In the world of finance and currency, “money” seems to be something within easy reach and taken for granted, but it actually contains an extremely complex system logic. The Money Pyramid, written by Nick Batia, a financial professional from Wall Street and a Bitcoin researcher, sets aside obscure professional terms and starts with “What is money?” Who defines its value? And who is maintaining its credibility? Starting from these fundamental yet crucial questions, it lifts the veil of mystery hidden behind currency for readers.
The Disintegration of monetary Trust as seen from Roman silver coins
The book begins with the historical event of the dinar silver coin of the Roman Empire, vividly demonstrating the fragility and evolution laws of the monetary system. In 211 BC, the Roman Republic issued the dinar silver coin, aiming to integrate the economic system of the Mediterranean region. At that time, the newly born dinar silver coins had a silver content as high as 98%, weighing approximately 3.9 grams each. The emperor’s portrait and military achievement symbols cast on them were not only a manifestation of the empire’s glory but also a guarantee of monetary credit. With the acceptance and recognition of the Roman army, the dinar silver coin became the preferred settlement tool in international trade, just like today’s “dollar standard”, occupying a core position in economic activities.
However, with the continuous expansion of the Roman Empire and the emergence of fiscal deficits, the dinar silver coin began its “slimming down” journey. From the time of Marcus Aurelius in the 2nd century AD when the silver content dropped to 80%, to the time of Claudius I in the middle of the 3rd century when it was less than 5% silver, mixed with a large amount of copper or other metals, and then to Aurelian’s introduction of the “Antoninianus” in 274 AD, which was only called “silver coin” but actually had no precious metal components, the entire process was silent and unobtricious. Without a formal announcement of currency reform, the essence of currency has been changed imperceptibly. Unconsciously, the seemingly unchanging “silver coins” in people’s hands have their purchasing power constantly declining. This profoundly reveals that currency crises are often a “slow collapse of trust” rather than an instant collapse.
Monetary stratification: Unveiling the Essential Differences of “Money”
In daily life, people’s understanding of “money” is rather vague. They think that bank account balances, paper money, platform points, cryptocurrencies, etc. can all be used for payment, and thus generalize them. However, the concept of “currency stratification” proposed in “The Money Pyramid” clearly points out that these different forms of “money” have huge differences in essence, and the credit structure determines their hierarchical affiliation.
The first Layer of currency (Layer 1) is the “ultimate asset”, such as gold and Bitcoin. It does not rely on the commitment of any institution. The holders directly own the value and have natural independence and stability. Layer 2 currency includes bank deposits, banknotes, stablecoins, etc. Essentially, it is a “commitment” or “debt certificate” to the assets of Layer 1, and the maintenance of its value completely depends on the performance ability of the issuer. Layer 3 currency covers various platform points, vouchers and prepaid cards. They are only valid within specific systems and have the weakest liquidity and creditworthiness.
For example, the deposits in a bank account are not assets in the true sense, but debts of the bank to depositors. USDT is the certificate that Tether Company promises to exchange for US dollars at a 1:1 ratio. The balance of Alipay is a digital representation of funds jointly held by multiple financial institutions.
From the perspective of the monetary pyramid, most of the “assets” people hold in their daily lives are actually credit certificates, and the stability of their value depends on the reliability of the system behind them. This also explains why in times of crisis, people tend to snap up gold, the US dollar or Bitcoin, because these first-tier assets do not require commitments from others and are more reliable means of storing value.
Dollar hegemony: The product of the currency stratification mechanism
The dominant position of the US dollar in the global financial system is not accidental but has been gradually established through a sophisticated currency stratification mechanism. The Bretton Woods Conference in 1944 established an international monetary system with the US dollar pegged to gold and the currencies of other countries pegged to the US dollar. Under this system, gold is at the first level of the monetary pyramid, the US dollar becomes the “number one at the second level”, and the legal tender of other countries is at a lower level. This makes the US dollar the core of global clearing. As central banks of various countries cannot directly reserve gold, they can only hold a large amount of US dollar assets. In essence, the US dollar has become the “representative” of gold.
Although the Nixon administration announced the “closing of the gold window” in 1971 and the US dollar broke away from the gold anchor, the global status of the US dollar did not waver; instead, it was further consolidated. This is attributed to the fact that the US dollar has long been deeply integrated into the global trade, financial and capital settlement systems. The United States has a strong financial market and bond pool, as well as a pricing system where key commodities are denominated in US dollars. Today, the US dollar holds a structurally upper position in the global monetary pyramid. The legal tender, cross-border assets and central bank reserves of most countries can all be regarded as “layered mirror images” of the US dollar. Its dominant position has been consolidated through long-term financial structure construction, asset flows and policy arrangements.
Central bank: From bookkeeping to controlling the monetary order
People’s traditional understanding of the central bank often focuses on functions such as interest rates, exchange rates and currency issuance. However, “The Money Pyramid” reminds readers that the original function of the central bank is “bookkeeping”, precisely speaking, clearing. Looking back at history, in the early 17th century in Amsterdam, the Netherlands, as a trade hub, the currency system was in a state of chaos. Coins of different types and contents circulated, causing great inconvenience to transactions. The Bank of Amsterdam, established in 1609, pioneered a brand-new model. It did not engage in lending or commercial operations but only accepted gold and silver coins deposited by merchants and completed payments through internal ledger transactions, achieving a significant leap from physical transfers to ledger transfers and greatly enhancing transaction efficiency and credit concentration.
This model later influenced the establishment of the Bank of England and became the institutional prototype of modern central banks. In the modern monetary system, the currency used in daily life is mostly the second layer, and the transfer and settlement between banks rely on the central bank as the “master node of the ledger”.
For instance, when a user makes a transfer between different banks, the actual settlement occurs between the banks’ reserve fund accounts with the central bank. Without the confirmation of the central bank system, the transaction cannot be established at the legal and financial levels. Therefore, holding the ledger authority of the clearing system means controlling the structural dominance of the monetary system. This also explains the underlying reason why central banks around the world actively promote “central bank digital currency (CBDC)”. Its essence is to compete for the monopoly of the “final accounting right” in the digital age, change the structure of clearing authority, and achieve direct control over micro-transactions.
Bitcoin and Stablecoins: A Game of Different Ledger Logics
As a representative of cryptocurrencies, Bitcoin is regarded as a “challenger to the monetary system”. Its significance goes far beyond creating a new asset; it is more about proposing a decentralized ledger structure and redefining the fundamental question of “who will keep the accounts”. The Bitcoin network aims to build a value record system that does not rely on a central authority, does not trust a third party, and can be verified by everyone. Through blockchain technology, every transaction needs to be broadcast across the entire network and its legitimacy verified by all nodes.
Although Bitcoin, as the first-layer currency, has limitations in terms of transfer speed, throughput and transaction fees, making it difficult to meet the daily small-amount payment needs, it has broken the central bank’s monopoly on “finality”, making “finality” the consensus result of open protocols, and on this basis, has derived the second and third layer structures. Such as stablecoins based on BTC collateral, Lightning Network, etc.
The emergence of stablecoins is to make up for the shortcomings of Bitcoin. They are issued by centralized institutions and pegged to fiat currencies (mainly the US dollar), belonging to the second layer of currency. Stablecoins have advantages such as stable prices, fast payment confirmation, and low transfer thresholds. They are widely used in the crypto market and cross-border transactions, especially in countries where the local currency has depreciated severely, and have become a trusted “alternative to the US dollar”. However, stablecoins also carry risks. Their value depends on the credit of the issuing institution and the dollar reserves, and users cannot directly verify the authenticity of the reserves, thus facing counterparty risks.
CBDC, stablecoins and Bitcoin, although all exist in the form of “coins”, operate completely different trust logics and ledger architectures behind them. CBDC relies on national systems and legal guarantees, stablecoins depend on corporate credit and actual regulatory structures, and Bitcoin is based on the consensus of network protocols. The game among them is essentially a competition of different “accounting rights logics”, reflecting people’s different choices of the monetary trust system in the digital age.
“Money Pyramid” subverts people’s traditional understanding of money through an in-depth analysis of the history of money, its hierarchical structure, important forms of money and the functions of financial institutions. It enables readers to understand that currency is not a single and unified existence, but rather hierarchical and structural, and a concrete reflection of trust. In the future with continuous technological development, the monetary system will become more diversified, and a world of “coexisting ledgers” may become a reality. People’s choice of currency is essentially a choice of different trust systems and accounting methods. Understanding the system logic behind currency will help make wiser decisions in the complex and ever-changing financial world.
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