Money’s Mostly Digital, So Why Is Moving It So Hard? | Wendover Productions

0:00When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsor job credit at Indeed.com slash podcast. That's Indeed.com slash podcast, terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. Fall has never looked or tasted this good. Sweet Greens Fall Harvest Menu is back with seasonal favorites dressed to impress and made to be devoured. Warm roasted sweet potatoes, crisp apples, maple glazed brussels, and crave worthy flavors in the autumn harvest bowl, maple glazed salmon plate, and roasted bacon brussel side. The season's most desirable menu has returned to sweet green. This episode is brought to you by Google Chrome.

1:03You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50 page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online makes sense? There's no place like Chrome. Check responses set up require compatibility and availability vary, 18 plus. Let's say I had an apple and you had an orange, and I wanted an orange, and you wanted an apple. We could trade, and both of us would end up happier than when we started. But now let's say I had an apple tree, and you had an orange tree, and the apples from the apple tree were ready, but the oranges wouldn't ripen for another month. I could give you an apple now, and you could promise to give me an orange in a month when they're ready, and both of us would end up happier than when we started. Although maybe you didn't want an apple. Maybe you wanted a pear, but all I had to give was my apple, and I still warrant your orange. Well, maybe there was a third guy, a pear-laden guy, and he wanted an apple.

2:05So I give him my apple, he gives you his pear, and you promise to give me your orange a month, and we all end up happier than when we started. But then maybe we start to trade bigger quantities, and maybe we add more people with different fruits on different harvest schedules, and maybe we decide that certain popular fruits are worth more, and two of one equals one of the other, and one of the other equals three of the third, and it all starts to get just a little bit complicated. So we simplify. Instead of trading physical fruit for physical fruit, we trade physical fruit for fruit credits. Clay balls with a generic fruit symbol carved into them. If I trade an apple into the system, I get a credit, and when I want that orange, I trade the credit in. Nobody has to keep track of what I'm owed. Now that we have the system going, we might as well add vegetables into the mix. Sure, it's not fruit, but we want veggie sometimes, and the veggie farmers want fruit too, so the system still works. Naturally, as the system develops and develops with more and more items and more and more complexity, we start to feel that these fruit credits have value, even though they merely represent theoretical value.

3:07But that theoretical value can be turned into real value, and so in a way, the clay balls, the representation of theoretical value that translates into real value, hold real value in and of themselves. So someone starts a business where they'll keep your fruit credits safe for you, free of charge. Better yet, they'll pay you to keep your credits safe. It sounds like a scam, and maybe it is, but you take the risk and deposit a thousand credits. Elsewhere, in order to grow more watermelons this year and therefore earn more fruit credits, a watermelon farmer needs more credits than she has to exchange for an irrigation system. So this new credit storage business offers to give her 7,500 credits if she promises to give 9,000 back in a year. This seems like a safe bet since she's already a successful watermelon farmer, and it's worth it for her since she'll get the new irrigation system and worth it to this new fruit credit safeguarding business since they'll get more credits and everyone ends up happier than when they started. Meanwhile, you're told that you can take your credits out at any time, and you can, even if they only kept 250 of them on hand.

4:09That's because there are 9 more farmers that deposited their thousand credits to, and even if the safeguarding business only kept a quarter of them, a quarter of all deposits is much more than your thousands, and the chances of everyone watching their credits at the same time is negligibly low. So this is a free money machine. You make money, the bank makes money, and the watermelon farmer makes money. Everyone makes money. But wait, everyone makes money? Do the bank and the watermelon farmer end up with more money than when you started? So where did it come from? If we turn this into a closed loop, where no money enters or exits the system, we can track down the source. So 10 people with 10,000 credits each deposit a thousand, meaning the bank now has 10,000. The bank lends those 7,500 out to the watermelon farmer, meaning it now holds 2,500. She pays that 7,500 to one of the 10 depositors for an irrigation system they're selling. During growing season later, the farmer has 9,000 watermelon that she brings to the market and sells 900 of them to each of the same group of 10 that put their money into the bank.

5:13They now each have 9,100 credits, a thousand of which sit in the bank. Meanwhile, the farmer has 9,000 which she gives to the bank, meaning it now holds 11,500. So the farmer has nothing, the 10 individuals have 90... When you need to build up your team to handle the growing chaos at work, use indeed sponsor jobs. Use your job posts the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsor job credit at nnd.com slash podcast. That's nnd.com slash podcast, terms and conditions apply. Need a hiring hero? This is a job for indeed sponsor jobs. Fall has never looked or tasted this good. Sweet Greens Fall Harvest Menu is back with seasonal favorites dressed to impress and made to be devoured. Warm roasted sweet potatoes, crisp apples, maple glazed brussels and crave worthy flavors in the autumn harvest bowl, maple glazed salmon plate and roasted bacon brussel side.

6:18The season's most desirable menu has returned to sweet green. Featuring falls best dressed. Make your move. Order on the sweet green app. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50 page restoration block or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online makes sense? There's no place like Chrome. Check responses set up require compatibility and availability varies 18 plus. Gate and half thousand total in the bank has 11 and a half thousand, meaning there are now 100 and 10 thousand credits in the system. Once again, money has appeared out of thin air. So it's source. In the very first step, 10 thousand credit deposits go into the bank, but the 10 individuals still each have $10,000. It's just that 1,000 of it's in the bank. That's not the bank's money, so the 10,000 sitting in their vault isn't theirs, which means

7:20the money is created exactly now. The moment that loan goes out, new money has appeared. The original depositors still have their 100,000 credits because with the way the fractional reserve banking system works, they can all on an individual level withdraw their 10,000. But simultaneously, the watermelon farmer has 7,500 very real credits. If you have a roommate that you agree to share your blender with, only one blender physically exists. But two blenders worth of value is being extracted from it because you're both using it just as much as you'd use your own dedicated blender. That's essentially what's happening with money, except that with money, we track the per-person value rather than the per-blender value. Now, it's easy to argue that we can't consider the bank to have created 10,000 credits. And that's fair because the system wouldn't work if it lent 10,000 because it couldn't give the original depositors their money back. But it does work when they give away 7,500. A 25% reserve ratio is very typical in a fractional reserve banking system so we can at least say

8:267,500 was created. You could still argue that the 7,500 isn't action money since it's eventually owed back to the depositors, except that if you trust and engage in the global financial system, that's not what you believe. When you receive a loan, you can take out that money in cash, and when you deposit money in a bank account, you can take out that money in cash. It is very real money, representing very real value. This is exactly why entering the question of how much money exists is so tough. There are at least six different commonly accepted definitions incorporating different combinations of currency, demand deposits, travelers, checks, time deposits, and more. And this means of money creation is one of the primary activities that central banks like the Federal Reserve, Bank of England, or Bank of Japan seek to administer and regulate. Here in charge of telling banks how much money they have to keep in reserves, which throttles how much money appears out of thin air through banks' blending process. Of course, the aspect to take note of is the fact that money is created when it moves. Money is never created while it's still.

9:28So back in 1867, when moving money was tough and banks were rudimentary, physical currency still pretty well correlated to the total supply of money. Most dollars were represented by a physical bill or coin. But since then, well, things have changed. Abstraction helps money move. Adding paper standings for precious rare minerals speeds up the transportation of funds and transactions. Abstraction helps money grow too, as a bank's ability to loan money provides its customers the assets to then create value. Abstraction however, doesn't alone move money from one bank to the next, one town to the next, one state to the next, or one country to the next like it does today. That required standardization. Before the Civil War, there were thousands of different types of paper money backed by all sorts of private and public institutions in the US. Say, for example, a watchmaker from Wal-Them Massachusetts in 1857 went into the bank to withdraw this $20 bill to buy some machinery down in Brooklyn. This isn't the $20 bill anyone today is used to.

10:31This is a Wal-Them bank $20 bill redeemable in gold at only the Wal-Them bank but of uncertain value to anyone outside of the Wal-Them bank. Now, while the watchmaker is not taking on the risk or inconvenience of carrying $20 dollars worth of gold, there's also no guarantee that the merchant in Brooklyn will take the note from a bank so far out of their way. Perhaps because of the distance, they'll tack on a fee for- When you need to build up your team to handle the growing chaos at work, use indeed sponsor jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsor job credit at andd.com slash podcast. That's indeed.com slash podcast, terms and conditions apply. Need a hiring hero? This is a job for indeed sponsor jobs. Fall has never looked or tasted this good. Sweet Greens Fall Harvest Menu is back with seasonal favorites dressed to impress and made

11:32to be devoured. Warm roasted sweet potatoes, crisp apples, maple glazed Brussels and crave worthy flavors in the autumn harvest bowl, maple glazed salmon plate and roasted bacon Brussels side. The season's most desirable menu has returned to sweet green, featuring Fall's best dressed. Make your move. Order on the sweet green app. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. You would practically anything on the web, like restoring a vintage motorcycle from a 50 page restoration block or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online makes sense? There's no place like Chrome. Check responses set up require compatibility and availability varies 18 plus. The inconvenience of cash in the note and say the machinery is now $23. Or perhaps the watchmaker gets lucky and they are only one of many business relations the Brookline merchant keeps in the Waltherm area, then maybe the merchant will accept the Waltherm dollars knowing they'll be able to use the bill in the future.

12:34Regardless of the fate of the Waltherm watchmaker, what their predicament underscores is that money, when in many different forms from many different places, was hard to move, hard to transact with and hard to transfer outside of one's immediate community. All this changed with the National Currency Acts of the 1860s. Outwent thousands of separately backed private bank notes, in came nationally charter banks, and so began a new era of money moving with a new means with which to do it. The modern check. Under the new rules, all nationally chartered banks had to carry about 25% of their liabilities in reserve. In other words, of all the money they were good for, a quarter of that needed to be held in gold in the basement. Crucially though, these smaller banks or country banks could hold these reserves in the central reserve cities, or the few big banks. Effectively, the two banks were now connected. One could now take a check from their local bank, head into the city and buy supplies, and that check could then be settled at the larger correspondent bank without any gold having to move outside the vault.

13:34And not only were these two banks connected, countless small banks were now all linked together through that correspondent bank functioning as a hub. The simple connection had major consequences. It allowed a customer to move money regionally without the hassle of navigating a maze of domestic exchange rates, thus stimulating growth, and without the slow and risky necessity of moving actual coins or cash from bank to bank, making the process quicker. In this environment, armed with a waltzum check rather than a waltzum dollars, a watchmaker could pay for their supplies, the merchant could deposit their check at the Brookline bank, and the Brookline bank in turn, assuming because of their proximity they share a correspondent bank, would send the check to the correspondent, which then would balance each bank's funds by moving money across the basement. Now, this process at the time was far from efficient, especially when banks didn't share immediate correspondent banks. When a check moved money between banks without a direct link, they had to find a third party bank, or in some cases multiple banks, to bridge the gap and connect them with a correspondent, racking up fees, delays, and postage all along the way.

14:35Take for example, this check from 1898 for $43.56, which was deposited at the second national bank of Hoboken, New Jersey, before a second national then sent it to Harvey Fisk and Sons, who sent it to the Globe National Bank of Boston, who sent it to the first national bank of Tonawanda, who sent it to the National Exchange Bank of Albany, who then sent it to a bank in Port Jefferson, who then sent it here, who then sent it here, who then sent it here, who then sent it here, who then sent it here, where it was finally drawn. Still, while inefficient, these early checks were a critical stepping stone in standardizing and moving an increasingly abstract form of money. Bank account totals denoted in dollars, not gold. The use of checks and ease of their accounting took a major step forward with the Federal Reserve Act of 1913, which split the nation into 12 separate regions, and tasked each regional Federal Reserve Bank with filling the role of clearinghouse for all regional checks. This centralization streamed like processing, as a bank could now credit the merchant's account and know exactly which Federal Reserve Bank to send it to. It also codified a critically important function that would allow money to move farther and

15:38become increasingly abstract in the decades to come. Rigeris Accounting In the early 1900s, checks were still rather rare and their use remained mostly regional. Then came the 50s. Now, Americans were making more money than ever, spending more money than ever, and had more bank accounts than ever. From 1943 to 1952, National Check used double from 4 to 8 billion a year, and through multi-step proofing and processing, American banks were waiting through some 69 million checks every day. Banks were drowning under the pressure. It's just close at 2 in the afternoon to shift all work to matching signatures, running the adding machine, double checking the math, and packaging the checks for shipping to them. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsor Jobs. It gives your job post the boost it needs to be seen, and helps reach people with the right skills, certifications, and more. Spend less time searching, and more time actually interviewing candidates who check all your boxes. The partners of this show will get a $75 Sponsor Job Credit at Indeed.com slash podcast.

16:41That's Indeed.com slash podcast, terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsor Jobs. Fall has never looked or tasted this good. Sweet Greens Fall Harvest Menu is back with seasonal favorites dressed to impress and made to be devoured. Warm roasted sweet potatoes, crisp apples, maple glazed brussels, and crave worthy flavors in the autumn harvest bowl, maple glazed salmon plate, and roasted bacon brussels side. The season's most desirable menu has returned to sweet green. Featuring Fall's best dressed. Make your move. Order on the sweet green app. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online makes sense? There's no place like Chrome. Check responses set up require compatibility and availability varies 18 plus.

17:45Federal Reserve The work was grueling. Most clerical staff at banks quit within a year, but it was absolutely necessary. With more money passing through their hands than ever before, they had to be as accurate as humanly possible. Relief though came in the form of a computer the size of a room designed by the Stanford Research Institute, funded by the Bank of America, and built by IBM. They called it the electronic recording machine accounting, or Irma, and it transformed banking. Before Irma, checks were processed at every bank branch, they came in all sizes, and they weren't identified by bank account numbers. To move the process of sorting checks to the computer, they need to be the same size and they need numbers rather than names to be organized by. Once those standards were adopted, checks were entered into the computer, which read the magnetic ink, and if the account belonged to a bank from America branch, Irma would access the account stored in its 16 by 20 inch magnetic drum memory, check for any account holds, make sure the balance in the account was positive, draw the amount, tell you the total, save the new balance, and print the new record.

18:45Where human eyes misread and human hands mistyped, Irma didn't. As a computer even went so far as to check the routing number by plugging the digits into this algorithm to ensure the checks legitimacy. Now, the paper processing crisis that began in the 1950s was not solely a bank of America problem. It was structural. From one thing insurance bills to tax returns to social security checks, no matter how many sorting machines were added to the system, if every transaction took the form of a flimsy paper check that needed to physically pass from person to bank to fed to bank, then the paper avalanche simply couldn't be contained. So payment systems went electronic, and the automated clearinghouse network revolutionized the domestic movement of money when adopted in the 1970s. Where thousands of checks once poured into reserve banks and private clearinghouses every day, the ACH network now allowed for direct deposits, automatic payments, and ATM transactions. Now someone looking to pay their insurance premium could hand over their bank account information to the insurance company, the company's bank would then create an ACH entry requesting to withdraw money, the request would be processed by the ACH's operator, and

19:48the money would be debited from one account and credited to the other, no check required. Of course, security and the ability to uphold accurate accounting were of paramount concern in an era before the internet. Companies adopted micro deposits as a means to verify bank accounts, Federal Reserve officials helped form a regulatory body called Natcha, and in 1978 Congress passed the Electronic Fund Transfer Act to limit customer liability and protect them against wrong or fraudulent charges. The measures successfully erased consumer fears. Today, the ACH network moves over $50 trillion across 23 billion transfers a year. While ACH securely moves mountains of money to the state side, its role ends where the U.S. does. For international transfers, there's a society for worldwide interbank financial telecommunications or SWIFT, which, like ACH, was established in the 70s to streamline payments but at the international scale. SWIFT doesn't actually move money, but instead provides its 11,000 member banks a secure network and a standardized messaging format to send payment orders.

20:51Prior to SWIFT, international transfers lack standardization, security, and accuracy. So SWIFT started from scratch, organizing its member banks in a manner similar to the routing numbers on a check, assigning each an 8-to-11 character code that denotes bank name, country, location, and branch. The program also standardized how payments were communicated. They start with a bank code, but the payment instructions are outlined in an MT-103 document, which, as their process, can be tracked by the bank and, once the transaction is complete, will function as a receipt. Now if someone's wiring money from the U.S., through, say, Bank of America, to Germany through Deutsche Bank, rather than actually sending money, the MT-103 will tell Deutsche Bank how many dollars to pull from Bank of America's Nostra account held at Deutsche Bank and convert them to euros to be deposited into the recipients account. Like correspondent bank settling checks in the early 1900s without taking the risk of shipping gold coins in the mail, SWIFT members are able to fulfill their own money. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the

21:55right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a $75 sponsor job credit at ND.com slash podcast. That's ND.com slash podcast, terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. Make Your Move. Order on the Sweet Green app.

23:42This cost is felt by member banks who pay to enter SWIFT, then pay SWIFT by the message. Cost that add up and cost that trickle down too. Today, each international transfer be a part of everyday business or someone sending money to their family back home usually gets tagged with a fee likely starting in the $40 range. Considering the cost and complexity of transferring money, some have identified the opportunity of layering a simpler system on top of it. Wise, for example, is one of the world's hottest fintech startups focusing primarily on remittances. There are loads of low-to-medium income people working outside of their home country who pay those huge fees to send money to their family's back home, but wise design to system that almost entirely circumvents those intermediaries. Essentially, if someone in the US is sending a $1000 to someone in Australia, they actually transfer money into Wise's American account, then the company instructs its Australian account to send the equivalent amount, minus fees, to the recipient. They're essentially a private market equivalent of Swift. It's a dead simple system that leads to the same end result with far less cost and complexity.

24:48Banks can't do this. You see, if Wise messes up and sends the recipient money without debiting the sender, the company is out $1000. If a bank messes up and gives the recipient $1000 without the sender being debited, $1000 just appears out of nowhere. So that can't happen. It just simply can't. If it does, money breaks, our trust breaks, the system breaks. If money erroneously appears outside of the context in which we allow it to appear, then it's not functioning like its physical counterpart would. Money really is just a means of accounting. It's accounting for the fact that you owe me an orange. But if you give me the orange and I don't give you the fruit credit, then the system didn't work. The accounting failed. For the modern digital financial system to function at all, the process of transfer has to be as infallible as the process of handing a clay ball from one person to the next. Simulating physicality in a digital network as a vast and distributed as the global financial system is incredibly complex, considering how complex this system itself is.

25:53These expensive burdens of middlemen are the institutions that protect that simulated physicality, so without them, money is worthless. Alternatives are arising, most notably the blockchain, and central banks like the Federal Reserve are studying whether to introduce blockchain-based digital currencies, but for now, the world still runs on money, and money's value is all in the system's ability to account for it. Few things in the digital world are as finite as money with one notable exception, domains. There is only one Wendover Productions.com, for example. That scarcity means domains have real value, and they especially have real value to you if you start a business or a YouTube channel or something we're having the corresponding domain name matters. Hover can help with that. They're the domain marketplace that I've used to buy all of my domains, because they have fair and transparent pricing, a super quick purchasing process, and absolutely excellent customer support. Quite literally the moment we landed on JetLag the game as the name for our new channel, for example, I went on Hover and bought JetLag the game.com.

26:56And if the dot-com domain you want has already taken, Hover can still help because they offer over 400 unique domain extensions, allowing you to create combinations like our Wendover Dot Productions domain. And to top it all off, you can set up an email using your new domain in less than a minute, allowing you to drop the app Gmail or at iCloud bit for something of your own. All in all, Hover is just simply the best place to buy domains online, and it's made even better by the fact that clicking the button on screen or heading to Hover.com slash Wendover will get you 10% off your first purchase and help support the channel while you're at it.