Brendan Greeley on the 500 Year History of the Dollar

Brendan Greeley is a veteran journalist from the Financial Times and current PhD student at Princeton studying monetary history. In Brendan’s first appearance on the show, he discusses why he went for a PhD after being a journalist for 20 years, why the dollar’s history goes far beyond America’s founding, when America actually achieved a currency union, the untold origins of the dollar, how Herbert and Lou Hoover’s date nights played a role in the history of the dollar, the crucial importance of Milton Friedman and Anna Schwartz in understanding the dollar’s history, the happy accident of Eurodollars, what the future of dollars looks like, and much more.

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This episode was recorded on May 4th, 2026

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University, and I’m glad you decided to join us. 

Our guest today is Brendan Greeley. Brendan is a veteran journalist from the Financial Times, Bloomberg, and The Economist, and he has written a new book about the dollar. The title of his book is The Almighty Dollar: 500 Years of the World’s Most Powerful Money, and he joins us today to discuss it. Brendan, welcome to the show.

Brendan Greeley: Thank you so much. I’ve been listening to this for years. I’m really excited to be here.

Beckworth: Well, this is long overdue. I have followed you for years. In fact, last time I think I saw you, I was watching on a monitor you were in the FOMC press conference probably, asking the chair questions about the latest meeting. In fact, it’s interesting to have you here on the podcast because not only are you no longer a financial journalist; you’re a PhD student.

Greeley: I am.

Beckworth: You’ve written a 400-page-plus book.

Greeley: It broke me, yes.

Brendan’s Career

Beckworth: Tell me about this journey from financial journalism to financial historian.

Greeley: I was working at the FT, and I got this offer from Penguin Random House, or the Crown Currency is an imprint of Penguin, from Kevin Doughten, who’s an editor there, and he said, “Would you like to write a history of the dollar?” As a journalist, you just say yes. That’s your job. Somebody asks you if you want to do something, and you say yes, and I have a phone, I can call some people, I will figure it out.

Then I began to realize, as I started working on it—and this was also in a very intense period of financial journalism, this is during COVID, when the Fed was announcing new facilities once, sometimes twice a day, and I couldn’t leave my desk. I began to realize that a lot of the things that I had learned as a Fed journalist weren’t very helpful. 

There’s a certain history of money that you learn, that you internalize. As a Fed journalist, you only talk to economists, and economists are great. Some of my best friends are economists, but they think about money in a very specific way. I have found that way doesn’t really get you to understand a lot of these turning points of the history of the dollar. It was a framework that wasn’t giving me any purchase on the history that I was reading.

I started to read other historians. I started to read other thinkers on the history of the dollar. Here’s where I ran into trouble. If you are a guy alone with a dog in a room, and you begin to have big thoughts, one of two things is true. You’re having big thoughts, or you’re insane. I went back to school because I wanted to make sure that some of the historians I was reading were part of a real tradition. That I wasn’t just randomly cherry-picking, or I guess you’d call it p-hacking. I wasn’t just randomly grabbing stuff out of history to support this thesis, that this was a real tradition, that I could either contribute to or draw from. It turns out that it was. Also, right around the middle of that process, I was invited to a conference at Brown for historians of money. I literally, up until that point, did not know that there were historians who studied money.

I liked what they did, and I liked talking to them, and they cared about the same things that I did. Finally, in the middle of this conference, I was talking to a bunch of brand-new PhDs, and I said, “This is really interesting. I think I’m going to apply to get a PhD.” They all said, “No, do not do that. That is a terrible idea.” I had been out in the world. I had been a journalist for 20 years. I worked in reinsurance before that. I had a lot of jobs, and I had gotten a lot out of those jobs. I was excited about the chance to go back and just read for a couple of years. That’s been amazing. If you can do it, I recommend going back for a PhD.

Beckworth: Your wife was fine with you dropping everything, going back to grad school?

Greeley: Yes, because she had just finished a medical fellowship.

Beckworth: Okay.

Greeley: That was all marriages involve taking turns. It was Dad’s turn.

Beckworth: Okay, fantastic. What do you want to do after this? We’ll talk about your amazing book, but what’s the plan ahead for you?

Greeley: Are you my mom? I don’t know is my answer. I love doing this. I have a dissertation that I’m working on the history of the gold standard in England, on the gold guinea. I love working as a historian. I found out while I was training as a historian that I love teaching. I really enjoy doing the work of, for example, trying to teach undergraduates what a bill of exchange is. You’ve got to physically divide them up in the room into London over here, and then Florence over here, and they write out bills.

A lot of the stuff that we think of as money is not philosophical. It’s very physical and tangible. We can talk about how it works. I would love to teach. The problem is the profession of history doesn’t look great right now, of academic history. Very hard to find jobs. I’d love to find some of the jobs that are available, but there are just dramatically fewer jobs than there were five years ago or even two years ago. I don’t think that’s something that I can count on. I’d like to keep writing books.

If this book sells, then I have a lot of options, and if it doesn’t, then I have fewer options. I enjoy the work of doing history, and I would love to have a traditional academic job. If not, I had jobs before I was a PhD student. I’m confident that I can find jobs again.

Beckworth: I’m sure you will.

Greeley: I’m still writing for the FT.

Beckworth: Yes, you can go back into journalism, I’m sure, easily. Folks who are listening and watching, buy the book, number one. Number two, those who are listening out there, I know some of you are in the academic community or other important positions, get this man a job when he finishes his dissertation.

Greeley: Wow. I didn’t know that’s where we were going with this. Yes, please, absolutely. Listen to what the man said.

Beckworth: Yes, I know. Brendan does fantastic work. Again, you want someone who’s been in the field, who’s talked to policymakers, and is doing the history. Go ahead.

Greeley: One of the things that, for me, that was a key, one thing that’s been useful with this book is that, because being a Fed journalist is a very technical work, there aren’t that many of us who do it. We all know each other. It’s a traveling circus. I was in a position to understand a lot of the mechanics of how the Fed works. I recognize a lot of those things historically. I was at a conference, and a historian said—they were talking about production of small change, small money, and small loans—they said, “Well, we fixed that because of the Fed.”

I sat there quietly in the audience, and I thought, “No, we definitely did not.” The ability to understand how the Fed works at a structural level, like it is a bank, it functions as a bank, it’s our bank, but it’s a bank, has been really useful. To go back as a historian and really look in an analytic way at how finance works, it’s not that different.

Beckworth: As someone who has followed the Fed’s balance sheet closely, it definitely is the balance sheet of a bank, a financial institution.

Greeley: Absolutely.

How Old is the Dollar?

Beckworth: It’s important to have these conversations. All right, let’s go back to your book. Again, it’s titled The Almighty Dollar: 500 Years of the World’s Most Powerful Money. Now, that 500 number there’s going to throw a bunch of people just right off the bat. Brendan, this is the 250th anniversary we’re coming up on the country. How can you dare say 500 years? Isn’t this our currency?

Greeley: It worked. Thank you. Look, Alexander Hamilton called it the ancient dollar. It was already an established unit of measure. It was already an established currency well before the United States. The history of the dollar has what I like to refer to as the 1776 problem. You go back, and you think, “Okay, newly sovereign country, newly sovereign money. We get to decide what our money is called, and we pick the name of a Spanish coin with a German derivation.”

If you think that a new country gets to control its own new money and that money inherently comes from the country, that money is inherently sovereign, you have a real problem in 1776 because that decision doesn’t make any sense. If you relax that, I began to think that sovereignty is not something you can assume over money. Monetary sovereignty is very difficult to achieve and constantly under attack. A hard one and hard to hold onto. It has to be established slowly over time.

That, to me, is a much more useful way of looking at it. When I ask that question, why is it called the dollar, you end up, I think, with a much richer story that helps us understand what it was like to be a shopkeeper or even a policymaker in early America, trying to figure out what to do. When you ask the founders—and we can see this in their letters—what they thought a dollar was, very clear. To them, it was a coin. It was not a brand-new unit of measure. It was not something they made up in the Treasury.

It was a Spanish coin that the colonies and then the brand-new states were desperate to import. They did not have their own source of silver. They did not have their own source of gold. It had to come from somewhere else. This coin, we can get into why, was the dominant coin in both the Atlantic economy and the Pacific economy. There were dollars all over the world. When we think of the names for money in other countries, the Malaysian ringgit, it’s called the ringgit because that actually refers to, in Malaysian, the milling on the edge of the Spanish dollar.

The yuan means round. The yen, same thing. They mean round. They’re referring to this coin that came on Spanish galleons to Manila and then got traded there and went into the port cities of southern China. I was just looking at the 16th-century books of the aptly named John Banks. He was a financier in London and in Kent County in England. He was constantly trying to figure out how to buy dollars. England had not abandoned its domestic currency of pounds, shillings, and pence, but this coin was incredibly valuable at the time for trade.

Shakespeare used the word dollar well before the founding of the United States. Early 17th century, Shakespeare is talking about the dollar. Also, at the time, still pounds, shillings, pence in England, a dollar, any groundling in the Globe Theater would have known was a big silver coin that came from the Low Countries for English wool and English cloth. That story, to me, is both richer and more interesting when we trace it back to the origin of that coin, but it also helps us understand how we established what we now think of as money in America.

If we run the story forward just a little bit, this coin was current in America as legal tender until the 1850s. We’re looking at a transition period, not a moment of sovereignty where America stamped its monetary stamp on the world.

Beckworth: We’ll come to this rich history, again, 500 years old of the dollar. You just alluded to this other fact that it was an international currency long before we typically think it became an international currency. In fact, you tell the story, it was a reserve currency of sorts, then faded, and it came back with great force. Now, just real briefly, since you touched on the colonial period, at what point, though, does the dollar go from being a coin to the main unit of account in the US? Is there a date, or is it just a convergence over time?

Greeley: I think it’s a slow shift. Very difficult to make people think differently about money in the same way that when you learn a foreign language, counting is the last thing that you can translate in your head. It’s the last thing to go. There’s a pretty good record in the early republic in America of people continuing to do their own accounting in shillings and pence. The dollar, they would refer to the dollar as federal money, because they had all these old habits.

If we take just a step back, Americans inherited from England and France a tradition of promises on paper. There was an economy of promissory notes, basically what we think of today as an IOU. It was a very old tradition. It’s recognized in English law by the 15th century. In the 17th century, in the colonies, promissory notes become transferable because there was this lack of silver in the colonies. People wrote IOUs to each other, and those became cash.

There’s also another old habit of just keeping money on a ledger. When you look at colonial bar tabs, bar ledgers, you can see a record of how people transferred money to each other as if they were deposits at a bank. If you owe money to the bar, somebody else can pay your bar tab, and in doing so, they pay you. This happened with lots of merchants, shopkeepers, printers. Within a closed economic system, you actually had a lot of transfers—ledger to ledger and within a ledger and promissory notes. Promises on paper were done in pounds, shillings, and pence, but they weren’t conducted in the imperial currency of sterling.

We had to dramatically devalue pounds, shillings, and pence in the United States precisely because we were doing what any small open economy would do to attract silver dollars. We were devaluing our domestic product. You had actually colonies fighting each other for what we would call competitive devaluations. Shopkeepers would offer more and more for dollars, and you have Baltimore competing with Philadelphia, competing with Boston to draw in dollars. It was actually something that Parliament had to forbid. It was a problem. Even after they forbade it, it kept happening.

I’ve gone back into the colonial period to actually answer your question and move forward. Now, we have this rich tradition of people transferring money to each other using pieces of paper. The Constitution does something really important, which is states had issued their own bills of credit. Constitution outlaws that. Lots of different theories about why that was. Traditionally, economic historians say it was too inflationary. It wasn’t always inflationary. There were lots of states that managed their money pretty well.

In fact, all the states, except Rhode Island, had put the lid on inflation on their own bills of credit at the time of the Constitution. Rhode Island had a similar problem before the Revolution. Rhode Island seems to be the reason why we can’t have nice things. It doesn’t seem to have been chaotic, that we describe the monetary situation under the Articles of Confederation as chaotic. I don’t think it was as chaotic as described. Regardless, the Constitution makes it unambiguously clear. States cannot issue bills of credit. States realize they’ve got to have some domestic source of paper money. They immediately charter banks.

There are two banks in America in 1789. There are several hundred by 1837, by the panic. You have state by state. Banks are now issuing banknotes. We had to figure out how to make this technology work. What’s going on in the transition from this silver dollar to what we now think of as the American bank dollar is American states and the federal government are slowly figuring out how do we take bank notes and make them reliable. It’s a long tradition of panics and regulation. We can go through all those panics and all that regulation.

It’s a 50, 60-year shift between thinking of the dollar as a silver coin that comes from Mexico and thinking of the dollar as a bank note that’s issued by a bank in your city. That takes a long time. I think what finally finished the transition is the discovery of gold in America. For the first time, America had its own domestic source of precious metal very quickly, within just a couple of years. When you look at the bank ledgers, you see wholesale shift. Silver comes out. Gold comes in. Much more useful as a bank reserve. Silver then enters the economy for small change. It becomes easier to mint enough small change for Americans. By the time of the Civil War, that transition is complete. It happens very quickly. It’s because we discovered a domestic source of precious metal in America.

Beckworth: This is so interesting. I could spend a lot of time here. Let me just do this real quick on the American question. I’m going to give you some banks and episodes. You tell me if by the time these institutions were around, the main unit of account was dollar or was it still shillings or something else. The Continentals, the currency of the Revolutionary War, what was the Continental denominated in?

Greeley: Dollars.

Beckworth: That was a dollar.

Greeley: States still issued their local shillings. There’s a mix. There’s a transition period between dollars and shillings as well.

Beckworth: First Bank of the United States.

Greeley: Dollars.

Beckworth: That was like our first central bank of sorts.

Greeley: It was. Bank of North America, as well, also dollars. There’s a challenge between the Bank of North America and Philadelphia. The Philadelphia assemblies printed shillings. You had printed shillings and banknotes in dollars circulating in the same economy. That’s not as crazy as you might think. Different kinds of money do different things in the same economy. Bankers needed the kinds of terms that you could get from a land bank. That’s what issued the shillings. Merchants needed the kinds of terms that you could get from a bank. That’s what was issued in dollars.

Beckworth: By the time we get to the Second Bank of the United States, is the US predominantly dollar-denominated?

Greeley: Yes. By this point, when you look at local banks and local shopkeepers, almost all of them are now keeping their ledgers and what they had called federal money, and they began to just call dollars. Just getting the shillings out of the economy, just getting the idea of a shilling out of the economy, it’s like 30 years.

Beckworth: That’s a huge process, right? There’s this path dependency. There’s old habits you’ve got to break. We could spend some time talking about the Second Bank of the United States, which really shuts its doors in the 1830s. It’s a fascinating story. Andrew Jackson runs the entire presidential campaign against it. It’d be like a president today running against the Fed. That was his main campaign.

Greeley: It is crazy how political money was for so long. It is more political now in the last two years, but for a long time, very difficult to get people to understand how intensely partisan and political the discussion around money was before, I don’t know, 50 years ago.

Beckworth: Even in the story of the Second Bank of the United States, there’s so many fascinating details, even beyond the battle between President Andrew Jackson and Nicholas Biddle, the president of the Second Bank. The competing cities, New York did not like Philadelphia, and they were thrilled to see it shut down. The power center’s competing. There’s a lot of people, politics going on behind the story of money.

Greeley: Absolutely. I also think it’s important to point out that if we’re talking about this transition—I like your focus on this transition—it’s really hard to understand. Again, we seem to think that like new country, new money, it just works. I don’t think we had a full currency union until the New Deal, arguably the Civil War. Before the Civil War, you can look at price currents. These are the newspapers that print out the prices of cotton or other commodities and banknotes as well.

I’ve spent a lot of time looking at the archives in New Orleans because one of the chapters of the book is set in New Orleans in the pre-war period. When they listed bills of exchange, they listed the price of bills of exchange on Paris, London, Liverpool, Boston, Baltimore, and New York. Boston, Baltimore, New York, Philadelphia were every bit as foreign as Liverpool and Paris. We didn’t have a currency union. There’s this idea that money was chaotic at the time. It was certainly more complex than it was now.

Mostly within a city, you were dealing with banknotes of that city. Often, you’d see contracts written out in banknotes of this city. There was an understanding that you could get your arms around local notes, and these bank note reporters that we see now do, in fact, have the entire country’s worth of bank notes in their values. As a citizen, as just a merchant in this economy, you were buying bills of exchange to transfer money to other cities.

Most of your contracts and most of your cash was dealt with in local banknotes, which actually weren’t that foreign. They weren’t that alien. They weren’t that complicated. Yes, bank notes absolutely did travel, but we weren’t talking about chaotic, wild distribution of every bank note in every city. Cities have their own money.

Beckworth: Yes. We didn’t have branch banking, which also hindered—

Greeley: Oh my God, that’s so important.

Beckworth: There’s so many interesting details. I’ll throw one more out there, and we’ll get back to your book. During the Civil War, you know this as an historian, but during the Civil War, of course, you got the dollar in the North, you got the Confederate dollar in the South. I learned recently there was actually a gold dollar out West in California. They maintained a peg to the gold standard because all that gold was out there, the California gold rush, where we went fiat here in the northeast, in the northern part of the union.

Greeley: Kind of. A couple of interesting things happened very early on in the Civil War. The South, they make a few changes to their own constitution. A lot of them, we know about. One of them was new to me. They got rid of the ban on state bills of credit. Louisiana had not been able to issue its own bills. Very soon after the war, they start issuing their own bills of credit. You get Louisiana dollars in addition to Confederate dollars. Yes, we get the greenbacks. We get what’s closest to what we would think of as fiat money.

However, even the greenback has some financial basis because when they pass the law that they’re going to start paying for things in greenbacks, they also create a sinking fund. The sinking fund is just a promise to take in taxes to buy back money in the future that’s issued. It’s a very old pattern. The idea was based on sinking funds the Bank of England had administered during the Napoleonic Wars. Yes, it’s close to fiat. They didn’t take the sinking fund very seriously as part of the challenge.

Beckworth: That effectively became fiat.

Greeley: Right, but there’s also a reason why in New York, the price of gold against the greenback swung with the probability of union success in battles, frantically traded with news from the front, because it got to the plausibility of that promise to buy it back eventually. However, yes, absolutely. It’s a form of fiat. As you’ve read in the book, I’m very skeptical of the idea of fiat. However, there’s an even bigger and, I think, more important change that happens in the Civil War, which is that Samuel Chase was very skeptical of state banks because they blew up all the time.

State banks printed their own banknotes. It does a couple of things. First is that they issue a tax of 10% on state banknotes. State banks are out of the business of printing their own notes. Then they introduced a brand-new federal charter, a national charter for banking. If you’ve got a First National Bank of your town, it’s under that charter. We get a Comptroller of the Currency, an office that we still have, and the Treasury in the United States. The rule was, if you wanted to print bank notes, if you wanted to generate your own bank notes as a nationally chartered bank, you had to buy Treasuries.

This one-to-one linkage does not go back to the Fed. It goes back to the national bank charter. I think giving national banks the ability to print money or to generate their own dollars, so long as they’re backed 100% by Treasuries, is way more important than the greenback because, as you know, in the 1870s, we bought the greenbacks back. It was over. We stopped. The national banks continue to generate their own banknotes. That’s much closer to the system that we have now. That shift, I think, is as important, if not more important, than the greenbacks.

Beckworth: Okay. Clearly, I could go on with Brendan here for a long time about the history of banks and money in the US, but his book is about more than the US. It’s about the 500 years of the dollar. Did you want to add anything else to this?

Greeley: I just wanted to say one of the things that became clear to me in the process of writing this book is that we have this idea that the dollar was backed by gold, then we remove the gold, and it just floats. At Tulane University in 1995, when I took macro, I had Greg Mankiw. All right, I didn’t have Greg Mankiw, sorry, but I had his book. He basically tells this story that we still have today, that you remove the gold and the dollar becomes a social convention. It gets super hand-wavy still today.

I’ve looked at a recent edition of the book, still the same story. Mankiw’s still teaching college students that money is now a social convention. Yes, sure, money’s a social convention, but so’s the bond market. So’s your mortgage. We also have the power to analyze these things in real ways. If we wave our hands and we say, “It’s just a social convention,” then we lose the ability to think about what actually gives bank dollars meaning. I think it’s this long period of panics and response. You get panic of 1837. There’s a response.

People begin to realize that if they don’t control the banks, the banks are going to blow up. You get increased reserve requirements. You get free banking laws. That means that you no longer need to have a special in with the legislature to start a bank. You get state comptrollers of the currency. You get better bank reporting. All of a sudden, you can get from the congressional record much better and more detailed bank balance sheet numbers after 1837 because states realize we need to know what’s in there.

We can’t take a call report for granted. Somebody had to invent the call report. When we think about what anchors these bank dollars, it’s this constant process of crisis and response, crisis and response. 1907, the copper market blows up banks all over America. You get the beginnings of what we now think of as the Federal Reserve. You get this question like, “This is not working. We’ve got to do something else.” 1932, we get deposit insurance. I think deposit insurance is a vast pool of insured deposits.

It’s like, along with the Great American Songbook and barbecue, one of the greatest things America has produced, it’s this insistence that banks had been resistant to deposit insurance for the same reason. We all hate insurance, because when I pay for something, you don’t think you’re going to have to need it. You don’t think you’re going to use it. It’s all of this pattern of crisis, response, crisis, response that by the ’30s gives us good bank reporting, comptrollers of the currency, FDIC, a Fed that is more political and sees its responsibility to protect banks as well in a crisis.

You get all of this architecture that we still use to prop up the dollar. The dollar doesn’t float in by magic as a social convention. It sits on all of this regulation on the FDIC, on the comptroller, on the call reports that we use to make sure that banks work and that they’re not going to blow up.

Beckworth: That is a great point. In fact, a recent podcast with Peter Conti-Brown, we did it at the Wharton Financial Regulation Conference. Someone asked us the question—Peter and I co-hosted this show—“Well, how would you design the optimal banking system?” Peter goes, “That’s a fun question. Look, we got to where we are through trial and error, panics, and learning. We’re at a system now, and maybe it’s not optimal, but it’s how we got here.” That’s how we trust bank money, which we’ll talk about later, while we treat it as reliable.

Greeley: Yes. I think bank regulation is littered with fences. We should be very careful about which ones we remove. Sometimes, we don’t have to get into crypto, but I will often hear from people who are deeply invested in the crypto economy, we need to iterate on money. My response is always like, “No, we did. We’ve been working on money for a long time.” It may seem insane, but we probably do it the way we do it for a reason. We should try to understand that reason before we rip it up.

Where Did the Dollar Start?

Beckworth: Now to your book. We’ve been touching it indirectly here. Again, the most fascinating thing is the fact that the dollar precedes the history of the US. It goes back 500 years, twice as long as the history of this country. Take us back to the beginning. Where did it all start?

Greeley: Robert Mundell, the Nobel Prize–winning economist, had said that great currencies are the children of empires. Essentially, what you need is a big domestic economy, trade with the outside world, stability. Barry Eichengreen has included an army as well, recently writing about the same thing. I’m always so worried about disagreeing with Barry Eichengreen because it’s like disagreeing with Willie Nelson about songwriting. 

When I look back at the origins of the dollar, I don’t see an empire. What I see is frantic commercial activity, choosing a specific kind of money for a specific reason, and then spraying it out into the world. There is a story. I didn’t discover this story. There’s a story out there that’s in histories of the dollar that goes something like Stephan Schlick was a count in Bohemia. He had a valley. The valley had a lot of silver in it. The coin of his realm then became important to the rest of Europe. Almost none of that is true.

That relies on this assumption of sovereignty. It didn’t have sovereignty. We go back, actually, Stephan Schlick is an incredibly entertaining dirtbag. He was a count, but he held the area in entirety with his brothers and his cousins. Somebody discovered silver there. He found out about it. He decided he was just going to claim it. He was going to say, “Well, I’m the count here, and nobody else has to know.” The problem with mining silver is that it’s incredibly expensive. Even in the 16th century, you could not just bang in the earth with a pick. It was capital-intensive.

You had to build these big structures above the ground. We have pictures of them. We have wood cuttings of what these structures look like. Cupolas covering a capstan pushed by horses, pumping water out of the ground, and getting silver out of the ground. Then you had to build structures to keep the mine from collapsing. It takes a lot of money, a lot of wood, and a lot of expertise to get silver out of the ground and then refined.

The first thing Stephan Schlick did was he went over the border from Bohemia, where he was, into Saxony. Saxony was where all the expertise was—silver miners, incredibly important silver investors. Silver miners, silver investors come back over the mountain into Bohemia. They pretend that they’re a hunting party so that nobody knows what they’re doing. They look at it. They agree, “We’re going to start a joint stock company. We’re going to start digging up silver.” Stephan Schlick didn’t really have a lot of profit out of this.

All he had was the monopsony right to buy the silver and the right to then sell it on. Very, very slim profits in that business as lord of the valley. If you were an investor in a joint stock company in Germany in the early 16th century, you had very clear expectations of how things were going to work, what mining law was, and what you were going to get for your investment. You expected your dividends to be paid out as a large silver coin. These coins were named after the mines they came out of. 

Annaberg was another mine in Saxony. The dividend coins that came out of Annaberg were called Annaberger. Joachimsthal was a mine in Bohemia. The dividends that came out of that mine were called Joachimsthaler. Now, we need to go back to the fact that this was all illegal. Because it was illegal, nobody had to follow the basic restrictions of any silver mine and mint that would have had to follow in any country, which is that you’ve got to create the full range of money for everybody. You’ve got to create the little coins that people use in their daily retail transactions, and you’ve got to create the big coins that people use in their wholesale transactions.

All that Joachimstal produces is the big coins. You get this flood of just dividends. They weren’t supposed to be money. One of these coins, one of these Joachimsthalers, would buy something like 27 pounds of bacon or two weeks of labor. It’s just too big to be useful as currency for anybody. You wouldn’t carry it in a purse and pay for something with it. What it’s incredibly useful for is commerce. They begin to move up through silver markets in Leipzig and into the Baltic, and then they start to get copies everywhere.

First of all, you get this flood of very high-quality coins, and then you get copies everywhere. You get copies in Denmark, in Sweden, in North German cities, in Lübeck, various places, Hamburg. They start to recognize this is a good coin. It’s useful. We’re going to copy it. Then the Joachimsthaler gets shortened to the word Thaler, which then becomes in Dutch Daalder, which is how we have the English word dollar. It was not pushed out by an empire. The Holy Roman Empire, for complicated reasons, actually hated the Joachimsthaler.

There were enough principalities in the Holy Roman Empire and bishoprics that were dedicated to a gold coin called the Rhein florin. We do not have to get into that detail. It was commerce. It was merchants. It was investors getting their dividends, and then merchants noticing this is a really useful coin to clear mercantile transactions. That’s what spread the dollar. It was useful, and there were a lot of them. 

Stephan Schlick becomes very unimportant to this story very quickly. He can’t manage the miners because he can’t import enough small coins to pay them. They continuously walk off the site and strike. They’re striking, and they make clear in the negotiations in the strike. By the way, a lot of it’s from a Czech historian named Petr Vorel. It’s actually one who’s done the archival work on this. They make clear that they want to get paid in the same high-quality pennies, in the same good money that the investors were getting. This is actually hard to understand when we think back. We understand now that money has quantities. You have some money. I want as much money as you have or more.

What they were complaining about was the quality of the money. They were getting bad pennies. This is actually a much bigger problem historically than we think about now. Stephan Schlick eventually just loses control of the mountain. He’s seen as incompetent and replaced by the Leipzig investors. Eventually, the king of Bohemia gets in and gets his cut. Holy Roman Emperor also becomes a part of this. Stephan Schlick fights in the Battle of Mohács, which is lost to the Turks. We don’t really know what happened to him.

There are several rumors that he might have been sold into slavery in Armenia. He disappears, and he doesn’t matter. The idea that a lord found silver and created money, and that money of his own realm became valuable somewhere else, just doesn’t hold water. What you actually have is capitalism. Silver investors digging silver out of the ground, refining it, capital-intensive process, receiving as their dividend a big silver coin, a flood of them move up into the Baltic. That’s what creates copies. No empire, just capitalism.

Beckworth: The demand for the dollars grow. There’s profit motive. It’s reliable. You mentioned it’s a consistent unit. It’s copied elsewhere, as you know, because it is reliable. There’s both this growing demand as well as production of it. You also talk about Spain and the role they play. Tell us that part.

Greeley: You know what the swing barrel of oil is, right? If you can produce oil the cheapest, then you control the oil market. I think of Spain as taking over the swing dollar. You have this flood of dollars coming out of this valley in Bohemia. It takes a while, even after the creation of the new vice royalties in Latin America, for Spain to figure out how to get silver cheaply out of the ground. A lot of the silver that’s coming out of Spain early on is just plunder.

Then you have some mining in Mexico. Hernán Cortés very quickly begins silver mining. They import a lot of expertise from Germany. You get German miners and German mining techniques. In fact, the manual for mining in Latin America was De Re Metallica, a book, a massive tome that was written at the mine in Joachimsthal. Hilariously, the translators of that book into English are Herbert and Lou Hoover, the future president and first lady of America.

Beckworth: History comes full circle.

Greeley: Yes, it does.

Beckworth: That’s crazy.

Greeley: Yes, it is crazy. It’s also crazy to think that that’s what they did in their marriage. They didn’t watch Netflix. They together figured out ways to translate ancient mining terms from Latin into English.

Beckworth: What a romantic date that sounds like.

Greeley: Yes, that’s what they did. They lived in London and they translated it at night. Anyway, what was fascinating to me is, in the beginning, early on, 1520s, 1530s, Charles V, Holy Roman Emperor, King of Castile, Castile legally owns the vice royalties in the New World, does not control global silver markets. He’s got this silver, and merchants in Antwerp are expecting him to coin it into the same shape that silver has already taken, which is this big silver coin of a certain weight. 

There’s this numismatic accident, which is that there is, in fact, a Castilian silver coin called a real. If you multiply it times eight, it looks almost exactly like the Joachimsthaler, almost the exact same weight. That’s what they do. They just copy the Joachimsthaler. There’s this idea that Spain had a domestic currency called this piece of eight. It became universal. Spain didn’t really price anything, even in reals. It used maravedís, which are much smaller unit of measure, to buy normal things. There certainly was no need for a domestic eight-real piece. That was exclusively to get Spanish silver into the global silver markets.

What happens is, in the 1570s, Spain reforms the way it gets silver out of the ground, particularly in Potosí, in what is now Bolivia. They begin this brutal mita system of forced labor. They’re marching Andeans up into Potosí and forcing them down into the mine. They’re forcing them to work in the stamping mills outside the mine. You drive the price of silver way down. What happened at Potosí, again, was not that there was just a lot of silver there. It’s that Castile figured out how to get silver very cheaply out of there.

Now, all of a sudden, they’re controlling the global silver market because silver is much cheaper for them. They’ve got the dominant source of silver. When we think of the form the dollar took as it expanded into Asia, as it begins to wash ashore on colonial America, these incredibly unimportant colonies at the time, it’s the Spanish milled dollar that becomes the standard, but again, it’s a copy of the Joachimsthaler. The beauty of the dollar is that it can just be copied again and again and again. It’s not a sovereign currency. It’s an idea that anybody can copy.

The Spanish milled dollar, the Seville dollar, then becomes the global standard. By the early 18th century, in southern China, you’re beginning to see contracts negotiated in this silver coin that comes from Spain. They do not have a domestic mint. The coins are coming from Mexico. This global system of silver dollars was already in place, and America was the smallest and least important part of it by the beginning of the 18th century, when you start to see references to dollars in American financial documents. Again, very clear what they thought a dollar was.

It was both most likely a Spanish milled dollar, but they recognized a lot of different dollars. They would talk about a rigsdaler, which was eventually the dollars that the Holy Roman Empire produced to the Spanish standard. They traded it one-to-one at par with the Spanish dollar. There was something called a dog dollar, which was from the Netherlands. It had a recumbent lion on the front, and it got worn down with use in America, so it looked like a dog begging for a scrap. All of these different kinds of dollars were seen as roughly the same thing, which were copies of copies of copies of this original Joachimsthaler.

That’s why Alexander Hamilton calls it the ancient dollar. He knows what a dollar is. A dollar is something you get from commerce with the Caribbean in America. You’ve got to sell hogs or wheat or wood or shingles down into the sugar islands of Jamaica or Barbados in order to get silver dollars back up into the American economy.

Beckworth: That’s such a fascinating history. Now, you touched on silver became an important part of the Chinese economy. If you read Milton Friedman, he tells a story that the Great Depression did not hit China, at least initially, because they were on a silver standard. They weren’t on the gold standard, so I’m guessing that’s the legacy of this early silver dollar.

Greeley: Absolutely. The last two countries on the silver standard are Mexico and China. Those are the last two countries that were part of this axis. By the late 18th century, early 19th century, almost all of the silver is coming from Mexico and not from what’s now Bolivia. You have this axis of Mexican silver still sailing from Acapulco to Manila. In a way, the two of them were, I don’t know if you’d call it a currency union, but they were the last vestiges of all the silver went to China, and most of the silver came from Mexico at the time. That stands to reason that they were the last two.

Beckworth: Yes. This, again, speaks to this bigger point you make in your book that the dollar was an international money long before it became one under the US of A.

Greeley: Absolutely. I think we really have to think of international currencies are not domestic currencies that go on world tour. They have different qualities. The dollar was not a domestic currency, really, anywhere. America had to domesticate it. We talked earlier on about this process of how we create banks, and how the banks then try to recreate dollars, and then how we tame the banks. It takes a long time for America to domesticate the dollar.

The Modern Dollar

Beckworth: Yes. Let’s transition into the more modern period, or at least the modern form of the dollar, which is a bank account. It’s an entry on the ledger, of the bank’s balance sheet, and your checking account, my checking account. Tell us how that fits into the broader dollar story.

Greeley: First of all, enter Milton Friedman. Everything we know about this transition comes from data that he and Anna Schwartz very carefully collected and published in A Monetary History of the United States. Without that book, we can’t trace this. I think that monetarism is not how economists think about money anymore. I don’t want to be condescending and talk about fashions, but it’s out of fashion. It’s not a dominant theory. I got to tell you, the hard work of counting up all the money, figuring out who produces what, is really valuable.

That book that the two of them produced together tells us the story of exactly the transition that you’re asking about. You have two challenges with banknotes in the late 19th century. The first is that the state banks are out of that business. Samuel Chase taxed them out of the business of producing bank notes. National banks have the right to print dollar notes. The challenge is, it’s not always profitable to print dollar notes because they’ve got to be backed by Treasuries. If the returns aren’t good on Treasuries, you don’t really want to get into that business.

You’d much rather make a merchant discount or an agricultural loan with a higher interest rate than you would print that note that can only be backed by Treasuries, where the returns are, again, either variable or lower. Even national banks slowly get out of the business of printing notes. It’s not just a paucity of gold. There’s a paucity of cash, physical cash. Okay, this is why that book is so valuable; Friedman and Schwartz make absolutely clear through data what happens is that banks are restricted in the number of dollar notes that they can produce.

They just run up their deposit accounts. A deposit, like a bank note, it’s money creation. This is so hard to explain because we’ve all got this story that money comes from the Fed or it comes from magic. It’s not hard to understand. Dollars in the modern economy are when you create a loan as a bank, you are producing brand new deposit dollars. You just mark up the bank’s balance sheet with new deposit dollars. Then the person who got loaned that money can then use those deposit dollars. Very difficult to grasp that. Very hard to tell people, “I’m sorry, money is endogenous. It comes from banks,” but it does.

What you have then is this switch from physical cash. When you look at the graph, it’s insane. The physical notes that Friedman and Schwartz track go up like this between 1860 and 1930. Deposits just go like this. They just soar. Very quickly, then, we begin to develop the architecture of how do you move deposit cash around instead of note cash. What you get is the checking system. You get bank clearinghouses in big cities are figuring out how it is that they can protect each other in a crisis and clear then mutually with each other.

You also get this system where small rural banks will keep deposit balances with bigger rural banks with national charters. Those banks, in turn, keep balances with bigger banks in cities with national charters. Those banks, in turn, keep deposits with nationally chartered banks in New York. Unfortunately, those deposits then usually go into the stock market. You have this incredibly fragile system where in 1907, the copper market blows up in New York, and this ricochets all the way back out to rural banks. It’s a very fragile system. We can recognize pieces of that system today.

It’s just banks creating loans. When they create loans, they create brand new deposits. Those deposits are our dollars. The origin of the Fed is to reign in this system. It is not to produce new dollars. The Fed is there because to create a more flexible currency was the original goal of the Fed.

Beckworth: Right, an elastic currency.

Greeley: An elastic currency. All the Fed is doing is taking over the work from the National Bank of printing up enough low-profit dollar notes so that they’re available to rural banks in a crisis. This is not a fundamental reordering of the monetary architecture. It’s taking over a job, note production, that frankly, the nationally chartered banks don’t want anymore. I think it’s the restrictions on banking and the new national charter of the Civil War are what give us, over time, as documented by Friedman and Schwartz, the deposit economy that we have today in the United States.

Beckworth: That’s so interesting because, as you mentioned, the cynical motivation for the national banking system was to fund the Civil War. 

Greeley: Yes, of course. Sorry. No, let’s be cynical. Absolutely. I don’t want to pretend that they were just enlightened. Yes, they wanted to fund the Civil War, absolutely, but it ended up having important consequences.

Beckworth: Yes, so they had to find this market for all this debt they were issuing. “Hey, let’s nationalize the banking system or make them national bank charters. Oh, by the way, let’s put a tax on the state banks, so they go out of business, or they’re forced to become national banks and they have to buy our debt. Problem solved.” Then you’re saying one of the unintended consequences is deposit money creation takes off.

Greeley: Yes. The data is unambiguous. The chart is dramatic.

Beckworth: That’s so interesting. 

Greeley: Again, that’s not me. That’s Milton Friedman.

Beckworth: I think that’s recognized history. I think it’s also fair to say the national banking system, as you just suggested, was a very fragile one. It wasn’t that money itself is fragile. The way the system was set up was fragile. The tiered banking system, the fact that they had to have it backed by debt, and the government was actually reducing the debt over time, also added strains. If you compare it to the Canadian banking system, it was relatively stable over the same period that the US was very fragile. Systems matter.

Greeley: Systems matter. As you pointed out, the most important thing that we need to remember about American banks—it’s very hard for Europeans to understand American banking history—we had a lot of banks.

Beckworth: Yes, unit banking.

Greeley: Right. Banks couldn’t charter across borders, and in some states for a long time, you could only have one location, one branch. We’re still looking at that heritage today. When you look at the banking lobbies in the United States, Americans love their community banks. They love local banks. We’re still dealing with the consequences of that today.

Beckworth: Yes, it’s true.

Greeley: When we talk about why other banking systems are more stable, I think it’s much easier to take five banks and go, this is what it’s going to be, than it is to take 2,000 banks and say, this is what everybody has to do.

Beckworth: Right. That’s the one thing that still is true, as you mentioned, that community banks have a lot of political influence. They’re not going away anytime soon, even if it was more efficient to do something different. 

Let’s transition from this big surge and transition into deposit dollars, and let’s go global. Let’s talk about euro dollars. We tell a fascinating story where the dollar starts overseas, and then the biggest market eventually emerges in the US, but then it begins to take hold again overseas. Tell us that interesting arc of history.

Greeley: I think during the Depression and the war, the dollar became purely American. You’ve got American deposits, you’ve got the Fed that’s captured domestically, you’ve got the Fed that’s, as we know—and this is again established history—serving the Treasury. The Fed is just buying Treasuries. 

Beckworth: Fiscal dominance, World War II.

Greeley: Yes, absolutely. The Fed, under Marriner Eccles, is buying Treasuries to keep down the price of debt. I don’t spend that much time in the book on Bretton Woods because ultimately, what happened to Bretton Woods is everybody came to New Hampshire and they said, “Can we make a better system?” The Americans said, “No, we kind of like the one we’re about to have. We enjoy being in charge. This is how we’re going to do things.” After the war, there are a couple of challenges. 60% of global gold, 60% or 70%, is in America. It’s in Fort Knox already.

This is the story told by Eric Helleiner at Cornell that you actually have a lot of capital flight from Europe, even after the war, into America. That’s being turned into American domestic bank deposits. His argument about the Marshall Plan is that, yes, it was generous, yes, it was helping out Europeans, but it was also trying to deal with this flow of capital coming in through New York that America refused to stop. In return, we could provide investment capital for the Europeans through the Marshall Plan. What starts to happen within a decade is the victory of practice over theory.

As the German and French and English economies become more productive and they start to sell things back to the Americans, what we would expect to happen is they get paid by a transfer of an American bank deposit, so now the foreign company, the German company, is holding deposits in an American bank. That should have ignited a long process through which they sell that to the Bundesbank, and then the Bundesbank then goes to the Treasury of the United States and demands gold. Didn’t happen. People were confused at the time that it wasn’t happening.

You can see this record at the time of the Fed sending Fried Klopstock, who was in the International Payments Division—I’m not sure exactly what it was called, but that was his specialty—and going over to the city of London and coming back and saying, “You guys are not going to believe what they’re doing over there. What’s actually happening is London bankers are buying access to deposits in American banks from German companies and they’re just sitting on it. They’re trading these claims back and forth.”

You’ve got even initially some oil producers in the ’50s and early ’60s. Everybody’s in this market, and they’re just trading these claims on American dollars. The Fed and the Treasury, not quite sure what to do with it, but they decide that it’s nice that those claims are over there because if they come home, they’re going to knock on the front door at Fort Knox, and they’re going to ask for gold. Now, they do start to come home, but not nearly as much of them as we would have predicted.

Paul Einzig was a journalist at the time in the city of London for the Financial Times, and he’s trying to figure out what’s going on. We had to figure this out. This was not designed. He starts talking to bankers he knows in the city, and they say, “Please don’t tell anyone what we’re doing. We don’t want anyone to figure this out.” Eventually, the question is raised with the Bank of England, are we okay with this? And they decide, well, it seems to be good for the city of London. It’s probably good for the United Kingdom as well. Catherine Schenk has done a lot of incredible work looking at the beginnings of this.

What you get, then, is the next two steps are the development of new financial instruments of dollars abroad. So you get loans, euro bonds, you get bond floats where people are taking all of these claims on American deposits and then giving them to somebody else in return for a bond. Now you have a bond market denominated in dollars abroad. Then something crazy happens. Again, we go back to Milton Friedman. He writes in the late ’60s, early ’70s, this paper that says, look, there are too many deposits or there’s too many dollars abroad.

There are too many offshore dollars. At this point, they’ve become to be known as eurodollars. There are too many offshore dollars for them to just be claims on American deposit dollars. There has to be new money creation. It turns out that’s exactly what’s going on. A secret memo by the BIS around the same time agrees. What they’re looking at is banks in London are marking up their own balance sheets in dollars, brand new dollars created offshore. No permission from the Fed, no permission from the Treasury, no oversight from the FDIC, no oversight from the comptroller or a state bank examiner. They’re just doing it.

I think this is the beauty of the offshore dollar system. We didn’t push it out. People just started doing it. We noticed it. We decided it was good for us, and we decided to allow it to continue to happen. Germany, France, Japan, they put the lid on offshore trading in marks and yen. It’s really the Americans that say, “You know what? We’re good with this.” It’s the British that say, “You know what? We’re pretty good at doing this too.” This system comes into being without anyone having planned it. Again, that to me doesn’t feel like sovereignty. That doesn’t feel like the United States saying, and now there shall be eurodollars. That feels like the United States going, all right, we’ll carry on.

Beckworth: Yes, and later the US is able to use that for financial statecraft, able to use it to more seigniorage, sell bonds abroad. In the long run, it serves the US government, at least, its interests as well, even if it’s organically growing overseas. I want to bring this up because the fascinating story that you’ve just told that’s in your book is that the dollar’s global reach is an organic story. It grows, there’s fits, there’s pauses, there’s surges, there’s discovery, what works best, what banking, notes, eurodollars. You’re painting a very market-driven story.

Greeley: I am.

Beckworth: I want to cite someone who I think reflects what you’re saying. Maybe you’ve mentioned him in your book, but Karl Menger.

Greeley: Yes.

Beckworth: He’s, I think, an early Austrian economist. He said, “Look, what becomes money is the asset that becomes the most sellable, that’s the most demanded.” His story’s a little bit narrower, but I think you take his story and add in some institutional developments, some luck, some random developments, and you have this organic demand for dollars grow. It doesn’t need any direction. It’s just what the people want, with a little luck and randomness thrown in as well.

Greeley: I would say, as the Germans say, jein. Yes, absolutely, I do think it’s much more organic than the traditional story that we’ve told. I think there are two ways in which I don’t see that history when we look at the—

Beckworth: The Karl Menger version?

Greeley: Yes. One is, he eventually decides, well, gold is money.

Beckworth: Oh, Menger?

Greeley: Yes. Then we have this process where gold is the basic asset. Everything else gets built on top of that. I think around the same time or a little later, early 20th century, you have someone named A. Mitchell Innes, who’s a British foreign officer, who starts writing about the banking system. He points out that what you really see is credit everywhere as money, private credit. There’s this fight now. Still, commodity theorists say money was metal. We got away from it. We should anchor money in metal.

There’s a different tradition that’s preferred usually by historians, often anthropologists as well, that say, we now call the Chartalist tradition, that says money came from the state, spends it into an existence, and then tax it back out of existence. I don’t find that argument very fruitful. I don’t find that either of them really describes how things work. When I look back at it—I spent a lot of time really looking at promissory notes and ledgers, actually looking at historical documents of how people manage money—what I see is lots and lots of private acts of credit.

On the edges of those private acts of credit are coins. We cannot pretend that coins didn’t exist. They existed. People took them very seriously. But they aren’t the basis of value for the money. They serve a really important function for clearing. The basis for value of the money is whatever the underlying asset is. If it’s a discount for a merchant, it’s bales of cotton sitting on the docks in New Orleans. If it is an agricultural loan, it’s the land and the future production of that farmer. We’re taking these assets and turning them into liquid deposits.

The coin is very important. It sits on the edge of that, but it doesn’t sit underneath that. I think in the Menger tradition, what you have is gold is at the bottom. Then, when we took gold away, how did everything levitate? The historical tradition that makes sense to me is we always had gold on the edge, or some kind of coin on the edge as a clearing mechanism, but as we figure out slowly how to catch up with all these private acts of credit and keep them from blowing up.

Again, this long process of bank reporting, controllers of the currency, the FDIC, we’re figuring out how do we take all these assets that have been made liquid and make sure they don’t blow up so we don’t need this moment of clearing. How do we make them reliable? I think the state is frantically chasing behind private acts of credit and then regulating them after every crisis to make sure that they don’t blow up again. Then you get a new private form of money, and you start to chase after that one as well.

This is what Morgan Ricks calls the “money problem.” Every time you think you’ve locked down money, somebody goes and creates new money somewhere. You got to chase after that and make sure that it doesn’t blow up as well. I don’t think that’s really in the Menger tradition either. I think that really comes back to Mitchell Innes who really said it starts with private acts of credit. That’s not the Chartalist tradition. That’s not saying we spend money into existence and then tax it back out. That’s saying credit’s happening everywhere.

This is my frustration with Bitcoin. You cannot stop credit. People want to make loans to each other. No matter what asset, let’s say it’s Bitcoin for the sake of argument, no matter what’s going on, there’s still a credit system sitting on top of that. You cannot kill credit with a stake to the heart. Once you’ve got credit sitting on top of the base asset, now you need a banking system. You need banking regulation. You need the FDIC. You need something that looks a lot like what we have.

Beckworth: Maybe I have not read Menger thoroughly. I understood Menger to be emphasizing network effects and the most popular asset, which could be simply the dollar, not necessarily gold or a coin.

Greeley: Yes, absolutely. I think that the thing that’s most valuable that comes out of Menger is usefulness. Money’s got to be useful. I think there are lots of examples where the state tries to say, “This is what money will be,” and people say, “No, it needs to be useful to us.”

Beckworth: “We want the dollar.”

Greeley: I think that part of it’s valuable. I think there’s another part of this story that gets missed in Menger, which is that money isn’t fungible. I think we’re taught right now—again, this comes out of the macro classes that we all took when we were an undergrad—that money is fungible. You push it in the system somewhere else, and it goes everywhere else it’s needed. I think that there’s this distinction between big and little money that starts with coins and still exists today. I think that there’s the famous big problem with petty coins.

The big problem with petty coins was essentially that big coins are cheaper to produce. High-value coins are cheaper to produce per unit of value than little coins. All things being equal, private mints, which most mints were private, would prefer to produce the big coins. I think that’s the same in banking. Per unit of value, it’s much cheaper to handle the back office cost of a few big loans than a lot of little loans. We see that problem again and again and again. Big transfers are cheap. Small transfers are very expensive.

Easier to get banks to focus on big loans than it is to get them to focus on a lot of little loans, precisely because it’s really expensive. Back office costs of small community banks are much higher. We know this to be true. The brassage problem—the brassage is the cost of production—never went away.

Beckworth: That’s a great point. The moneyness of assets definitely varies based on the asset. I’ll just briefly mention, and I’ll give you my last question after that. There are attempts to measure moneyness across the spectrum of assets. Those divisia monetary aggregates, they look at everything from currency to Treasury bills and bonds. They aggregate based on liquidity. I think it’s an attempt to get at this idea that not everything has the same amount of liquidity—

Greeley: True.

Beckworth: —but can be used at different levels of money. Last question to maybe put a bow on top of this amazing conversation, and to tie it; the next phase of the dollar: stablecoins. What do you see happening going forward? Do you see it as just a phenomenon that will develop overseas, more substitutes, maybe for physical cash, or do you see something more serious, a more serious contender in the domestic US?

Future of the Dollar

Greeley: I don’t think that stablecoins are anything near the scale of eurodollars. I think we start with eurodollars. We think that this eurodollar system that we talked about never went away. In fact, it was strengthened because, as we know, the Fed offers swap lines to guarantee in a crisis. The Fed does not play favorites. If you’re a reasonable, dependable central bank, in a crisis, the Fed will offer a swap. There’s the list. The list grows in a crisis of central banks that get the swap.

They offer temporary liquidity to the commercial banks in their own countries that have marked up their balance sheets with dollars. This system is growing. When we look at reserve currencies, we’ve seen this track this decline in the dollars as a  reserve currency. When we look at BIS data for eurodollars, that’s growing. The scale of a eurodollar is there are 14 trillion of them, according to estimates. If I try to do apples to apples and look at M1 in the United States, we end up with 19 trillion.

We’re on the same scale as domestically produced dollars. This is, again, apples to apples. There are ways in which you could think of Treasuries as performing the same function that you have to add in the Treasury market as well. I think we can’t pretend the eurodollar system is going to suddenly disappear. People use it for a reason. It works. It’s convenient. Yes, I see on the edges the utility of a stablecoin. I do wish that we’d treated stablecoin providers with the same seriousness that we treat banks.

I think the GENIUS Act basically took us back to the regulatory state that we had in the 19th century, regulation at the state level, the individual states, and no mandatory deposit insurance. Now, you can argue that’s not a deposit, but, man, in a crisis, people hold what they think is a dollar, and they demand that the government make them whole. I worry that there’s going to be a race to the bottom for stablecoin regulation. It looks like Wyoming is taking it seriously, but we don’t know what’s going to happen. We don’t know what states are going to do.

We don’t know that states are going to be that aggressively poking into the balance sheets of the stablecoin providers. A lot of the stablecoins are offshore. I feel like one of the things that we’re doing with stablecoins is that we’re taking something that is, I’m sorry, a bank, and we’re saying, no, you’re a special bank. I feel like a lot of bank regulation is a new entity going, “We’re not a bank, we’re a shmank, so you can’t regulate us like a bank,” and then it blows up, and everybody’s like, “Oh, it was a bank the whole time.” Then they get regulated like a bank.

I think we’re starting that process with stablecoins. I think we’re going to have a moment when the light-touch regulation that we have now with stablecoins under the GENIUS Act and offshore, almost not at all, they’re going to blow up, and then people are going to say, but I was holding this thing, and I was told it was a dollar. Then somebody in the United States, likely the Fed, with a combination of backing by Congress, is going to be on the hook for figuring out how do we buy all these assets and make everybody whole, the same way that we had to do in 1932, the same way we had to do in 2008.

I think that’s coming. I worry that by pretending that a stablecoin is something profoundly different, we reintroduce all of the problems that we have identified through several iterations of crisis and regulatory response.

Beckworth: I’m a little more optimistic on stablecoins. 

Greeley: I know you are. I feel bad now.

Beckworth: No, that’s fine. Let’s play it out. Let’s say your story does unfold, though, it’s a possibility, and the Fed does step in—in fact, that’s been one of my arguments. I think the Fed will step in, too, so I agree with you completely on that point. Doesn’t that suggest, though, that the dollar just grows stronger? For the same reason the eurodollar market’s growing stronger, if the Fed backstops stablecoins, the dollar’s footprint has just expanded even more because investors now know this is effectively a dollar is a dollar.

Greeley: Yes, absolutely.

Beckworth: This story continues to grow.

Greeley: I’d like to do it without a crisis.

Beckworth: Hear-hear. I’m with you. With that, our time is up. Our guest today has been Brendan Greely. His book is The Almighty Dollar. 500 Years of the World’s Most Powerful Money. Be sure to get your copy. Where can folks find you?

Greeley: Oh, where can folks find me? Oh, gosh, I should have a website, and I don’t.

Beckworth: You’re on X?

Greeley: Yes, I’m on X, @bhgreely, Bluesky, @BHGreely, LinkedIn. It turns out what people have been doing is they’ve been searching for my name and finding my profile at Princeton. I get a lot of emails now with my Princeton email address. I’m the worst author ever. I need a website, and I failed you there. Thank you for offering me the chance to do that. Look, here’s what I’m begging you to do: Just email me and buy the book.

Beckworth: Buy the book. All right. Thanks, Brendan.

Greeley: Thank you.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth, and follow the show @Macro_Musings.