Odd Lots Podcast: "How Do We Define a Currency?" – Detailed Summary

Release Date: May 31, 2025
Hosted by Joe Weisenthal and Tracy Alloway

Introduction and Event Context

In this special live episode of the Odd Lots podcast, hosts Joe Weisenthal and Tracy Alloway delve into the intricate topic of defining currency. Recorded live at Princeton University, the episode features a panel discussion moderated by the hosts, featuring esteemed experts:

• Inaki Aldasoro – Principal Economist at the Bank for International Settlements
• Rebecca Spang – Professor of History at the University of Indiana, Bloomington
• Stefan Ingves – Former Governor of Sveriges Riksbank, the central bank of Sweden

The panel was part of the Princeton Economic History Workshop’s event titled "How to Write the Biography of a Currency."

Defining Currency and the Nature of Money

Stefan Ingves opens the discussion by emphasizing that "money is a social convention" (02:49). He articulates that money exists as a shared understanding within society, evolving from tangible forms like seashells to modern digital abstractions. Ingves highlights the dual nature of money as both an abstraction and something people inherently want to "see and touch," referencing politicians' persistent desire to "see the gold" (02:49).

Rebecca Spang concurs, adding that "conventions are socially determined and societies change" (13:22). She underscores that money's functionality often flies under the radar until disruptions like technological shifts or crises bring its underlying mechanics into focus.

Inaki Aldasoro further explores the concept by distinguishing between "money and credit." He defines money as "a means of settlement" essential for extinguishing credit and fulfilling obligations, especially during crises, stating, "money is better than credit, especially in crisis" (38:11).

Historical Perspectives on Money

The panel delves into the historical evolution of money, with Rebecca Spang providing a rich historical narrative. She explains that the understanding and function of money have dramatically shifted over centuries. For instance, in the 17th and 18th centuries, currencies were often a mix of physical coins and various bills of exchange, with significant variations in value and trust (13:22).

Spang emphasizes that the modern perception of money as a stable, almost immortal entity is a "fantasy." She recounts that throughout history, money systems have undergone frequent transformations, such as the dilution of gold reserves or shifts from one centralized issuing authority to another. These changes highlight that money is deeply intertwined with political and social dynamics rather than being a static entity (22:59).

Digital Currencies and Central Bank Digital Currencies (CBDCs)

The conversation transitions to the rise of digital currencies and the emergence of CBDCs. Stefan Ingves draws parallels between modern digital currencies and historical private bank-issued money, noting that the fundamental challenges remain similar despite technological advancements. He remarks, "This is a political value judgment," suggesting that decisions around digital currencies are as much about societal values as they are about technology (55:12).

Inaki Aldasoro discusses the competition between private stablecoins and emerging CBDCs. He points out that while private stablecoins offer innovative payment solutions, CBDCs represent state-backed guarantees of value. Aldasoro observes, "there will be competing payment instruments," but emphasizes that CBDCs and private stablecoins operate under different foundational assurances (54:26).

Design and Physicality of Money

A significant portion of the discussion focuses on the design and physicality of money. Rebecca Spang highlights how the physical design of currencies, such as the euro’s non-national motifs, reflects social conventions and attempts to balance functionality with national identity. She notes, "over time, societies configure that differently," indicating that design choices are deeply rooted in cultural and historical contexts (49:16).

Stefan Ingves adds that even digital currencies attempt to emulate traditional symbols to evoke trust and familiarity. He shares an anecdote about the European Central Bank's struggle with euro banknote designs, illustrating the challenge of creating universally accepted symbols without national biases (51:20).

Rebecca Spang further elucidates the transition from physical to digital by comparing traditional imagery with digital representations. She recounts how early Bitcoin illustrations used circuit boards, which later shifted to gold-colored tokens to enhance perceived legitimacy and appeal (52:06).

Trust, Stability, and the Future of Money

Trust and stability emerge as central themes in the panel’s discussion. Ingves emphasizes that "trust in money" is essential for its functionality, particularly in digital forms where physical assurances like gold are absent (02:49). He explains that maintaining a one-to-one exchange rate between public and private sector money is crucial for sustaining monetary control (02:49).

Aldasoro shares personal experiences with hyperinflation in Argentina to illustrate how a loss of trust can undermine the store of value function of money, making stabilization efforts critical (38:11). He underscores that in times of crisis, people instinctively prefer holding money over credit, reinforcing the importance of trust in economic systems (38:11).

The panel also explores the concept of "moneyness" and the hierarchy of money, where central bank reserves and cash represent the highest forms of money, supported by legal and institutional frameworks. Aldasoro states, "money is a way to extinguish credit," highlighting its fundamental role in economic transactions (22:59).

Conclusion: The Evolving Landscape of Money

As the episode wraps up, the panelists reflect on the continuous evolution of money. Stefan Ingves draws historical parallels to illustrate that debates over money's nature are not new but are exacerbated by technological advancements (55:12). Rebecca Spang underscores the non-linear progression of money’s physicality and abstraction, suggesting that societal norms and cultural assumptions play pivotal roles in shaping money's future (41:12).

Joe Weisenthal and Tracy Alloway conclude by appreciating the depth and complexity of defining currency, acknowledging that despite extensive debates, a definitive answer remains elusive (61:31).

Notable Quotes with Timestamps

• Stefan Ingves: "Money is a social convention. Money is something about what we have in our heads." (02:49)

• Rebecca Spang: "What ordinary people are doing with their money and how they're thinking about it... is a much more difficult history to write." (13:22)

• Inaki Aldasoro: "Money is better than credit, especially in crisis." (38:11)

• Rebecca Spang: "A fully functional currency in the mind of the people... seems in fact to be outside of history." (30:01)

• Tracy Alloway: "How much competition would central bank digital currencies be for the private issuers?" (48:23)

• Inaki Aldasoro: "Money is a way to extinguish credit, to extinguish credit fulfilling a debt obligation." (35:05)

• Rebecca Spang: "The idea that there's some stable stock of goods that you can buy with your money sounds to me much more like an assumption of the moral economy than of the market economy." (37:05)

Final Thoughts

This episode of Odd Lots provides a comprehensive exploration of what constitutes a currency, blending historical insights with contemporary challenges posed by digital innovations. The panelists collectively underscore that while the mediums and technologies may evolve, the underlying principles of trust, social convention, and functionality remain pivotal in defining and sustaining money.

For those interested in the nuanced debates surrounding currency, monetary policy, and the future of digital money, this episode offers valuable perspectives and expert analyses.

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