Best Of: Lyn Alden Talks Bitcoin and Explains Why Money is Falling Behind the Times

The forces shaping markets and the economy are often hiding behind a blur of numbers. So that's why we created The Big Take from Bloomberg Podcasts, to give you the context you need to make sense of it all. Every day, in just 15 minutes, we dive into one global business story that matters. You'll hear from Bloomberg journalists like Matt Levine. A lot of this meme stock stuff is, I think, embarrassing to the SEC. Follow The Big Take Podcast on the iHeartRadio app, Apple Podcasts, or wherever you listen.

Bloomberg Audio Studios.

This week we're bringing you our conversation with Lynn Alden, author of Broken Money, why our financial system is failing us and how we can make it better. We picked this episode because I get a lot of tweets from people suggesting I speak with Lynn and I have already spoken with Lynn. So if you haven't heard this one, listen in because it's a great conversation on my money is falling behind the times and what real Bitcoin has to play in the future.

So this week, we've had, or were, should we say, were. This week we've had results out from St. James' place, and boy, they'd be in a shocker. I'm sure you've seen them. Everything is lower. Cash profits are slightly lower anyway, but that's entirely overshadowed by the provisions. They've taken a provision of £426 million, which they say is linked to evidencing and delivery of client servicing.

I.e. they can't prove that they have been providing clients with the advice that they should have been going on, the ongoing service they should have been getting, and they may have to pay an awful lot of them back. It's absolutely huge. The share price fell. We're talking, by the way, everybody on Thursday, the 28th. The share price fell around 30% first thing this morning. It's back up a little bit now, but it is still down over one year, 62%, and that is a direct result of the regulatory authority starting to look at

what represents value in the financial services industry. So a lot of people get a little bit of money. It's a bit like the cars where everyone didn't get quite what they're expecting from their interest rates and may not get a pile of money back. But do you know what I want to talk about when it comes to St. James' place? It's not so much the advice that people weren't getting, thought they might be getting, didn't know they were paying for or whatever it was. It's ESG, because I like to bring a lot of stuff back to ESG. Now,

Yeah. I have had a look at St James Place ESG risk ratings.

And here we are on sustainability and the ESG rating for St James places, 18.6. And that is considered to be low risk. So if we look, you can be negligible on zero to 10 and the medium 20 to 30, high 30 to 40 and severe 40. Now, if you were an investor, fund manager who invested within ESG overlay,

And you helped in James's place, which I think some do. Would you have fulfilled your brief, even though the company has technically rated low risk for ESG purposes? I would say, and I'd like to hear your view on this, that for S and G purposes, this was a very high risk stock to hold.

I mean, I think you're absolutely right. I think that anyone who read the papers, I saw the financial bits of the papers, including no very, very mainstream high profile newspapers, the Sunday Times did a lot of good work on this from what I remember. They would have realised that it was at the very least

some controversy around St James's place and the fees that it was charging and exactly how that fitted in with the FCA's overall view of how customers should be treated. And that's been seen in the most diplomatic way possible. So yeah, I think if they'd actually been doing another than box ticking, then they should have realized that. I do think it also points to the fact that

group in ES and G. It's kind of a mesh mesh of complete bollocks. I'm not allowed to say that. As far as I can see, the E is the bet that gets all the

attention, that's what people think of. So it's like, if it's a wind turbine crater, then yes, I'm going to buy that because it's E and they don't really think about the S or the G and if it's an oil major, they're not going to buy it because they're just thinking about E, but they don't actually think, actually, this is a well drawn oil major. And that's before we even talk about how we meant to do fossil fuels, et cetera, et cetera. So yeah, I think it's more just, it just points to that it was always a

You know, I'm marking two at best and a weird kind of metastasization, all of the stupid ideas that have come out during the 0% interest rate. It seems to me that if you look at the G, that should be the only one that really matters because if the G is good, the rest will follow, right? A well-managed company will obviously have an eye to an S and an eye to an E to environmental and social issues.

But the G is the core thing. And you could say, and we'll look more closely at this in James' place over the next couple of days, but you could say that it's the G that has fallen down here. I've just looked up when they announced their new fee structure, because everything changed again under regulatory pressure. The end of last year's in James' place introduced a new fee structure. And if you look at what the CEO said at the time, given our confidence in making this changing, there is also no change to our ongoing dividend guidance, which continues to be based on blah, blah, blah.

But what we found out today was that the dividend has been slashed fairly significantly. So there's a G issue there, and that seems to be the one that we should be looking at going forward. Anyway, that gave me an excuse to rant about ESG briefly, but we'll move on from that. Just to say, this is complicated. Look at it more carefully than you ever might have thought that you needed to.

Now, the next thing that's coming up is the budget quite soon. There's a lot of G issues going on there, right? We can't tell you exactly. Where's the G?

Anyway, so inadequate G coming up next week, definitely. We can't tell you what's going to happen, but we can tell you in advance to make absolutely sure that you have done everything you can to use all your tax allowances. Might as well use that ice rub now. Might as well put what you can into your seminar. You just never know, right? Do you want anything else we should be doing in advance?

Well, it's a set. If you're on the marginal income tax rates, obviously, look at things like salary and sacrifice. If you have got a lower end in spouse, or your spouse is the higher end in one, make sure your assets are distributed in a sensible tax efficient way. I don't see anything wrong with that.

VCTs and the ISs are obviously options if you really have an awful lot of money and you've used up your sipper loans and your ISA loans. But I think the other thing is, and I mean, I think it almost feels that it should be redundant to say this by now because this has been the case for at least 10 years now. But if you have your money and anything that even smells faintly like a tax,

dodge vehicle then you shouldn't have because nowadays it's all about the spirit of the law rather than the latter of the law. So if the HMRC comes across a scheme that says that it's a bit of void in tax but they didn't intend it to be allowed to avoid tax then you're going to carry the can for that at some point and they are pretty aggressive at pursuing this. So don't be invested in anything dodgy basically just use the government approved

tax efficient vehicles as best you can and then crush your fingers because the tax button is going to be high for a long time, probably. Yeah, it's interesting in there John, and I was looking for a new accountant about five, six years ago for various reasons and I went around a couple of accountants.

um, you know, just think who would suit, et cetera. And there seemed to be an incredibly easy way to decide which accountant not to use, because several of them suggested to me various tax avoidance schemes, which turned out, of course, in the end to be clustered evasion schemes to do with me. Films being the obvious, et cetera. And it turned out the very, very, very easy way to check which accountant you want to use. And anyone who offers you that stuff is not the accountant you want to use. They're fascinating.

It's interesting. I mean, I do think something sort of felt at the time. I think it's not ideal that we have sort of moved to a situation where it's all about the intent of the law rather than the letter of the law because I think that that's a blanket for lots of bad governance and also

I mean, I do wonder how much that's kind of influenced the way that a lot of politicians seem to want to now just see things and make it so. And that whole virtue signal and idea where you think you've passed a law and therefore you have dealt with a problem.

as opposed to having to think about what the consequences of the law might be. So I do wonder how much of that is down there. The spirit of the law rather than the light of the law kind of thing. But you just have to live with it, unfortunately. You have to operate in the world as it is. That's interesting how often we have to remind people of that, isn't it? It's quite striking.

Welcome to Marin Talks Money, the podcast in which people who know the markets explain the markets. I'm Marin some set web. This week I speak with Lynn Alden, the author of Broken Money where our financial system is failing us and how we can make it better. This book came highly recommended, lots of other people have read it and told me I should too. I have no and I have now and I have to say it's a tremendous guide to the history of money and where we are now with the modern money system.

Lynn, thank you so much for joining us today. Happily be here. Thank you for having me. It's interesting. You put money in the context of ledger systems. So in the very beginning, people, you saw us talk about just barter and trading shelves, et cetera, et cetera. But you take a slightly different approach to the beginnings of money. So I wonder if you could just talk to us a little bit about that. Sure. And so in kind of historical economic literature, there's really two camps for what money is at its foundation. And so the most common one that people hear about is that

before money, people had to use barter. So they had to trade different things. And then eventually they realized that if they all agree on a shared unit of account, that it can make trade way easier. And this tend to be an emergent phenomenon that happens in societies over the place. They choose different types of money based on their technological development, based on what's available to them. But those monies tend to have certain attributes and certain technical changes tend to obsolete certain types of money. And it tends to be like an iterative process. So if you choose the wrong type of money,

Someone else can basically exploit your wrong choices until the society settles on the right mind. It's basically the good that you'd like to hold. It's liquid. It's portable. That's long lasting and that you can basically always have a high likelihood that you can trade it for something else. That's not the one camp of money. The other one less from the economic side and more from the anthropology side, which is to point out that not a lot of barter is found even in hunter-gatherer societies or in kind of history as we know it.

The barter tends to be a pretty rare state. And instead they point out that societies tend to sidestep the need for barter before it even arises. It's basically such a basic problem that even predating commodity money, usually they use credit to try to reduce the number of times they actually have to make a physical transaction. They say, instead of trying to trade spears for furs and trying to figure out exactly what you need and what I need, instead I can just give you what you need because I happen to have a surplus of many things at the moment.

And that's based on the premise that at a later time, and I might be deficient on something, you owe me whatever I needed at that time. And so credit is an early tool along with commodity money to mitigate that. And I think that the two ways to summarize that are if you're trying to avoid the double quintence of wants, basically the challenging thing of having a surplus or something that someone else has a deficiency in and having a deficiency in something that someone else has a surplus in and therefore being able to make a trade, the two ways to make that easier are either

a shared unit of account that we can use for one side of every transaction that's basically commodity money or that we can delay that over time by making it so that our double coincidence of wants doesn't have to be for the same thing at the same time that as long as

There's a period where you need something and there's a later period riding something that can be extended and therefore have a higher probability of success. Those are the two paths of where money has originated. Yeah. And you use a wonderful example of the very early part of the book with Godfather to explain about this kind of social credit use of money. Yeah, that was a key example because Vito in the movie has most things that he needs. And so when people come to him, he doesn't really need anything from them. He doesn't want a little bit of money from them. He doesn't want anything they really have at the time.

But instead of what he does, it says, I'll do this favor for you now because he's in the position where he has a surplus of many things, many resources. And in their shadow economy, he's got a lot of resources to deploy. And what he asks for in favor is an unspecified favor to future time. So he's basically saying, there's absolutely nothing I really want from you right now, but I perceive that there's a chance in the future that I will. And so that's basically a way of him granting them something even though he doesn't get anything from them.

because he employs the usage of credit. Okay, interesting. Now, one of the other examples that you use is one of my favorite examples in this island in the South Pacific. Yeah, they've always historically used these very big round stones with a hole in the middle, which they called rice stones as money, right? And this has been very interesting to everyone who's been interested in Bitcoin since the very beginning because it really did operate as what we now think of as a proper ledger system, right?

Yeah. And that's a useful example because it so in the book, for example, when I talk about those two types of money that I talked about, either credit or commodity money, the thing that they really have in common is basically people are deciding on what ledger they're going to use. What is the unit of account and what is the record system that they're going to rely on? And so if you're using commodity money, you're basically using nature as your tool for saying, okay, here's the number of units that exist at a given time. Here's and then those units are updated by physical possession.

Whereas if you're relying on credit or similar systems, you're relying on human administers of that ledger, either orally or in writing. And the Yapstones are interesting because they were an early combination of both. They kind of get to the root of money being a ledger itself. And so that's an instance where a unique set of circumstances gave them a particularly unique type of money. So most commodity monies and early times were things like grains and shells and cocoa. And they tend to have these kind of common attributes, whereas the Yapstones, the Rhystones,

were quite different. So they were on a small island and there's another island 250 miles away or so. And on that other island, they had very attractive limestone. And so they did not have it on their own island. And so they would go on fairly simple boats and they would go across this kind of treacherous water. They'd go mine the limestone, bring it back, carve it into big circles. And

They'd have different sizes. Some of them could be moved, and some of them were so big that they could never realistically be moved again. And they had all these stones, these limestone, now on their own island. And when they transacted with each other for major things, they would just orally say, this stone now belongs to this person. So the big stones themselves don't move. And instead, it's just basically the island has a mental and oral ledger.

of who owns all the stones, but then it is backed up by the physical properties of the stones themselves. It's very hard to add new stones to the system. It takes a lot of work to do it. It's very dependent on the time and place. So for example, the fact that it's a small island makes oral transmission of the ledger possible. And two, the technological error that they existed in made it so that the stones were very hard to acquire. And that was eventually broken by the fact that

As people from industrial societies came to the island, saw how to exploit the system, they would use their advanced technologies to more rapidly increase the number of those stones on the island, or otherwise use force to coerce them through their appreciation of the stones to do things. But in that era, that served as a particularly unique type of money.

But both parts are interesting, aren't they? First, when the money system was working well, and then secondly, when it was effectively destroyed by people with better technology, bringing in more stones and hence too much flow destroying the whole thing. So both parts are kind of interesting in the context of looking at how money works today. Yeah. And it also shows that even dying money systems can have a second wind or a way to try to fight back. So for example, when the stone system started being disrupted by those with more industrial technology,

the people that use that money system would say, well, older stones are more valuable now because they are provably prior to this technology. And so all these newer stones, they're kind of like modern art. We're not going to treat them the same way. Whereas like these older stones are like da Vinci paintings, right? They're not able to be reproduced even with better technology because we're now adding age as a factor. And so there still were attempts to make that system go longer.

And it just of course, over the long arc of time, it became more of a relic of the past.

What could you do if your data was working for you, and not against you? With Bloomberg delivering enterprise data directly to your systems, you get easy access to the details you want, optimized for higher-level analysis, and financial data experts committed to helping you maximize your every move. Our data is made for more, so you can show the world what you're made of. Visit Bloomberg.com slash Enterprise Data to learn more.

Now, I'm slightly wondering how to approach the rest of the history of money before we get to today, because there's so much going on here from money being connected to commodities right through to the beginning of fractional banking, et cetera. What do you think are the key points on the journey from effectively yap to here? I think the main thing is that as different monies came together, as all these societies met each other,

there is an iterative process where the, the weaker monies increasingly got sorted out, like the, the stones we just talked about and other types of monies until basically the ones that kind of were left standing given all of humanity's share technology was gold and silver because they were resistant to the basement even with better technology and they had better properties of money in the, in the more universal sense. And each society had their own monies based on what was available, what was technologically suitable.

But then as time progressed, as societies met each other, there were objectively better answers than other answers for what constitutes good money. And as those came together, the more suitable money would win out until the whole world found itself on a shared standard.

Okay, so then we end up with gold and silver effectively being a global money system. And what was the next big step after that? The next big step after that was so that was, you know, thousands of years of kind of finding out what is the best physical money. But the other big step was how do you move money around? So even those top money still had limitations for verification, a physical transfer to visibility limitations in some cases. And so the other kind of technical path was different

proto banking and full service banking arrangements that people and cultures would develop on top of those money systems so that they could move the ownership of the money more like more easily and faster and cheaper. They didn't have to move the physical money itself. An early example in the book that I use is the Hawala system, which is prevalent even before Italian city state banking basically throughout North Africa, the Middle East and stretching into India basically along the Silk Road path. There would be these money changers called Hawaladars.

And if you wanted to transport gold from one city to another city, for example, the expensive way is to physically transport it, which you might do if you have a sufficient amount and you're highly secure, you might want to do that. But if you're doing that on a regular basis, a service that was provided was that you could deposit gold with your local whole wallet arm. They would give you a receipt for that gold. And then you or your messenger could transfer that receipt to another city.

And in that city, that hawaledar has a contact with another hawaledar and you would redeem the gold from that other hawaledar. And those hawaledars between those cities would do multiple of these transactions in a given month or a given year and they would net out. So maybe every six months or every 12 months, they would actually do a physical settlement to sort that out, but they're able to do multiple transactions between them just by transferring kind of the knowledge that was made.

And so we can think of that as a series of analog encryptions because when they invented paper, it was improvement over papyrus. When they invented book binding, that was an improvement over scrolls. When they invented the printing press, that was an improvement over handwriting. They had to have analog encryption techniques to make it so that people could not just forge different types of receipts or copy different types of receipts that are redeemable for gold for obvious reasons relating to fraud. And so

On top of all that kind of global contest to see what types of monies are most suitable, there's also this kind of global growth in terms of all these different methods to more efficiently transfer the ownership of those underlying, especially gold and silver, but really any sort of physical object. Okay, so now we're moving towards papers as bearer assets and we're moving towards the possibility of fractional banking, right? Yeah, because basically any sort of

Money change or any sort of monetary entity would realize that a lot of people would deposit their gold. They'd have these paper receipts for gold and they would find that way more convenient than holding the gold themselves. And so they would realize that most people do not redeem their gold all at once. Any given time, there's a small percentage that might be being redeemed or being deposited, but that they have a common float there. And so the temptation there is, okay, we can lend some of it out.

earn interest and therefore reduce the fees that you charge your depositors. Maybe even give them a share of interest, which allows you to outcompete other custodian type entities. That works for a period of time, but at least some systemic issues. If you do get a bigger than normal attempt to withdraw the gold and your assets are denominated partially in gold and partially in these less liquid loans and other assets, other types of collateral, then you could fail to meet that.

And so they started to introduce basically systemic instability into some of these arrangements because the way I put it in the book is there was an increasing speed gap between transactions and settlements. So over time, as all these different layers on top of gold and silver became more and more efficient, it allowed those number of claims to grow compared to how much underlying metal there was until it became systemic. And a big technology I focus on, which

people don't really think of the telegraph as a monetary technology, but it was arguably one of the biggest technologies for how we use money and how banking works because prior to the telegraph, anytime we transferred information, you still had to get there. You had to physically move people, ships and horses and all that to get the information to another city. Whereas in the 1860s, once we had the telegraph over continents and across notions, you could update each other's ledgers at the speed of light.

And you had a huge gap between all these kind of banking arrangements and the physical gold. And you had a very kind of elaborate, hierarchical system of multiple claims for every unit of underlying. Sounds like the beginning of the end. That's how it ended up going. Basically, one of my favorite sources in the book is in 1875, William Stanley Jevons wrote a book called the Money in the Mechanism of Exchange. And I cited that in the book.

And it's a fascinating read because it's 150 years ago. And he's describing how the monetary system works and how technologies are making their monetary system more efficient. And he's very prescient because he's on one hand, he's saying, look how efficient we've become. Every friction we encounter, we just centralize it. So, you know, basically all global trade can just go through London now and everything can net out and gold rarely ever has to ever move. And it's hyper efficient.

And this is great. The other hand is we have to remember that all of these claims are redeemable for gold, and the system's now levered 20 to 1. And so if 5% of people show up and want their gold back, the system is illiquid and not solvent, not able to make those claims. And so it's like we, he's bouncing these kind of observations around efficiency and stability. And of course, we know from history that a few decades later in World War I that

whole leverage system unraveled and we had to go through major transformations of what we use as money because that that increasing kind of leverage that increasing speed gap really changed how humans interact with money.

Well, you have them. I'm glad we've made it to World War One. We've skipped hundreds of years. We've done brilliantly. And in the middle of the book, there's a really terrifying chart of the buying power of 100 pounds over time, 1750 to 2023. And by the way, it's telling us it is the oldest existing currency in the world, doesn't it? I mean, it's been going for so many hundreds of years. It's really quite impressive. Obviously, it's lost the majority of value over that time. But nonetheless, it is the oldest consistent currency.

Yeah, it's the oldest consistent currency that's still alive today. And it's interesting because for centuries, it had a very slow to basement rate. It was an average of something like 0.15% per year. There were these occasional mild devaluations. It used to be a pound of silver. Now it's a couple grams of silver, but over like the first six, seven plus centuries is a very kind of steady, slow to basement rate. But once World War I happened, and once kind of this huge gap opened up between

efficiency of trading all these claims around and being able to fraction reserve everything. You started to get this rapid deterioration in the pound sterling compared to the underlying precious metals and for perching power in general. And one of the observations I make in the book is that that opened up a kind of a problematic incentive structure because the basement has been something that has existed for thousands of years. I mean, going back to Roman times and prior coinage has always been debased to varying degrees.

But the modern system allowed that the basement to happen practically overnight instead of over years and decades. And so basically with a stroke of a pen, when entity, a government can now print a lot of money and then break all the pegs based all the money. And then as in the years that follow, as the inflation follows, then they go back and try to address what happened. And so it just, it, what would normally take many years and a long period of time can be compressed into it.

really with a stroke of a pen. And that's the modern era of money that we find ourselves in. One of the extraordinary stories around us that you tell in the book is about the UK war loan, which was only paid off relatively recently. And there was a publicity campaign at the time that suggested that the war loan was an easy sell and it was hugely subscribed and the British rushed to buy the war loan to help finance the war. And that was what was put about at the time. But it turned out, of course,

not to be true at all and we only found out much later in 2017 that the Bank of England blog was called Bank Underground wrote a piece explaining that in fact this hadn't happened at all and effectively the money is simply being printed and then in a wonderful little end point of the saga

the FT that had written stories at the time saying how wonderful it was that everyone had brushed to buy the wall and printed an apology in 2017 saying that everything they had written was not true. We are now happy to make it clear that none of the above was true. So this is when the central banks started this money printing process in real earnest and also started not quite telling us the truth about it. When we think of government finances, we often think of taxation and spending

And that is a fairly transparent process. And that can be kind of debated each year and each election season to see, okay, what attacks is going to be? What is the budget deficit or surplus and what kind of things are we spending on? Whereas inflation is a more opaque form of taxation that can be done first and then sorted out later after the consequences have already occurred. And for example, in that arrangement, defined as that war, they could just lie and say, okay, the loans have been met.

when really what they're doing is they're just printing money. They're financing the loans through new money creation and therefore they're spending into the economy, money that they did not withdraw from the economy, therefore they're expanding the overall money supply and therefore all of the holders of the currency, all the holders of the bonds, including foreign holders of currency bonds are getting sharply devalued without knowledge that it's happening and without having given any sort of consent or any sort of process to make that happen.

And then only in hindsight, in this case, comically, like a century later, but even if it takes place three years, five years later, the consequences are smoothed out over time, they go back and realize that they never actually consent to this. It was basically taxation without input or knowledge and therefore it could not be debated, it could not be protested, it could not be discussed in a way that would normally be done with taxation. I guess one of the themes in the book is that as technologies come,

It can sometimes change the power structure or the incentive structure or where the source of power is prior to that kind of era of telecommunications and heavy use of banking. Money was intrinsically hard to debase. It was a very challenging physical process, slow process to do it. But in this modern era, because it can be done so quickly, it really shifts a lot of that power to those who wield the power of the printing press.

And it makes central banks extraordinarily powerful, doesn't it? And that's one of the bizarre things about recent times has been the idea that an independent central bank is a very good thing. Whereas in fact, in some ways, it's a bit of a threat to democracy because if the central banks have the power to do this, to create the inflation and effectively transfer wealth between different groups and the economy. It's not necessarily something one likes to think of happening outside democracy.

Yeah. And it's one of those things where central, so central bank independence, the main purpose of it is so that the, like a president or a prime minister or some sort of leader can't just call up the central bank in a week, leading up to an election and say, Hey, I need you to cut industries or I need you to juice the economy or I'm going to fire you. Right. So it's trying to avoid those kind of near term abuses of the system by instead having some sort of separate powers. The challenge is that especially during crises,

central bank independence tends to go away. The government just captures the central bank and says, look, it's a war. You're going to finance the war. So it's not really independent anymore. And then two, even when it is independent, people are end up therefore very reliant on the competence and the ethics of the central bank, which can be people that they didn't necessarily lack. Obviously, each country will have its own process for how the central bank is structured. But

These are generally appointed rather than elected officials, a rather small number of people dictating what the price of money is, what the price of money and time is essentially able to make low credit loans to certain entities and not other entities. And therefore they get quite a bit of power, the power of the purse, the power of even defining what our money is, is something that is both powerful but opaque.

And as I say, uncomfortable outside the democratic process. Now, let's flip forward another few decades and talk about today and the key point of the book is that our money system is broken and that we're being failed by the system as a whole. So let's talk about what's broken now more than has been in the past, what's so terrible. And that for most people, money works.

You know, they have a bank account. They invest a bit. They buy this out. There are debit cards work. Their bank accounts work. Now they're getting some interest on their bank account. I was saying, this is marvelous. So for most people, they would say, well, I don't know what you're talking about. My money works. Yeah. I just think I'm making the book is between developed and developing countries. I argue in the book that there's problems with money everywhere, but they're more obvious in certain areas than others. So when we zoom out, there are about 160 currencies in the world.

And outside of the handful, many listeners of this are probably in the handful, me and you and others listening are in the handful of currencies that are the least bad. These are the ones that lose value that the slowest. Despite all the problems we just discussed outside of major wartime, they are kind of a slowly debasing currency. Whereas when you look at the long tail of most currencies, which is actually where most of the people in the world live, they experience much more rapid currency debasement.

And therefore, all of those issues, we just talked about the opaqueness of say, financing government through inflation, for example, things like that happen way more magnitude and way more frequency in many other countries in the world. So that's one big problem. And two, there's actually a shocking number of people in the world that are still unbanked. So, you know, banks have been now around for centuries, even longer in some forms. And yet there's in a fairly short period of time, more people have smartphones.

then have bank accounts in the current era. There's basically an inherent kind of limitation to, to banks. And so the combination. But if you have a smartphone, do you not automatically have a bank account? And in Kenya, I know it's all right now, but there was empressor, et cetera. There's always something you can do with the phone to create the equivalent of a bank account. The equivalent, yes. And I think that's actually one of the kind of pieces of my book is that technology is kind of enabling people to go around these issues. And so, you know,

In these countries I just talked about, all these countries with failing currencies or mixed access to bank accounts, technology is now enabling people to have more choice over their money. So things like Bitcoin or stablecoins allow people in all these different jurisdictions to say, instead of my local rapidly debasing currency that my wages and my savings are denominated in, I can go around that system.

And I can say I want dollars from this jurisdiction or I want this decentralized currency Bitcoin or whatever the case may be, depending on their preferences, their volatility tolerance, their, their technical understanding. And so that's basically a way to break into all these different silos. And the other point I make in the book is that when we look at developed countries, so obviously we have a lot fewer obvious problems with our money. Like you said, we don't really have problems making payments. We don't really have problems with rapid debasement.

But instead, the problems tend to be more subtle. So for example, the rapid accumulation of government debt is one of those things where it's this kind of slowly growing instability outside of our kind of immediate concern, but something that long-term is an issue. And I think a more kind of short-term issue, something that kind of happens on a regular basis, is that people underestimate the importance of credit. And so for example, during major crises, when credit locks up,

When governments and central banks give selective credit to some entities, for example, in the United States during the global financial crisis, they gave credit to large banks, but they would not give credit to say some smaller banks or homeowners and entities like that. And so they can selectively basically bail out certain entities more so than other entities. And this is kind of a recurring cycle that happens recession after recession after recession.

And it's one of the key forces of wealth concentration that's happening under the surface. So in some ways, the kind of the problems of the money that we have in developed countries are more like the problems of having a bad diet. We talk about the quality of food, for example, we might say, well, when we eat it, we get full, we function, we don't really see a problem. But of course, if we're eating bad food over a long period of time, those problems tend to accumulate. Whereas in developing countries, the money problem is tend to be more bad on the surface. It's more like the food is poison.

And it's more obviously in your face a problem. And so there's all these kind of inefficiencies built up in the system. And I argue that a lot of it is just because of the technological path that we've, you know, kind of the deterministic technological path and the order of technology that we've had up to this point. Okay. So how do we fix it, Lynn? The book basically doesn't have a firmly prescriptive view, but basically emphasize that some of these open source technologies that are still somewhat dismissed by

academia and kind of mainstream journalism are, I think, a lot more powerful than they get credit for. Basically, within that kind of 160 different currency framework that I mentioned, the fact that these currencies can go around borders, the fact that they can provide people more choice of what money that they want to hold, regardless of where they are, as long as they have some sort of basic internet connection, some sort of basic phone service. They're able to go around these types of blockades.

And that's over the long arc of time, I think, able to put a lot more restraints on the types of manipulations that can occur outside of their purview and give them more options. For example, I personally spend part of each year in Egypt. So I live most of the year in the United States, part of each year in Egypt. And that's because some of my family and friends are in Egypt. My husband and I are kind of bi-country. And whenever we're in Egypt, we see a lot of these problems a lot more acutely compared to when we're in the United States.

And I'm always reminded when I go there how in the 21st century, our technological aspects of money have not really caught up with the technological aspects of other parts of our lives. And so for example, an anecdote that I'd like to share a lot is I know a physician in Egypt that holds physical cash dollars that he buys on the black market as his primary liquid savings because he doesn't trust the local currency. They have 37% inflation.

If I had double digit inflation, we're often the not over the past 50 years. That's in the 21st century in 2024. That's his chosen monetary technology. And it just shows that this whole system, I think, is ripe for disruption. And I think that these kind of open source things, and I tend to focus on Bitcoin and stablecoins have thus far kind of had the most utility in these areas, serve people in these different jurisdictions and kind of go around and present a alternative

to somebody's more centralized and kind of rapidly debasing or rapidly kind of financially abused systems. Are you looking for a new podcast about stuff related to money? Well, today's your lucky day. I'm Matt Levine. And I'm Katie Greifeld. And we're the hosts of money stuff, the podcast. Every Friday, we dive into the top stories about Wall Street, finance, and other stuff. We have fun, we get weird, and we want you to join us.

You can listen to many stuff, the podcast on Apple podcasts, Spotify or wherever you get your podcasts. One people like me say that they can't quite get their head around the likes of Bitcoin as a long term entity because they can't see the use case. That is simply because we're not looking outside the developed world for a use case. I think that's a big chunk of it. So in the developed world, for example, we don't really have a rapid, like a major payment problem.

And for our savings problem, we have some issues with it, but not really. So for example, we can hold money in the S&P 500. Our equity markets are fairly good. And we don't really face problems too often with bank accounts being frozen or for kind of arbitrary reasons or things like that. Whereas when you go to many other countries, one, the currency is rapidly debasing generally faster. Two, they don't really have access on average to as good equity markets as we do.

Um, you know, they'll have a lot of volatility, not a lot of upside if the country even has a significant equity market to the extent that they can get access to offshore assets. It's usually more restricted to the wealthy end of the spectrum. Right. If you can afford an offshore bank account, if you can afford an offshore brokerage account, you're generally in a better position. And so there's a lot of these technologies are kind of an equalizer. They basically say, if you have a smartphone, then you can access the type of things that historically were more accessible to the wealthy.

And then also, for example, if your bank accounts are just arbitrarily frozen, right? There are a lot of countries where if you protest or things like that, your bank accounts just frozen, confiscated. And so there's actually, you know, human rights organizations or democracy advocates and things like that that make use of stablecoins, Bitcoin and other sort of decentralized financial systems to go around the fact that their local jurisdictions got a monopoly over the monetary system. And I think that those are these things that often go

overlooked in a lot of these discussions around usefulness of this type of technology, which to some extent is understandable because there's been so much fraud, there's been so much hype in the broader space. And I think it's a shame because underneath all of that kind of hype and fraud and problems, there are these seeds of really important use cases, at least for a subset of the technology.

Now, let me just ask you about one of the other things that the skeptics, such as me, it's interesting. You mentioned earlier that, in times of crisis, a central bank is no longer independent because, and we know that it is in a time of crisis that we understand properly the sovereignty of the nation's state, right?

So if stablecoins, Bitcoin, any of the new cryptocurrencies were to become a threat to an existing currency, surely the same thing can happen. And let if they become a threat, we find out about the power of the nation's state and they're stopping a threat. So I think that depends on the authority of the nation state. And so an interesting case study in recent years was Nigeria. So that's a country of 200 million people.

They banned cryptocurrencies from their banking system. So they basically said banks can no longer send money to known crypto exchanges and they introduced their e-naira, the CBDC. And yet for years, three years or so, they had very limited adoption of the e-naira. And they had one of the highest adoption rates of cryptocurrencies, mainly stablecoins and Bitcoin in the world. And specifically, they have really high peer-to-peer trading volumes because that's how they go around.

their local banking system. And so there are certain technologies or certain kind of transparency things that make it pretty hard for governments to always get away with specifically what they want to do. Now, obviously a country like China

would likely have more success at pushing things that it wants to do than say a country like Nigeria? I wonder if we can briefly move away from the book and talk in general about markets and economics because you're not just an author or a strategist. And the most important thing at the moment for everyone investing, in fact, for everyone is to think about where inflation is going next. And we talk a lot on this podcast about how we have not expected inflation to go up, come down and stay down because mostly when you have these in

inflationary episodes, they tend to come and go, you get inflation, you get a little disinflation, you get inflation again, et cetera. And having looked at your work, I see that's a few points that you agree with or appear to agree with. Yeah. And I think a big factor to focus on that's going to really dictate the pace of inflation is the energy side. So if you look back at all the major of modern history, they always coincided with spikes in energy prices because that's been underlying input for a lot of things. It's the underlying input for wages is transportation, automation,

Now even we currently, things like AI run on quite a bit of power. And if you have abundant energy, then some of those other inflationary forces in the economy, they're present, but they're not as severe as one might think. Whereas when the energy itself is inflationary, almost any reductions in other areas tend not to be sufficient to offset that inflation. So my kind of expectation is that on average, this decade is going to have higher average inflation than the prior couple decades.

But the timing and severity of any kind of further inflation waves you might experience are likely to be quite a coincidence with energy. So I think basically if one wants to have a strong opinion on that, they really have dive into, especially in their particular country, the sources of energy that they use, the likelihood of, for example, global oil disruptions, the growth rate of U.S. shale oil and the ability to meet demand so the next five years or so.

And so my expectation is that by the time this decade's finished, we're probably going to have another energy price spike and another inflation spike. And so I think that's where I'm focusing. I think aside from that, it's just the ongoing issue of the money supply growth that occurred a few years ago is still working its way through the economy. It's still working its way through weight growth as a price growth. And so I think that process still has some time to go.

but that if not for an energy spike, that can eventually settle back down. It's really about the energy side that I think will determine the timing or magnitude of future inflation waves. How would that affect markets? If you were to get another sustained inflation wave, the market would then price bond yields higher. I would be concerned about some of these really high-valued equities that are trading at 30, 40, 50 times earnings in some cases because

You tend to have a thing where during periods of low inflation, equity evaluations can get very high because the cost of money is very low. Whereas in environments where we have more of these inflation of core inputs, some of these more disinflation type of assets, high-valued equities or bonds and things like that tend to do very poorly. So a lot of investors are invested with structural disinflation in mind. The classic 60-40 portfolio of equities and bonds and

especially market cap weighted equity. So they're very geared towards the large growth stocks, especially in the United States markets. I like having a separate segment in a portfolio focused on energy because that is in many cases a better hedge against the rest of the assets during decades that are more inflationary on average. So during disinflationary decades, bonds are a better hedge for equities.

where during inflationary decades, energy tends to be a better hedge for the rest of an equity portfolio. So I certainly like to have that slice of protection. Now, Lynn, I always ask at the end of the podcast, I always ask the same question. I'm feeling slightly embarrassed and a little pointless asking you this question, but I have to because I ask everybody, okay?

If you, here we go. If you were to only be able to invest in one asset over a 10 year period and you were only given a choice of two assets, one of those was gold and one of those was Bitcoin, which would you choose? So Bitcoin is the risk, your choice in the sense that there's a non zero chance that the investment gets heavily disrupted in some way.

was gold by the end of the decade that you're still going to have, you know, roughly probably what your purchasing power is. But between the two, I would have to probably go with Bitcoin. Okay. So you still have some confidence in gold. That's interesting. So gold has had this place as a kind of a mental backstop for kind of the global financial system. It's kind of this, this like hedge, this kind of bare asset that you can hold that can't be rapidly debased. And in a world of Bitcoin and digital assets and equities,

I think gold is still an analog backup. It's basically people say, what about cyber attacks? What about internet outages? What about power disruptions? All this kind of tail risk that people can imagine. I think gold just transfers over to that new world and still serves that kind of similar mental backstop. And it's also still what central banks prefer as their, their main underlying collateral aside from other currencies, other countries bonds.

Final question. Everyone's going to go out and buy your book and read it now if they haven't already on it. Also, I listen, as I've already got it and already read it. But your book aside, is there other any books that will one book in particular that you see as an investing Bible that you would recommend to everybody that they should read? Do you have a favorite? So I think actually a really simple one is the most important thing by Howard Marks. And it's the reason I like it is a very accessible read. It's not really about the detailed mechanics of investing. It's

based on just investing principles. And so for people that aren't familiar with him, Howard Marks is a billionaire investor primarily in junk bonds, but the book itself applies to, he's well known for his kind of macro or insightful articles on multiple topics. And the book itself is not about any specific asset class. It's more about the mindset.

And kind of the joke of the book is that Howard found himself, whenever people say, would talk to him, he'd say, the most important thing is this. And then like in another conversation, he'd be like, the most important thing and it'd be like a different topic. So as a joke, he wrote the book in every chapter is a different, most important thing. And so the book itself is a fairly concise set of independent descriptions or recommendations for how to think about investing, how to think about finance.

Wonderful. Lynn, thank you so much for all those fascinating insights. We hugely appreciate you joining us. Thank you. Thank you for having me. With me now to reflect on what we just heard from Lynn Alden, author of Broken Money, is senior reporter John Stapak. John, I'm so glad you were here to talk to me about this one. This was just the most fascinating podcast, wasn't it?

I thought it was great. Actually, the history of money is so interesting. I would say that lens basically summed it up, you're less than an issue. I probably don't really have to go and read my child apart from work, obviously. I thought it was great.

Yeah, I mean, I just loved the way, I loved the way that she looks at money from the very beginning as being ledger based, you know, because people don't think about it. We talked about this a bit about how people look at the origins of money being about barter, where in fact, it's much more likely. It was never about barter. It was always about credit, credit in people's heads, credit, credit using stones, using shelves or whatever. But what we're not talking about barter, we're talking about

keeping ledgers. And I wrote about this. Years ago, actually, I wrote about Bitcoin first appeared. I wrote about it. Ledgers and wrote about how the rhizestones of Yap were a ledger currency and Bitcoin was the modern version of that. And she's really expanded on all that stuff in this book and taken us through the entire history of money with this idea of the ledger of the background. And I think it's absolutely fascinating, brilliant.

I mean, I agree, because one thing I remember whenever I first started getting interested in the history of money, which I guess was about 20 years ago, the prevailing idea was the commodity idea, the idea that we'd kind of gradually found better and better substances for solving the...

the timing of kind of wants. And so we're going from whatever salt to shells to gold eventually. And I think it was at the camera. I think it was David Grabers book that eventually kind of displaced that in the popular imagination. And as that point where you start to realise, right? So this is really daft to imagine that that's how things

started because you couldn't get anything done then until someone had come up with the idea of a currency. But it's like you say, this ledger thing, if you've got a small enough tribe of people, then everyone can remember, you know, Dave always married, who always joined, who owned summer, you know, this amount of money. And then you don't have to have any real

You know, it doesn't have to be a kind of anything that represents it in a passing thing sort of where you've just got all that big stone as yours. Oh, I know it's me now. So no, I do. I think that that made a lot of sense.

Yeah, I mean, you think about the point here being that all money does is moves goods and services through time, right? That's all it does. And so you only need it. You don't need anything physical for that. You simply need the record. And we didn't talk about this, but my favorite, favorite bit about rhizestones, rhizestones in YAP is the story, which may or may not be true, but I think it is about one of the boats coming back from the distant island with very large rhizestones on the boat sinking.

And so these stones are then lost under the sea, but they still exist as wealth. They're still owned. Everyone knows they're there. They don't need to be seen to be part of the system. I love that. Yeah, you win that one. It's under the sea. I know you win it. Yeah, exactly. I just swapped you for some. I think, I mean, I think my question then, though, after this, and probably the main thing that actually

I was thinking was, so has this changed your view on Bitcoin or cryptocurrencies in any way? No. No. Because I mean, it's all very logical and it makes an awful lot of sense. And I think that a lot of Lin's points about the difference between developed markets and developing markets were interesting as well.

Yes absolutely and she's right with that one thing she is definitely right about and and I thought it when I looked at her work before is that you and I and our conversations have very often overlooked the fact that developed markets don't have the semi reliable money systems that we do but the bit where I didn't find loans replied to me to be satisfactory

and where I'm still concerned is that I believe in the nation-state and the sovereignty of the nation-state and the reassertion of the nation-state in times of crisis, right? And we do find that that whenever there is a financial crisis or indeed any other kind of crisis, we see the nation-state showing who holds power. And interestingly,

Think back to the podcast we did a few weeks ago on space. And that conversation has come up again now. How do you control space? Who wins in space? What are the rules in space? Why can't Elon Musk just take over Mars if he feels like it? And the answer is because he has to take off from the territory of a nation state. Right? So therefore you can't, nothing private.

can have power over the nation state, be it in space or be it a new kind of money. And that's the bit where I really was hoping that Len would give me an answer that I could work with. But that was the one point where she couldn't and didn't. So I still think that you can't have a currency operating out with a sovereign currency and hold its value indefinitely.

See, I mean, I think that's a really good point. And I agree, because basically what I mean, what it boils down is that in the absence of actually building his own robot army, you're very ill and must can't do anything about the permission of the nation state and the nation state has the monopoly over violence. And that's basically what it boils down to. But I mean, within all that then,

Look, it's that thing of, well, we can still, I guess, recognise that something like Bitcoin does have value within the coin text that it may not, you know, it's not going to go on and replace the dollar and it's not going to go on and replace the pound. It's just, but I guess, I guess the argument that is digital gold makes the fair element a sense. John, you've been one over.

I do know I've always been a bit wobblier on this than you. I've lost you to the other side. The question is always about what value is it? What price is it? But it has a function.

It's not a scam. It's not a scam. It's not a scam. If you were listening to this, you've done something nobody else has been able to do your broad John Steppock round to crypto currencies. So I'm going to finish my mind on something. I've never managed to change my mind on anything.

Don't forget that limb finished by saying Bitcoin is riskier than gold in the sense that there is a non-zero chance that the investment gets heavily disrupted in some way. Whereas gold, you know that by the end of the decade, adding a little to a quote here, you're still going to have it.

I mean, it was a fact partly that you acknowledged that, that I thought, well, you're not one of these, you know, ideologues or one of these people who's going to come on Twitter afterwards and harasses because we didn't mention their particular favorite crypto coin or something like that. You know, it clearly has a very deep understanding of the money system. But I said, the thing

Also, I wanted to bring up, as I was recently reading an old Bank for International settlement report on digital currencies, because I was bored and I was on a plane and there was the only thing in my bag. And what was interesting about that is

Because I think this is the other part of what Lynne's talking about in the crypto currency thing in general is that it's very clear that sovereigns want their cut and they are taking this seriously. Like central bank digital currencies are the sovereign equivalent of basically

recognizing the threat posed by something like Bitcoin or more accurately stable coins. The thing that's freaking them out is stable coins, because those are kind of like, I guess, almost like counters, not counterfeit, but private versions of the dollar, but they're backed by dollars, but they're being used in the digital realm. And if that realm is going to

What the BIS was basically saying is that central banks, and it was doing a very cuddly way, but it was saying that central banks should be part of that world so that they can provide the asset elastas or the currency elastas or basically for all the future applications that will be on the blockchain, if you like. And then when they were talking about the applications, that was a bit fuzzier. I think the problem there is it's like, if I want to send money to you from our bank account,

then fine. There's about 10 different transactions behind the curtain, but I don't care and you don't care because it takes a second. We don't care. It takes things. And if it doesn't arrive, then we can shoot it somewhere. You know, it's not, as from an end, you as a point of view, it doesn't matter. I always use a calm voice when I call customer services, by the way.

Oh yeah, but it's a showty calm voice. I just use my accent. That helps a lot of the time. Unless it's a Clyswegian call center. Sorry, interrupt. So trade finance. So we had, you've got, you know, you've got your order to ship loyalty goods from somewhere across the world.

And the problem is that you don't want to pay them before you get the goods. They don't want to send the goods before you pay them. And then there's a whole load of complicated bits in the middle where the person on the other side of the world might also be staking the goods as collateral to like five different people and you don't know anything about it.

So that's what areas where they were talking about how can a programmable contracts and smart currencies know the rest. It might actually work better for these specific applications. So I guess a long way round, what I'm talking about is that it's clear that this technology does have some use in certain financial areas. And I think perhaps the biggest threat to something like Bitcoin is that central banks are just going to come in and occupy that space.

But it is, again, it is a real area of technology. It's not something that is just, you know, a problem, kind of looking for a solution, looking for a problem. Well, I think we'd better leave it there, John. We'll leave it with John the convert. And, you know, they were saying nothing worse than a convert.

And thanks for listening to this week's Marin Talks Money. We'll be back next week. In the meantime, if you like our show, rate, review, and subscribe wherever you listen to your podcasts and of course tell your friends. And finally, we now have our show emails that send along ideas, questions, or comments to marinamonnyatbloomburg.net. This episode was hosted by me, Marin's upset web, produced by Sam Masadi, special thanks to Lynn Alden and John Steppek.

Are you looking for a new podcast about stuff related to money? Well, today's your lucky day. I'm Matt Levine. And I'm Katie Grifield. And we're the hosts of Money Stuff, the podcast. Every Friday, we dive into the top stories about Wall Street, finance, and other stuff. We have fun, we get weird, and we want you to join us. You can listen to Money Stuff, the podcast on Apple Podcasts, Spotify, or wherever you get your podcasts.