Layered Money

This book explores the evolution and functioning of money throughout history and around the globe. Author writes about the concept of layered money, which refers to the different forms and levels of money that exist in modern economies. Basically, this provides an intuitive model view of the history, evolution, current state and future of money. As we know gold has been used for thousands of years but civilization found it hard to divide and carry around so they created various layers of money like IOUs issued by the banks with gold on deposit.

The book starts from the origins of money and how it evolved from barter systems to the use of precious metals like gold and silver as a medium of exchange. Then starts the development of fiat money, where the value is not backed by a physical commodity but is based on trust in the issuing authority which is basically bank of certain jurisdiction.

Human civilization has been using various monetary instruments and systems that coexist in the modern financial landscape. For centuries, humans have been building increasingly complex monetary system. These layers of gold, silver, money, includes cash, bank deposits, government debt, and even emerging forms of digital currencies like Bitcoin.

There are hidden risks and potential solutions in the monetary systems of the past, present and future. There has been countless economic collapses and each collapse led to an expansion in the reach and power of the central bank. Specially, Federal Reserve Bank of US has been the most powerful entity on planet in less than 100 years. If you like to read about the history of Federal Reserve Bank, I recommend the book “The Creature from Jekyll Island” by G Edward Griffin

The Central Bank plays the role in employing monetary policy, regulate and stabilize the economy. Author talks about the mechanics of central banking, fractional reserve banking, and the creation of money through lending and credit by providing historical context and examples. It is important to understand the layers of money and their interplay in shaping economic outcomes. He dives into the way how money is created, valued and finally exchanged in the modern world. There are obviously many vulnerabilities in current monetary system which is why there are economic collapse every decade.

Thinking about the modern finance and its implications for individuals, businesses and the global economy, Bitcoin can be the new base layer of monetary system like gold. It has the potential solutions to the limitations of current financial system. Using gold as an example, layers of this ancient currency can be listed from raw mined material, to gold coins, and finally to bank-issued gold certificates. In a similar manner, there can be the layers of digital currency. As central banks around the world is preparing to launch their own Central Bank Digital Currencies, the invention of Bitcoin has created a seismic shift in money and merged the monetary and cryptography technology. Bitcoin is becoming the most trusted global currency being the most decentralized and trust-less system. Central Banks around the world is attracted to this idea so they are creating their own CBDC but Bitcoin will probably remain as the base layer like gold was for thousands of year. How CBDC interact with this new monetary base layer is the question for the future not so far.

In the current monetary system, people rush to climb the pyramid of money as holders of lower-layer money to secure a higher-layer form of money. Bitcoin layer will be the new monetary base layer where there is no need to trust the centralized issuer or creator of base layer money. Current system has the government in the pivotal position between the first and second layer money which monopolize the issuance of second-layer money by eliminating the public access to the first-layer money.

The money we use today is inherently hierarchical, and Bitcoin may provide the antifragile solution to the problem current monetary system has. With the new Bitcoin base layer money, our birthplace does not matter, only thing that matters is our preference.

If you want to read more about Bitcoin, here is my previous blog on The Bitcoin Standard

Hope you enjoyed this and see you on next one.

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