Risk Talking To Understand Cryptocurrency, First Understand Money
Jul 27, 2022
Perry Mehrling, a Boston University professor and author, dives into the evolving definitions of money amid today's financial chaos. He discusses how central banks' experiments and the rise of cryptocurrencies, particularly stablecoins, challenge traditional monetary systems. The interplay between money and credit is dissected, revealing the dollar's dominance and the implications of cryptocurrencies in global commerce. Through historical parallels, Mehrling provides a critical look at the future of crypto and its sustainability in an ever-changing economic landscape.
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Hierarchy of Money Explained
- Money is a superior means of payment used to settle debts, qualitatively different from credit which is a promise to pay money.
- The global monetary system forms a hierarchy with the U.S. dollar at the top, and crypto lies outside and tries to replace this system but is stress-tested now.
Money as Means of Settlement
- Money's defining feature is being a means of settlement, not simply low risk or wide acceptance.
- Both mainstream economics and crypto undervalue money's liquidity and settlement role, leading to flawed theories.
Elasticity to Discipline Shift
- Financial systems' elasticity allows rolling over debts easily in good times, but the pandemic response led to elasticity giving way to stricter discipline.
- Crypto, as a newcomer, fails first in this shift since it lacks central bank backstops and robust settlement mechanisms.
