P09 The balance of payments drives politics
Global circulation of silver → Foreign exchange, current account balance, reserve currency
Do monetary flows move faster than politics?
Four Steps
Monetary flows move faster than politics.
Silver was transported by ship; today's capital moves instantly. This speed has changed the scope for policy-making.
The balance of payments is a metric, not a moral issue.
When discussing the rise and fall of a nation solely by the direction of outflows and inflows
These are the four steps for going beyond "it's similar." The "limitations" step defines the point beyond which historical analogies should not be drawn.
Read at the Modern Money Stations
Stations from the textbook "Modern Money: Whose Debt Is It?" where this structure appears. The four steps for each station are not displayed on the screen in the textbook. Here, you can read them side by side.
Dollars are also created outside the U.S. — Eurodollars
6-01 / Before 2008 1962–2008 London, New York, Basel
- Similarities
- The pattern of a country's currency circulating outside its borders, with disruptions in that market affecting the home country, also existed in the era when silver coins circulated across borders.
- Differences
- What is circulating is not metal but deposits in foreign banks, and what resolves blockages is the exchange of liabilities between central banks, known as swaps.
- Applications
- When you hear of a "dollar funding squeeze," recall dollar deposits outside the U.S. and central bank swap lines.
- Limitations
- The figures are from a BIS paper and the bank's estimates cited therein. The origins of the Eurodollar market (1950s) are not covered.
Who Holds the Government Bonds?
4-03 / Government Bonds March 31, 2026. Tokyo. Flow of Funds Accounts.
- Similarities
- The structure of national debt holders being at the center of finance can be seen since the era of city merchants and banks that underwrote public bonds.
- Differences
- The largest holder is not a private bank but the central bank, and its acquisition is limited to purchases from the market, not direct underwriting.
- Applications
- When you hear "the Bank of Japan holds half of the government bonds," check if the figure is based on market value or face value, and whether it includes treasury discount bills.
- Limitations
- The ratio is based on market value; if interest rates move, the figure will change even for the same number of bonds held.