In the past
Long ago, paper money from the king's bank circulated.
Who promises "safety"?
Behind the words "guaranteed" and "backed," who is offering what, and up to what amount?
Paper of the king's bank and shares of companies that underwrote government bonds → Deposits of trust companies → Securities and digital money claiming to be backed.
What's Behind the 'Safe' Sign in 3 Minutes
1See it
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In the past
There were also shares in companies that took on the country's debt.
In the past
Trust companies collected deposits outside the law.
Similarities
A sign that says 'safe' relies on the credibility of whoever is making the promise.
Similarities
When the sign gets big and flashy, fewer people check what's backing it up.
Today
Today, we have securities and digital money that claim to be 'backed'.
Differences
Who is making the promise? Is there a law to protect it? That's what's different.
A useful perspective
Check who protects it, with what, and up to how much, by looking at disclosures and the law.
What to watch out for
Don't equate old paper money with today's e-money.
2What would you do?
You find a new type of digital money that says 'principal guaranteed' and 'backed'. What's the first thing you do?
Pick one
Trust the sign and sign up right away.
When the sign gets big and flashy, fewer people check the backing. The paper from the king's bank and the deposits at trust companies also relied on the credibility of the one making the promise.
Check who protects it, with what, and up to how much.
Look at the disclosure page and the laws that protect it. That's because who makes the promise, and whether there are laws to protect it, has changed over time.
Don't lump together eras that had laws for things like deposit insurance and fund settlement with eras that didn't.
3Read more
Guarantee
Representative Historical Scenarios
- Rue Vivienne, ParisFrance John Law's bubble 1716–1719
- The Banque Royale, ParisFrance John Law's bubble 1720
- The City of LondonBritain The South Sea Bubble from 1711
- New York, the counter of a trust companyUnited States The Panic of 1907 October 1907
- A tavern in HaarlemNetherlands Tulip mania 1636–1637
Contemporary Financial Scenarios
Situations from the book where this theme appears. We present a comparison with past situations for each case.
If a bank fails, what happens to the deposits?
1-06 / Modern Money Present. Tokyo. Deposit Insurance Corporation.
- Similarities
- The nature of a deposit—that it will not be returned if the depository fails—has not changed since the era of money changers.
- Differences
- Today, a third party—insurance—draws a line, and within that line, the "bank's liability" is replaced by the "corporation's promise."
- Applications
- When you see a balance, check if it is for payment and settlement or a general deposit, and if it exceeds ten million yen at a single financial institution.
- Limitations
- Ten million yen is the current value in Japan, with an exception that it is multiplied by the number of banks for one year after a merger. The methods of failure resolution (e.g., insurance payment, financial assistance) are not covered.
The law divides digital money into three boxes
8-03 / Digital Present, Tokyo, Act on Settlement of Funds, Article 2
- Similarities
- The role of the law in drawing a line between what is money and what is not is the same as ancient edicts that stipulated the presence or absence of a stamp on metal.
- Differences
- The criteria for the boundary lie not in the material, but in the nature of the contract and circulation: "whether it is denominated in a currency" and "whether it can be used by unspecified persons."
- Applications
- When you see a digital asset, check which of the three boxes it falls into according to the legal definition, and then read the risks.
- Limitations
- The content of the regulations (registration, protection, disclosure) imposed on each box is not covered at this stop.
Stablecoins: whose promise, and of what kind?
8-04 / Digital July 18, 2025, Washington, GENIUS Act
- Similarities
- The promise to exchange a receipt for gold at face value has the same structure as the receipts from the age of goldsmiths.
- Differences
- The backing is not gold but short-term government bonds, repos, and central bank accounts; the law specifies the breakdown and prohibits the payment of interest.
- Applications
- When you see a stablecoin, check who the issuer is, what backs it, and under which law it operates.
- Limitations
- The law's effective date, detailed rules from regulatory authorities, and the content of Japan's regulations on electronic payment instruments are not covered.
Reading the backing — opening the disclosure page
8-05 / Digital August 31, 2026 Boston USDC Reserves
- Similarities
- The method of gaining trust by disclosing backing is the same concept as when banks began publishing their balance sheets.
- Differences
- The backing consists of short-term government bonds and repos, with weekly disclosures and monthly attestations, making the frequency an order of magnitude higher.
- Applications
- When viewing the disclosure page, read the categories, frequency, and attesting party, and treat the amounts as the values for that day.
- Limitations
- This stop is based on the self-disclosure of one company. It does not evaluate other issuers or the difference between attestation and audit.
Mortgages become securities
6-02 / Before 2008 2000s United States
- Similarities
- The idea of bundling claims into a tradable form is in the same lineage as the endorsement and transfer of bills of exchange.
- Differences
- The contents of the bundle were not visible, credit ratings acted as a substitute for verifying the contents, and even bundles of bundles were created.
- Applications
- When you hear "securitization," ask whose liabilities were bundled and who verified the contents.
- Limitations
- This station is based only on the concluding part of the commission's report. Monetary amounts are not cited as numbers were missing in the PDF extraction. The report also includes dissenting opinions.
What happens when the price of collateral falls?
6-05 / Before 2008 Summer 2007–September 2008, United States/Europe
- Similarities
- The dynamic where a fall in collateral value accelerates the flight of lenders is always present where there is collateralized lending.
- Differences
- The collateral was mortgage-backed securities, the lenders were MMFs and foreign banks, and the chain reaction spread globally overnight.
- Applications
- Read crisis reports starting with "what collateral's price has fallen?"
- Limitations
- The overall picture of causality is based on the committee's conclusions and the description by the NY Fed. The report also includes a dissenting opinion citing global capital flows as the main cause.
How to compare past and present
Similarities
The banner of "safety" is raised on the credit of the one who makes the promise. When the banner becomes too prominent, fewer people check the backing.
Differences
Law's paper was the king's bank, the South Sea Company underwrote government bonds, trust companies held unregulated deposits, and stablecoins have private reserve assets. The promising entity and the existence of protective laws differ.
Applications
When you hear "principal guaranteed" or "backed," check who protects it, with what, and up to what amount, by consulting disclosure statements and protective laws.
Limitations
When equating "Law's paper = today's e-money," do not place an era with deposit insurance and payment services laws on the same shelf as one without.
To go beyond "they are similar," we also describe the differences, what can be applied today, and where past examples should not be applied to the present (limitations).
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