Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies
by Nik Bhatia
In "Layered Money," Nik Bhatia explores the evolution of currency through the lens of layered money systems, highlighting the transition from traditional forms such as gold and cash to modern digital currencies, including Bitcoin and Central Bank Digital Currencies (CBDCs). A central theme is the attraction of central banks to CBDCs, which enable direct distribution of second-layer money to individuals, effectively bypassing traditional banking systems. This approach offers a potential mechanism for monetary stimulus, as illustrated by the concept of "helicopter money," where central banks can inject liquidity directly into the economy. Bhatia also critiques the historical tendency of governments to overproduce currency, leading to the failure of various monetary systems. He underscores the absurdity of gold mining as a means of currency and posits that the evolution of money reflects deeper human intuitions about value and trust. The book ultimately argues that as financial systems advance, the need for more efficient and accessible forms of currency becomes paramount, particularly in an era of increasing economic complexity and digitalization. Bhatia's analysis serves as a call to understand and adapt to the shifting landscape of money, emphasizing the necessity for transparency and accountability in currency creation.
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Key Insights & Memorable Quotes
Below are the most popular and impactful highlights and quotes from Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies:
What is the attraction of central bankers to issuing their own digital currencies? The answer lies in wider access to second-layer money. Recall that the Federal Reserve issues two types of money, wholesale reserves for private sector banks and retail cash for people. In order to provide monetary stimulus, the Fed issues reserves and hopes that private sector banks will use those reserves to circulate third-layer deposits into the economy by lending money. With a CBDC, the Fed could issue second-layer money directly to people in the form of digital helicopter money; the phrase “helicopter money” comes from Milton Friedman, who in 1969 provided the imagery of dropping cash out of a helicopter in order to stimulate economic demand.
Throughout the ages, currencies have ceased to exist because of one rudimentary fact: governments are unable to resist the temptation to create free money for themselves.
Nobody could have ever conceived of a more absurd waste of human resources than to dig gold in distant corners of the Earth for the sole purpose of transporting it and reburying it immediately afterward in other deep holes, especially excavated to receive it and heavily guarded to protect it. The history of human intuitions, however, has a logic of its own.
