How Do We Define a Currency?

Episode Summary

Executive Summary: This live Odd Lots episode explores what money and currency really are, arguing that money is a social convention shaped by trust, law, technology, and politics. The panel contrasts public vs private money, explains monetary hierarchies and payment finality, and shows how physical cash, gold, and digital systems all depend on social belief and material infrastructure.

Main Topics: Money as a social convention (Priority: 5/5): Stefan Ingves and Rebecca Spang argue that money is not a natural object but a socially sustained convention that changes across eras and societies, even though users often experience it as timeless. Public money, private money, and monetary hierarchy (Priority: 5/5): Inaki Aldasoro frames money as a hierarchy of promises to pay, where central bank money sits at the top and bank deposits or stablecoins are lower-level claims that depend on higher-level validation. Technology and the future of payments (Priority: 4/5): The panel discusses how digitization, CBDCs, stablecoins, payment apps, and distributed ledgers are reworking the front-end/back-end relationship of money without eliminating old questions about trust, settlement, and state role. History, nationhood, and the definition of currency (Priority: 5/5): Spang explains that the modern idea of a currency is historically tied to nationalism and the nation-state, whereas earlier systems often separated what circulated from what was used as the unit of account. Physicality, gold, and trust (Priority: 4/5): The speakers reflect on why people still value gold and physical cash, noting that tactile form can signal trust and security, especially during crises, even though all money ultimately depends on social acceptance. Stablecoins and CBDCs as competing models (Priority: 4/5): The conversation compares private stablecoins with central bank digital currencies, suggesting they may compete as payment instruments but are both part of a broader debate about who should provide trusted money in digital systems. Money in crisis and inflation (Priority: 4/5): The panel emphasizes that when trust breaks down through hyperinflation or banking collapse, users flee credit and seek harder forms of money, often foreign currency or physical assets.

Key Arguments: Money is fundamentally a social institution sustained by shared expectations that it will be accepted in the future. The key economic distinction is between money as a means of payment/settlement and credit as a promise to pay later. Central bank reserves and cash are the top of the monetary hierarchy; deposits and stablecoins derive value from being convertible at par. The modern rule of singleness or par is crucial for trust in money and the functioning of the payments system. Currency is historically contingent; the “one country, one money” model emerged with revolutionary nationalism and state-building. Physical forms of money matter psychologically, but digital money still depends on material infrastructure such as electricity, semiconductors, and networks. In crises, people instinctively prefer money over credit and may shift into cash, dollars, or gold when confidence in local currency collapses. Stablecoins and money market funds may be more similar than their branding suggests, differing mainly in transaction technology and legal structure. Gold remains attractive because it is nobody’s debt and functions as a hedge when trust in institutions erodes. The design of money, including logos and imagery, continues to signal legitimacy and national or institutional identity even in digital form.

Data Points: Bloomberg Stock Movers format: 5 minutes or less - Promotional opening describing the new Stock Movers report Odd Lots live show date: June 26 - Announcement of the upcoming live event in New York City Live show venue: Racket NYC - Event location for the Odd Lots live recording BIS dollar liabilities booked outside the U.S.: 13.5 trillion - Aldasoro cites this as evidence that modern money is global and hierarchical Euro-denominated liabilities booked outside the euro area: 2.7 trillion - Used alongside dollar liabilities to show cross-border monetary claims Pound and yen liabilities booked outside home areas: 670 billion or so - Additional evidence of offshore/global currency usage People and institutions referenced in Bloomberg group: 3,000 journalists and analysts - Mentioned in podcast promotion as reporting support Revaluation timing: Once every 30-40 years or so - Ingves notes major monetary disruptions happen periodically, not continuously Locke usage: 28 times - Spang notes John Locke used the word “current” 28 times but not “currency” in 1692 Dates in French monetary disruption: 1797 and Napoleonic Wars - Spang references suspension and resumption of Bank of England payments Currency history example: Late 18th and 19th century revolutionary nationalism - Spang dates the rise of the modern currency concept to nation-state formation Sweden central bank governorship: 2006 to 2022 - Ingves notes his tenure as governor of the Riksbank

Pivotal Quotes: "Money is a social convention." — Stefan Ingves: Opening framework for explaining why money changes form over time "Money is, as far as I can conceive it, first and foremost, a means of payment, which is meant to say a means of settlement." — Inaki Aldasoro: Core definition distinguishing money from credit "The common sense understanding of money as something without a history, something immortal or eternal, is, of course, a fantasy." — Rebecca Spang: Historical critique of how people imagine currency

Implications: The episode suggests future money debates will center on who issues trusted payment instruments, how par is maintained, and how digital systems preserve legitimacy. Stablecoins, CBDCs, and cash are all tests of whether the state or private actors control the next monetary standard.