky store
of value, But it's definitely you can, it's purchasing power
and you can move it through time.
And then maybe it, you know, becomes also somewhat of a
medium of exchange, whether it becomes a unit of account or the

(53:03):
extent to which it does. So again, I'm not in this world.
But if if people are thinking and talking in, you know,
Satoshi's and Bitcoin units whenthey're thinking about the
prices of things that they're buying and they're no longer
thinking about dollars, then you're moving more and more into
that world. My impression is that still, you
know, quite a long way off. And you know, in my view,

(53:25):
probably will never happen on a grand scale.
So but, but, but again, not justas part of the investment
ecosystem, but also as part of the, the, the monetary usage in
that Internet world. Yes, I can see that happening to
a certain extent. But it still seems to be just
like stable coins. I mean, I think stable coins

(53:47):
seem to be, you know, in kind ofmuch more kind of accepted by by
mainstream economists because weknow all know how lousy it is
sending money across borders. So the idea that you can, you
know, buy a stable corn, send itoverseas, you know, buy it in
dollars, send it to Europe, it's, you know, turned into
euros is is great, but you stillhave these on and off ramps.

(54:10):
So do we get into a world where you don't have those on and off
ramps anymore? But to come to the monetary
policy question, I think, you know, if we're talking about
about a world in which, you know, the sovereign monetary
system is still alive and well and it's the dominant system
then. And but if it is the fact that
there's somebody else printing money, you know, the machine

(54:32):
that Satoshi Nakamoto set in train and people are getting
enormous wealth, Bitcoin wealth that they can then turn into
dollars and can start consuming in the dollar economy, that's
going to stimulate aggregate demand.
And so as with every factor affecting aggregate demand and

(54:52):
economic activity and therefore dollar price level, central
banks will have to take that into account in their monetary
policy. So even if they don't have
control, it's a little bit like think they may not have much
control over the black market, but the black market's part of
the economy and it's affecting the variables that the central
banks are trying to control. So they'll they'll still have to

(55:12):
take it into account, maybe justit's an additional challenge.
Yeah, Well, that's interesting. I mean, you mentioned
stablecoins and I'm actually going to talk to someone else
later today about that. But I think stablecoins are a
very interesting synthetic dollar that, you know, an
extension of the euro dollar kind of concept.
And I, I think this is very fascinating because it sort of

(55:34):
means you've got this colonization of U.S. dollars now
in places like Argentina, you know, Africa, these places where
you know, and you know, the empirically there's a lot more
of that than there is Bitcoin adoption because you know,
people day-to-day, they, they need that price stability you
get from U.S. dollar, AUS dollarpeg.
But that's really interesting because it effectively sets up a

(55:56):
potential future scenario where you have massive U.S. dollar
dominance, you know, even somewhere like New Zealand,
which has its own sovereign currency.
You know, what happens as that sort of takes a tank and maybe
people start using more and moreU.S. dollars through stable
coins. And so you set up this kind of,
you know, final boss battle. We've got, you know, U.S. dollar

(56:17):
block and then maybe this kind of decentralized Bitcoin block
and those two things sort of colliding with each other.
But what's really interesting isthat the US dollar, though, it
is sort of sending its tentaclesout there into the world.
At the same time, you've got stuff as you write about with
2022 Russia, Ukraine war, this weaponization of SWIFT and this

(56:39):
kind of challenge with SWIFT. You've got the whole Trump
phenomena right now with tariffsthat you know, you and, and, and
the talk that we met at a coupleof weeks ago.
There's so there's this kind of things that are also happening
in the Fiat world and you know that it's it's constantly
changing. And so with that in mind, Paul,
I mean, how do you see that sortof, you know, that future say
U.S. Dollar and kind of shooting

(56:59):
itself in the foot potentially, and then Bitcoin just kind of
doing its own thing over here, ready to, you know, step in when
the time is right. Right.
Well, yeah, I mean, I'm very much on the in the public record
to the extent that anyone listens to me, certainly in the
last chapter of the book. And, you know, when the
sanctions were imposed back in 2022, I was interviewed by the

(57:21):
South China Morning Post and I didn't pull any punches in an
interview I did there with Anthony Rowley, who was
moderating the panel the other day.
Yeah. So again, maybe I'm just call me
an old fashioned economist, callme somebody who is a great fan
of Alexander Hamilton. But, you know, if we if we have

(57:42):
this discussion about the dollarand the dollar, the financial
system, Wall Street, the reservecurrency, the, you know, the,
the, you know, the dominant partof the global financial system.
Yeah. Famously the French finance
minister, Valerie Giscard d'estan, I can never pronounce
his name, but he later became president in the 1970s, famously

(58:05):
said in the 1960s when he was finance minister, I talked about
the exorbitant privilege that that the US had because they had
this reserve currency status. And, you know, we, you know,
separate discussions of unpack what does reserve currency
status mean? It's got different dimensions,
but park that for the moment. So this this is exorbitant
privilege and the dollar based, you know, global financial

(58:29):
system or the global financial system being very largely dollar
based is this exorbitant privilege.
Although, you know, again, interesting debate coming out
under the Trump administration with, you know, all these ideas
from Steven Moran and others andbest and and blah, blah.
But again, park that I'm very negative about the weaponization

(58:50):
of that system. And it's almost, and this is not
something that happened overnight or just recently.
But let's put it this way. If you are going to have that
status as a reserve currency, I don't think and economists
always think in the short run, the medium run and the long run.

(59:10):
And as Kane said, in the long run, we're all dead.
That just means, you know, takesa long time and a lot of things
can happen and we may not be around to witness it.
But I don't believe Cody is a basic idea that weaponizing the
dollar system is consistent withthe US dollar remaining the

(59:30):
dominant reserve currency and dominating the financial system.
You can't have your cake and eatit too.
In other words, if you keep weaponizing or if the US keeps
weaponizing the system and you know, discovering this juicy,
you know, you don't have to firea bullet.
You just freeze the foreign exchange reserves of a foreign

(59:51):
central bank. You just cut off the banking
system of a whole country from the SWIFT system, you know,
etcetera, etcetera. Then not only the country that's
on the receiving end of that will be thinking twice.
You know, they're like, well, wecan't do anything about it
today, but we're not going to, you know?

(01:00:12):
Fool me once, fool me twice kindof thing.
We're going to take some evasiveaction in the future.
But not just that, but every other country in the world is
observing that behaviour and say, Oh my God, I could be next.
I being China, I being India, I being New Zealand.
If you, you know, if you fell foul of, of certain, certain,

(01:00:34):
you know, powerful constituencies in the, in the
US. So I think it's a, it's, it's
it, that's a really bad direction to go.
And I was a little bit surprised, particularly in 2022
when this happened. People in my that I interacted
with in the sort of, you know, International Monetary circles,
go to the IMF, World Bank meetings, things like that, not

(01:00:55):
as an official, but you know, someone who's participating in
the peripheral festivities. Most of the people in my world
were, were saying, no, this is fine.
You know, we can do this. Dollar's so strong, nothing to
replace it. And I think there was a lot of
complete, there's a lot of complacency about that issue.
And I mentioned Alexander Hamilton because if you go way

(01:01:17):
back to the founding of America,the founding fathers, the
initial debate between Hamilton and Jefferson and James Madison,
where the, the, the whole, the government was formed, the
fiscal framework was formed. Alexander Hamilton, you know,
fought tooth and nail and essentially won the debate

(01:01:39):
against Thomas Jefferson and James Madison and and other
powerful forces to establish theprinciple that the property
rights attendant on, you know, Treasury securities, financial
assets more generally have to beinviolate.

(01:01:59):
And the particular issue there was that, you know, speculators
had bought up government IO us at, you know, $0.15 on the
dollar, $0.20 on the dollar fromsoldiers who'd been paid that
money, paper money, Fiat money essentially in the American War
of Independence. And Alexander Hamilton said,

(01:02:21):
well, this is an obligation of the US government.
We have to make, we have to, we have to make these speculators,
you know, whole. And we're not going to
compensate the people who sold those, those Ious at $0.15 in
the dollar. That was a decision that they

(01:02:42):
made, you know, in a financial market context.
So this was a really strong principled position that
Alexander Hamilton was able to win over.
You know, when you look, you read about this passage period.
Now you think, Gee, I mean, surely they would have, they
should, you know, the governmentwould have given in and, you
know, said, hey, you're not going to get, you know, we're

(01:03:03):
going to give you a 20% haircut and give that money to the poor
soldiers or something. But no, they, they, they
established the full faith of, of the dollar.
So that's a principle that I think you need to protect.
And if you start saying, oh, well, we can, we can cut, you
know, Russia out of the SWIFT banking system.
It's not a question of whether you like Russia or don't like

(01:03:23):
Russia. Don't mess with the financial
system, the monetary system which rests on property rights
and trust and integrity, becauseyou'll find out that you can do
it once, twice, maybe three times, but over time you'll
you'll come unstuck. Yeah, that's fascinating and

(01:03:47):
thank you for sharing that. And I think again, this is when
I put on yeah, I get my crystal ball out and, and I and I look
at the swings of history, Paul, and, and I see these swings
between centralization, decentralization, between trust
in in the nation state and and maybe distrust of, of
leadership. I, I do wonder whether some of
those attributes and properties of Bitcoin, you know,

(01:04:10):
unsensible, you know, fixed monetary policy, these kinds of
things, whether they feed into anew zeitgeist where there is
maybe desire for certain people to have a system that's outside
of arbitrary control and how that feeds in over the longer
term, you know, we don't know, but it's certainly very
interesting. And I think I do appreciate

(01:04:30):
that, you know, you have an openmind to talking about this.
And I, I think it's important to, you know, have a bit of
nuance where there is a reality of the system today, but there
is also a new reality of, of Bitcoin.
And there's, you know, we can goback into history and look at
the, the, you know, the history of nation state currencies.
And over time, you know, they will go to 0 eventually.

(01:04:52):
And so there is this kind of question like, well, what's
next? And it seems like there's just a
change in the ear right now. And the world is kind of feels
like we're going through a bit of a turning, and it'd be really
exciting to see where things go from here, I think.
Yeah, definitely. Looking forward to the rest of
the year, Paul, and sort of wrapping up, I mean, what's

(01:05:14):
what's on your radar? Is there anything that you're
sort of keeping an eye out for in terms of, you know,
politically, financially sort ofchanges this year or, or, or
major, major things that are coming up on your horizon?
Well, I think like, like most people, and particularly here in
the US, you know, very focused on the Trump administration and,

(01:05:35):
you know, the policies that are coming out of the, you know,
this is probably the most activist or active or activist
administration, US administration.
Yeah. Well, certainly in my living
memory. And, you know, you probably go
back to the founding fathers, maybe the early days when they
were putting the whole country in place and establishing the,
the all of the rules and regulations and institutions.

(01:05:59):
This is like a period like that.So, you know, that's, that's a
lot of my kind of time is it's taken up reading executive
orders and, and, and things likethat that are coming out thick
and fast from the administration.
And, you know, I haven't caught up on all the news today.
But, you know, I'm also pretty focused on the geopolitical

(01:06:21):
situation, the, the war in Ukraine, what's going to happen
there, because this is a pretty unprecedented situation where,
you know, in the Cold War, you know, the Soviet Union, the US,
both nuclear powers had their proxies and the proxies would,
you know, would, would fight. But we've never had a situation

(01:06:41):
where, you know, the US has comeso close to directly, you know,
in, in, you know, at war with another nuclear superpower.
And, you know, Putin has made itvery clear several occasions
that, you know, that it's getting very, very close to the

(01:07:05):
point where, you know, particularly there were missile
attacks into Russian territory. Russia would regard that as an
attack by the US, by NATO. And that takes things to a
different level. So, you know, when I was giving
talks last year and, you know, including in Japan and looking
at, you know, who's likely to win the election and what, what

(01:07:27):
how will it matter if it happens?
The top of my list was the fact that President Trump was saying
he will end the war in Ukraine. Now he hasn't done it yet, but I
think that's a very important geopolitic how that how this
plays out, whether President Trump is able to make good on
his campaign promise to end the war.

(01:07:49):
He said on day one, you know, I don't think you take that
literally, but that he would putvery high priority on doing it.
That's potentially I think is a geopolitical game changer.
And it's because then the question is, well, what comes
next? What comes after that?
And you know, I am this is a different kind of conversation,
geopolitical conversation. But I think the whole it relates

(01:08:12):
a little bit to what we've been talking about with the reserve
currency status. I think the whole era of the
post war packs Americana where the America was the global
policeman was, you know, that underwrote the global liberal
international order, if you likesupplied global public goods

(01:08:34):
that that era has sort of come pretty much to an end.
It's run its course. And so we need to replace it
with something. And, you know, if great powers
are at war or close to being at war with one another, that's not
the way you want to replace it. You want to replace it with a
much more cooperative system. And you know, you need China,

(01:08:57):
you need Russia, you need the US, you need Europe, you need
India. If you like the global S, you
know, all figuring out how we'regoing to live together on this
planet in a way that does securepeace and prosperity.
Now, people might say, wow, you're crazy thinking Donald
Trump is going to produce any ofthat outcome.

(01:09:17):
But, you know, grasping at straws, maybe.
I think there is a possibility that if this war can be brought
to an end, then we can move on to the next stage of thinking
about. It's no good word for this new
global world order is not particularly the the the phrase
that one would want to use. But but, you know, a situation

(01:09:41):
where countries can, you know, can live in peace and have
prosperity. And as an economist, when I look
around the world, you know, yes,we have the developed world,
very high GDP prosperity, but there's still a lot of people, a
lot of countries that, you know,have a few $1000 per capita GDP
per year, in some cases few hundreds.

(01:10:03):
So there's a lot of work we needto do just, you know, just
getting people on this planet upto the point where they're
enjoying, you know, some minimumlevel of, you know, decent
standard of living. And if we're all, you know,
spending 5% of GDP on military expenditure and and bombing

(01:10:23):
infrastructure all over the place, that's certainly not
something that is a good recipe for the future.
So geopolitic politics as well as the economics, I think is a
big focus point at the moment. Yeah, no, thank you for sharing
that and I share your sentiment.I think, you know, peace and a
step away from war is, I mean, it's, it's important.

(01:10:46):
And I do think, I mean, part of my Bitcoin journey, to be
honest, is really looking at that, you know, money that's not
corruptible by the state. You know, it's kind of hard to
spend money that you can't printto buy weapons.
It's it's sort of just changes the logic of violence a little
bit, I believe. And it's certainly played into
my journey going down this rabbit hole is, you know,

(01:11:07):
understanding what hard money means in terms of war, violence,
hegemonic projections, and certainly to be seen, but
hopeful on my end that maybe this could help a little bit
with that, you know, having a common language, something like
Bitcoin, potentially, maybe not.We'll see that we can all speak
for for value and trade because I'm a big believer that if we

(01:11:29):
can trade together and we can dobusiness together, then we're
less likely to do war. But look, Paul, I really
appreciate your time sharing your insights on this.
I really enjoyed reading your book.
If people want to find you, theywant to follow your, your, your
writing and your work week. And they find where can they
find find you? Probably the, the, the best

(01:11:50):
thing is to just contact me on LinkedIn.
You know, I, I have my own sort of distribution list.
I'm kind of, I'm still sort of pretty much off social media.
So if anyone's interested, find me on LinkedIn and give me your
e-mail address and I'll start. You know, I don't have a
blockchain or anything like that.
I just somewhere with an Excel spreadsheet.

(01:12:11):
So. But I'm happy to expand that.
That's great. So that's Paul Shared, author of
The Power of Money, How Governments and Banks Create
Money and Help us All Prosper. Thank you very much.
Thanks, Cody. Thank you for listening.
I am Cody Allingham and that wasthe transformation of value.
If you would like to support this show, please consider

(01:12:32):
making a donation either throughmy website or by directly
tipping to the show's Bitcoin wallet, or just pass this
episode on to a friend who you think may enjoy it.
And you can always e-mail me at [e-mail].