Title: The Great Financial Reset Has Begun | Marieke Flament & Nicolas Colin Show: Hidden Forces (YouTube / podcast), host Demetri Kofinas Guest: Nicolas Colin (head of research, Vsquare Ventures; Drift Signal; co-author of Currency of Power) with co-guest Marieke Flament (ex-Circle, ex-CEO of Metal; board/adviser at Qivalis, N26, IG Group) Date: 2026-09-14 URL: https://youtu.be/NP71xynXhm0 Length: 54:23 (public first hour only; the second hour is on the Hidden Forces premium feed and was not captured) Note: YouTube auto-transcript. Fillers (um/uh, stutters, false starts, contentless "you know"/"like") removed; wording otherwise verbatim. Auto-caption garbles corrected: Marik Flemo/Marik/Mik/Mari/Mark/Mike -> Marieke Flament/Marieke, Nicola Kola/Nicolola/Nola/Nikola -> Nicolas Colin/Nicolas, Dimmitri -> Demetri, Kalis -> Qivalis, drift signal -> Drift Signal, VS squed/Vsquare Adventures -> Vsquare/Vsquare Ventures, Mron -> Macron, Carlo Taperez/Canada's/Koda -> Carlota Perez/Carlota's/Carlota, Michael Milin -> Michael Milken, Jerome Colberg/Cole -> Jerome Kohlberg/Kohlberg, London Bing Bang -> London Big Bang, Mayday -> May Day, Bretonwood(s)/Breton Woods -> Bretton Woods, Salana -> Solana, Larry think -> Larry Fink, Scott Besson -> Scott Bessent, OddLot -> Odd Lots, Lynden -> Lyndon, Jiskan -> Giscard, the goal -> de Gaulle, peg to the goal -> peg to gold, Plaza course -> Plaza Accord, Cirros -> Syros, infla stackflation -> stagflation, hedgeimmon -> hegemon, Marco Papic -> Marko Papic, genius act -> GENIUS Act, stable coin -> stablecoin, separ -> SEPA, financial rays -> financial rails, dolize/dollarization -> de-dollarize/de-dollarization, YouTube recently published -> you two recently published. Left as heard (uncertain): "Terzame" (03:21, a person met alongside Macron), "Mac Green" (28:28, first Currency of Power podcast guest, a Bitcoin skeptic), "Chess Hoverson"/"Jess" (37:03, a Currency of Power podcast guest). Every (mm:ss) cue kept in place.
00:01 Marieke Flament and Nicolas Colin. Welcome to Hidden Forces. >> Great to be here. Nice to meet you. >> This is a sort of partial welcome back because Nicolas has been on the show before. He was also at our recent genius retreat on the Greek island of Syros. Marieke, this is your first time coming on the podcast.
00:22 You two have been collaborators for some time, at least publicly on Currency of Power, not for that long, maybe two or two and a half years. But I assume your relationship goes far back. Before we start, just give us some background. Marieke, why don't we start with you since the audience already has some background on Nicolas.
00:39 >> Yeah, sure. So by background, I'm a computer engineer. I guess that's how I would define myself. And I've been working in technology, more precisely in financial technology for the last 10 years or so. My first work in financial technology was actually for Circle which is today the issuer of USDC and then I led the digital new bank and actually Nicolas, that's when I was at Circle that we met so it was in 2018 so that's how far our work together goes back. So we met in 2018, then I was the CEO of a digital neobank
01:12 in the UK called Metal and Nicolas was actually my adviser back then so we worked together back then and more recently I've been leading a layer one blockchain protocol. And for the last year and a half, we've been collaborating on Currency of Power. So, in my day-to-day when I'm not writing with Nicolas, what I'm doing is actually advising different companies.
01:31 So, one is Qivalis, which is a European consortium of stablecoin, a new digital neobank in Germany called N26 and another group called IG Group. So, anyway, I'm on boards of companies. I write with Nicolas and I think a lot about the topics we're going to talk about today. >> Exciting.
01:47 And Nicolas, for people that either haven't heard your previous appearance on the podcast or just needed to be reminded of your background, can you give it to us? >> Sure. So, I've been working in tech for about 15 years across Europe between Paris, London, and Munich. Before that, I was a senior civil servant in the French Ministry of Finance where I dealt with mostly public administration, macro stuff.
02:13 And my current main gig is head of research for a deep tech fund based in Munich called Vsquare Ventures. But on the side I'm still writing a lot. I have my personal newsletter. But also this newsletter that we launched last year with Marieke called Currency of Power which is on the new monetary order with a stablecoin entry.
02:34 It's funny listening to both of your bios and reflecting on how the nature of work has changed in the course of our careers. Now, it has become so much more entrepreneurial and multifaceted. We do a little bit of this, a little bit of that. We also need to have a public facing component.
02:52 You need to be out there and that's essentially your source of power in the marketplace. So what is the origin story of your collaboration? I mean, Marieke, you said that you and Nicolas first met in 2018 when you were at Circle. What were the common interest areas that overlapped for you that led to that collaboration and how did that spark Currency of Power and what is the motivating vision behind that? Oh, maybe I'll start Nicolas and you can build on.
03:21 But I still remember we met so in 2018 we were both invited separately but together at the same event to meet Terzame and Macron actually and they were both late but we were on time and so we got to chat and after figuring out that we had quite a lot in common in particular in our backgrounds actually we studied the same stuff.
03:41 We also got to speak very quickly about Bitcoin and I think Nicolas at the time you were writing for Drift Signal. You were writing a piece on Bitcoin and I was at Circle and so we started debating what it meant and what it was. And that's really how it started and how we got to know each other. After that, as I mentioned in the intro, Nicolas was also my adviser at Metal because it's a digital neobank within a large bank and Nicolas's views are always super interesting in terms of thinking macro, thinking bigger themes and bringing
04:10 things from different industries to the industry in which I was. And I guess Currency of Power was on the back of actually your newsletter, Nicolas, right? For Drift Signal again. You were challenging me on Bitcoin and crypto again. And Nicolas was telling me what is going on with this? and he said, "I'll interview you for my newsletter.
04:30 " And I thought, I mean, Demetri, I thought he was a really tough interview. I was like, I'm not getting through. He's just so not seeing what I'm seeing until I spoke about stablecoin. And then there was some sort of aha moment. And then maybe Nicolas, you continue because the idea of the newsletter was basically from you to say we have to write about that.
04:47 We have to raise awareness. >> Yes. Because when we met back in 2018, Marieke was working in the crypto world with Circle. Then she left for traditional banking and went back to crypto. And so, as she was back in crypto, I saw her as my go-to person to catch up on crypto because that was not a space where I was really involved.
05:09 But I kind of needed to once a year find someone to talk to to update my view of the space. And so I think early in 2025 I approached Marieke and said what's going on these days? Maybe we should do a broad ranging interview where we cover everything that's been going on between FTX, Trump, everything that's Bitcoin etc.
05:39 And so we did the long interview and it's true that when she mentions stablecoins as the actual first large scale convincing valuable use case for crypto I got convinced somewhat and got interested and then we talked a bit more offline about the whole space, stablecoins, and what Marieke told me is okay, stablecoins are a big thing but they're all denominated in dollars which means that other currencies are left behind in that race to reinvent money and automating money to echo what you just said before
06:18 Demetri and so in particular the euro is nowhere to be found in the stablecoin space which at some point will become a problem for Europe from a sovereignty perspective, from a strategic power perspective, from a financial perspective and so we started having a back and forth conversation on that, euro stablecoins, and what I said is that okay it's so important but also so niche that's why nobody's covering that space. It was very difficult to find anything written about euro stablecoins and why they didn't really exist at the
06:52 time and why they were still important and so I said just with my sense of what works in the public space, if it's so niche but so important there's room for launching a newsletter. We should launch a newsletter focused on euro stablecoins and that was the very first iteration of the newsletter which was initially called Euro Stable Watch and we did that for a few months and at some point it's such a niche, there's so little happening in the space of euro
07:26 stablecoins that we had covered everything over a few months and so we said okay we need to go a bit further, we need to cover dollars, we need to cover what's happening in China. So, it's not only about euro stablecoins anymore. It's about something much bigger, which is the reinvention of money.
07:46 And that's when we rebranded from Euro Stable Watch to Currency of Power. And the newsletter became what you know in its current form. [clears throat] So it feels like the term crypto has really outgrown its usefulness as a term and it's associated with so many different ideologies and promises and promises of certain types of technological innovations and use cases that I feel like we need some other term though I don't know exactly what that is.
08:27 What is the underlying value additive innovation that you think is specifically applicable to the thesis that you guys have been developing whether it's stablecoins, whether it is tokenization, what is the actual thing that quote crypto provides that you think will actually be useful in these cases? Well, maybe so.
08:52 And I think you're spot on, right? The word crypto is charged. But the reality is also, without Bitcoin, which is the first cryptocurrency ever invented, there's no blockchain, right? That's the birth of all blockchains. And therefore, that's the birth of a lot of innovation, which is broadly called crypto.
09:09 But I think within that the most transformational thing is actually enabling the ability to send truly peer-to-peer over the internet without having to have a central party to be able to send value. That's transformation number one. And then after that what actually has been also a huge shift in the industry in terms of innovation was the birth of Ethereum.
09:31 And with Ethereum you could actually code smart stuff on a blockchain. And that's transformational because of the way money moves today. For example, if you look at SWIFT, there's a decorrelation between the action and the message this bank needs to send from one point to the other to actually the physical sending of the money on a wire.
09:49 And in blockchain when money moves around actually all of that is together. So you can really program it and actually do smart stuff and have it in a programmable version. So I think that's really the real true transformation, the fact that with blockchain and with smart contracts you can actually have smart money and therefore program it.
10:09 We can go more into what it means for the financial system and how it's rewiring everything but today yes there is a lot that's happening on, okay, so if we can actually move fiat money in a way that's programmable and decide when and how it should be moving we can surely also do that with any financial instrument, be it stock, be it actually gold or be it other things, right, and so therefore we can do what is often called tokenization of all those assets but it's always on a blockchain, I mean there's hundreds of them. Yeah, I don't
10:38 know Nicolas if you want to add anything but that's how I would frame it and I think it's a good point. Crypto is a charged word. But it is still [laughter] what is being used and that's still the core of it. Yeah, I think it's charged but it also reflects the underlying technology, cryptography and the fact that you need that key to unlock the value and it's really the technology that makes it possible for the whole system to work in a decentralized way.
11:09 That said, any decentralized system that reveals interesting features will soon be I don't know conquered or colonized by large players and will recentralize quite fast which we're seeing at the moment, the crypto space, in so long as it's a reinvention of financial markets is already dominated by large players rather than decentralized at the individual level.
11:39 But it's still the same technology that was revealed through decentralization and made it obvious that there's something to be added, an extra layer to be added to the financial system which makes money programmable or automatable. And I agree that crypto is charged. Tokenization, I think it's the default term at the moment.
12:02 Everyone's talking about tokenizing financial assets, which makes it quite clear, but also doesn't really resonate with people that are far from this world. Maybe when we finally impose that consensus in terms of speaking of programmable money, programmable capital or automating money, which I find very interesting as a concept.
12:24 But it's not enough to decide the three of us that we will label it automation rather than tokenization. We need Larry Fink and Scott Bessent to convert to that as well for it to become market consensus. >> So what does this emerging financial architecture look like? Is it increasingly breaking up into permissioned distributed ledgers that then reconcile and settle on I don't know Ethereum or Solana? A lot has changed in this industry since I was first in it.
12:56 So, how would you go about explaining to someone in the most rudimentary simplest terms possible how they should think about what is being architected here and how it's fundamentally different from the legacy financial infrastructure that everyone has been accustomed to using forever. >> Yeah.
13:17 I think for me the key intuition comes from being a practitioner in the investment world. Before doing what I'm doing these days that is head of research for Vsquare, I was the co-leader of a pan-European startup accelerator which has grown over the years a portfolio of stakes in companies but also special purpose vehicles that gather investors to invest capital in companies.
13:49 And when you manage a special purpose vehicle you own an asset, when that asset is realized it is converted into cash and that cash needs then to be distributed to shareholders of the SPV and then the SPV is dissolved. What you realize doing that is that two different layers coexist without interacting much except through the humans that are managing the whole thing.
14:19 One layer is financial, that's what happens on the bank accounts, money coming from, if a company is acquired that's realization of the asset, then the acquirer wires money to the SPV which then has to wire the money to shareholders, that happens on bank accounts, and then you have another layer entirely independent which is the legal layer, you have the contracts, what does the contract say in terms of how the money should be split between the different shareholders, is the carried interest or the expenses that need to be reimbursed first etc etc and so you have,
14:51 as a human manager of the whole thing, you have to do all the calculations yourself and then send instructions to the bank. I think what crypto or tokenization or programmable money brings about is the possibility to plug one of those two layers into the other and make them work as one, the legal layer and the financial layer, that is when the money arrives on the bank account that triggers execution of a contract that's been preloaded in the system.
15:25 That has been modeled by another form of code and that code can then be executed effectively by splitting the money and wiring it to all the shareholders based on the rules that were agreed upon when the SPV was formed. And I think if I build on that, so all of that is happening, but it's happening on different technologies.
15:49 So you mentioned Ethereum, you mentioned Solana, there's like 150 of those, right? And why is that? Well, because at some point there's been a realization that some of those blockchains and technology were good, but they had some constraints. Some were not fast enough, some didn't have privacy, some were not user friendly enough, and so on and so forth.
16:08 So you've had this explosion in an ecosystem which basically created hundreds of those different blockchains and what we are seeing today is actually what we see in a competitive environment, at least that's what I believe, a few are going to win, right, and so you mentioned for example Ethereum and Solana and those are the blockchains where today in an open source way you see actually more and more of the traditional financial system moving to those systems. To me blockchains have always been just an infrastructure,
16:36 it is designed to do what Nicolas described, right? But it's the technology and it's the tech part of it. And I know sometimes it's confusing and there are so many of them. And I think it's also because the entire ecosystem was still quite immature, right? So today we're seeing this concentration.
16:52 There are still a few blockchains that are emerging as very specific for payments, maybe very specific for banks because for banks or central banks it might be very uncomfortable to think oh should we work on something that's open source and decentralized? There's always this question, can we trust it? I think you can trust something that's open source and decentralized way more than something that's closed and that you have a few that know, but that's all it is,
17:15 right? So, at the end of the day, the genius in all of that is what it can do and then it's just a matter of tech, how you do it and with different parameters. So, you two recently published a post on Currency of Power titled The Great Financial Reset Has Begun, which builds on articles and posts you've been writing now for the last year and a half.
17:39 And in that article, you wrote, "What we've witnessed over this turbulent summer of 2026 is not a series of isolated market tremors, but the initial grinding gears of a structural shift in the global monetary order. What is the shift you're seeing?" and embed that within the larger thesis that you guys have been developing over the last year and a half that makes sense of this latest piece, the great financial reset has begun.
18:06 >> Who would like to take that? Nicolas, do you want to start? >> Yes, Nicolas, you start. >> Yeah. Okay, I can start. So like many people in the tech space I'm an avid reader and follower of Carlota Perez who's a British Venezuelan economist who wrote that book in 2002 called Technological Revolutions and Financial Capital that explains that technological revolutions happen approximately every 70 years by bringing about a new technology that provides the opportunity of
18:45 reinventing how we produce, how we consume, how we work. That's what she calls a new techno-economic paradigm. And then there are certain nations that take advantage of that new technology to update or upgrade their institutional framework as she calls it to be more in sync with the techno-economic paradigm made possible by the new technology of the day and reap the rewards of that.
19:18 In Carlota's model she divides what she calls a great surge of development triggered by a technological revolution into various phases and the last phase is called the maturity phase, it's when the new technology is not so new. The new entrants that have harnessed the power of that new technology have become big and a bit exhausted.
19:46 The markets are plateauing and growth is not as strong as it used to be. And that's typically a phase where you have to find extra room if you want the economy to keep growing because you've made the most of the new technology and you need to pull different levers, not technological levers but other levers.
20:13 And so the last time that happened, the last time we reached a maturity phase in a great surge of development was in the 1970s. That was the maturity phase of what Carlota calls the age of oil, automobiles and mass production which started with the invention of assembly lines to assemble automobiles early in the 20th century in Detroit, USA.
20:39 And yes it reached maturity in the 1970s which we all remember I think even though we were not all born at the time, we all remember the 1970s having read about them in history books as a period where the economy really stalled and it created a lot of problems including stagflation, social unrest, political upheaval etc etc.
21:05 One of the things that happened during the 1970s was a financial reset, a complete upheaval of the international financial system. By which I mean not only the Bretton Woods system, the IMF, the dollar being linked to gold, etc., but also who participates in the market, what is traded in the market, how companies are funded, how capital is raised etc.
21:42 And if you go through a list of everything that was invented or emerged during the 1970s, it's mind-blowing in terms of financial innovation. So it starts with something known as the Nixon shock when the US decides to cut the link between the dollar and gold. That's 1971. A few years after that, Michael Milken invents the junk bond market.
22:09 Thus providing an abundant source of capital for many many things including something else that was kind of invented in the 1970s, leveraged buyouts. The end of the 1970s is when Jerome Kohlberg, the first K in KKR, partners with Henry Kravis and George Roberts to found KKR because the two younger co-founders have seen that what Kohlberg had been practicing in a very artisanal way at a very small scale was a way to deploy capital in mature companies and force them to find extra
22:53 productivity and to create additional value for shareholders. So leveraged buyouts in their current form were effectively 1970s. Something else that was invented by then was the Bloomberg terminal. Bloomberg launched the terminal at the end of the 1970s. It became an omnipresent device on everyone's desk in financial services during the 1980s and it made it possible to exchange information and to do trading much faster in a much more efficient way. And then you have a
23:31 few regulatory inflection points such as what is known as May Day on the New York Stock Exchange in 1975 when the New York Stock Exchange decides to end the system of fixed fee brokerage thus unleashing financial innovation in many different directions on the New York Stock Exchange.
23:53 And about a decade later in London, there's something known as the London Big Bang, which is essentially the British government and the London Stock Exchange drawing the lessons of everything that's changed in finance over the past 10 years and deciding that they will implement the perfect regulatory framework to take advantage of all of that in London.
24:20 And that turns London effectively into the second financial hub for the global financial system moving forward. So all of that happened during the maturity phase of the age of oil, automobiles and mass production for reasons that we can discuss. But I think one of the reasons is that when the new technology is not so new, when it fails to deliver additional productivity gain, then you have another lever that you can pull which is reinventing finance.
24:50 You can find extra value. You can create additional value by unlocking the power of finance. And that needs to be done by launching new financial products like junk bonds, launching new financial tools like the Bloomberg terminals, bringing about new financial regulatory frameworks like May Day or the London Big Bang.
25:16 And all of that together effectively gives birth to a financial system that is completely different. And so fast forward to today and sorry for the long answer but if you assume as I do that we've now reached the maturity phase of the current techno-economic paradigm which I call that of semiconductors, computing and networks, then that maturity phase should give birth to a new financial system and so if I have this conviction then I look everywhere for signals that the financial system is changing and having written about that
25:55 for one year and a half with Marieke I have gathered a lot of such signals and organized them in a coherent way and that's really the thesis behind the idea of a great financial reset. >> What were the underlying forces that led Nixon to end convertibility? And here I don't mean the proximate reason of gold reserves being drained, but what led to that? And then how did that end of Bretton Woods serve as a forcing function for what really is a cornucopia of financial innovation? I mean, here you're talking
26:33 about junk bonds, LBOs, Bloomberg terminals. There isn't just one form of financial innovation. So flesh that out for me a bit if you can. >> Yes. Oh, by the way, one that I forgot was the invention of passive investing. The 1970s is also the launch of Vanguard by John Bogle >> and the institutionalization of finance and the development of investment frameworks that now define largely how people invest their retirement savings which have also come to replace savings as the primary mechanism by which people
27:07 plan for their retirements. >> Yes. At least in the US, not so much in Europe. >> Yes, correct. In the US. >> So start first again with what were the underlying drivers that led to the end of convertibility and then how did the end of convertibility lead to this just broad cornucopia of financial innovation.
27:26 So I have two answers and maybe Marieke will have other ideas, but one answer I heard from Martin Wolf on an episode of the Odd Lots podcast, I think last year, and he was saying the US had spent so much for the Vietnam War and for Lyndon Johnson's Great Society in the 60s, end of the 60s, that normally it would have had to devalue the dollar to adjust for having spent so much and restore balance in the system.
28:04 But because it was humiliating for the hegemon that the US was to devalue its own currency, especially since the dollar was really the anchor for the whole international financial system, Nixon just said, "No, we won't devalue. Let's just cut the cord and bring this system to an end and let exchange rates float."
28:28 So that's one explanation. The fact that the US had spent so much and was refusing to assume the consequences of that. The other is more generic. But it goes back to the conversations Marieke we've had about inflation and hard assets etc. So one of our interviewees, because Currency of Power is also a podcast and the very first interview actually was Mac Green whom you know >> and we asked him about his skepticism about Bitcoin and so difficult to do justice to the whole thesis which is
29:12 fascinating but essentially what he says is that you can't anchor the entire economy on hard assets because hard assets by definition have a limited volume. >> Limited. >> Yes. Elasticity. And if your economy is growing well, if you have technology, if you have productivity, etc., the economy can grow indefinitely well beyond the volume of hard assets.
29:38 So if you pick one hard asset and the economy is productive at some point there will be tension because you'll need more money to reflect all that additional value brought about by productivity and the hard assets in limited volume won't be enough to anchor the whole thing and so at that point you have two options, one option >> For people that are listening, I just wanted to clarify because this conversation I've heard it often over the years.
30:10 The key insight here, I think, is that borrowing costs go up. If you don't have an elastic currency, the cost of borrowing money becomes punitive and that reduces the potential for growth. And that's essentially the insight, right? >> Yes. Exactly. And then you go into deflationary mode and you've missed an opportunity.
30:30 You could have created more value, but because you force yourself to anchor the entire economy on a hard asset that is limited in volume, then you can't grow as fast. And so that's why every regime that relied on some hard asset, whether the gold standard or the Bretton Woods regime, which was a gold standard by proxy of the dollar, was ultimately brought to an end.
30:54 Not because it didn't work but because the economy grew so much thanks to technology mostly that we had to let go of the hard asset and find something else to anchor the economy and so I think fundamentally that's what happened in the 1970s, it's that mass production, the techno-economic paradigm of the day had brought about so much value, so many jobs, so much wealth widely distributed across especially the US middle class that all the gold in the world was not enough to sustain this massive value
31:34 creation machine >> and sorry I was going to add a French perspective but that's also when you start seeing things crack, de Gaulle and his prime minister at the time Giscard starting to talk about an exorbitant privilege and I think you mentioned it's not just about gold and sending ships and not wanting to ship that but there are cracks in how the system is perceived and how that position works.
31:59 So I think that's actually definitely the premises of what we are seeing and then the question becomes, which is also one of the questions that has always been a trigger in particular in the crypto world, okay so if fiat currency is backed in essence by nothing then what is it, right, and so you have also within this time frame the birth of a petrodollar system so we could say okay is then the dollar a representation of energy and therefore of oil or is it something else, right, but I think all those conversations are
32:28 linked from the fact that being ultimately linked to gold doesn't allow enough elasticity. There are cracks in the system, it needs to change, there is more freedom to basically print more money but then what is it and then there's actually a petrodollar system that puts itself in place and then is that system the system for the future in particular if we move into an electrostate, right? I mean maybe we'll come back to it but I think there's also for the great reset that we're seeing what's very
32:57 interesting is the modern history, right, from 2008 and how we saw financial crisis and so on and so forth so I'll pause here for now because you might have follow-up questions but I think we should also look at why we think now there's this great reset happening and what are all the trigger points that actually we have a thesis about.
33:11 >> Yeah. No, I'd like to do that. Let's linger here a bit longer and let me think about how to ask this question. So there was a broad expectation that Nixon's de-pegging of the dollar from gold would lead to a long-term devaluation and loss of that exorbitant privilege. But in fact, by decentralizing the international financial system, the dollar actually became stronger.
33:38 And to your point about the petrodollar, what we saw was capital recycling back into the United States driving the value of the dollar up. So high in fact that international governments needed to come together under the Plaza Accord in 1985 to drive the dollar value down.
33:55 And so I think that's an important observation because it has ramifications for a lot of the work that you guys are doing in terms of what the implications would be for dollar-backed stablecoins. Isn't that right? >> Absolutely. And I think that's actually spot on. There is almost, enabling the peg to gold to be finished enables this printing of money and this decentralization of the dollar in other places, right? And now you have that with the petrodollar but also with the eurodollar which is
34:24 okay if two counterparties are outside of the US and they need to have dollars where there are actually exchanges that are made but it's not dollars that are directly controlled from the US and the Fed and actually I think there's such a strong parallel with what we are seeing today for example with stablecoins. Tether is a perfect example of that. There are people everywhere in the world, as long as they have actually a digital wallet they can have dollars in their pocket and that's also an outsourcing of the dollar and I
34:52 think the strength in a way of the dollar has always been to believe that outsourcing its currency is a better mechanism rather than actually strengthening it. So it's let it flow, don't fully control it, but at least it's in everybody's hand. And by being in everybody's hand, one, you can also dictate the rules, right? Because that's your money that's floating in the world, but you basically have that that is in everybody's hand.
35:18 So there is absolutely a parallel and Nicolas and I have debated a lot, are stablecoins the new petrodollar, are stablecoins the new eurodollar, are stablecoins actually something different and they're the money for compute because compute is the new oil, right? We've played around with all those different ideas, but I think you're totally correct that what it enables in the 1970s is actually that it enables the outsourcing and therefore the more free floating decentralization of the dollar.
35:43 >> What I've long argued is that the dollar is the most decentralized currency on the planet. Would you agree with that? >> 100%. It is everywhere. And the more we look with Nicolas, we were like, okay, China will de-dollarize. And then you look at it, it's completely linked, right? So it is very decentralized.
35:59 It's everywhere. >> This is of course a very controversial statement to make to Bitcoin Austrian economists and libertarians at the time that I was making it. But for people that have a sort of archetype in their head of what the dollar is, I feel like most people think of the dollar as this thing that Uncle Sam has and that he emits to the rest of the world and that the rest of the world can decide at some point, well, we just don't want this anymore and we're just going to take something else. Which I feel like
36:26 is really an inaccurate view of what the dollar is, which is at its core a denomination. It is a lingua franca. It's like English. The rest of the world speaks English. No one forces them to speak English. It isn't that easy to stop speaking English. And it comes with all sorts of network effects and conveniences.
36:44 And so what would you think, if you were to try to explain to people what it is about the dollar that makes it so sticky and powerful as we go further into this conversation about financial innovation and dollar-backed stablecoins in particular? What would that be? And feel free to both respond. >> Yeah, Nicolas, maybe you start.
37:03 [laughter] Yeah, I can't remember, but we went through a detailed list of everything that makes the dollar so enduring and sticky in our podcast interview with Chess Hoverson a few weeks ago. And off the top of my head, one is obviously the network effect, same as a language. If I'm transacting with a counterparty in Brazil, they speak Portuguese, I speak French, the two languages are very close in general, but the easiest way to understand each other will still be switching to
37:47 English. And it's the same for the dollar. If we try to transact in euros or reals, well maybe we'll say it's too complicated or too risky because the market is not deep enough to secure the exchange rate over the duration of the transaction. So maybe we'll switch to the dollar which is known, safe, liquid etc.
38:13 >> And in both cases you don't need anyone's permission. You don't need anyone to use dollars or to speak English. >> Correct. >> Yes. Exactly. And so that's one factor, network effects. The other factor which was the conclusion of our discussion with Jess was that the financial rails matter a great deal.
38:33 That is how convenient and how easy the financial system makes it to use a specific currency for a specific transaction. And because the dollar is so massive, there have been so many investments in the infrastructure that supports the dollar across the world.
39:00 Then it's usually the default solution because those are the financial rails that everyone uses and they've been overinvested and they're very convenient and very easy. So you could argue that maybe the euro is close enough from a convenience perspective especially within the eurozone, SEPA etc. But yes so those would be two reasons for that. Yeah.
39:27 And I think we find them back also when stablecoins pick up, why they pick up, right? One is actually availability. You need to be able to have access to a currency, where is it, and for the dollar whether it's correspondent banking or the rails that Nicolas was mentioning, all of that, the rails are there, right, so the availability, the system, it works and it's been built over years but if you look at it again, we're talking about the 70s, not that long ago, right, in a sense. And the second part is really
39:53 important is once you have actually this network and the rails that are being built is that within it there is liquidity. There is very deep liquidity. So it's almost endless and so it works. So wherever you go in the system even in the most remote places there will always be liquidity for you to be able to have access and that's really the thing that works.
40:12 So for today, and that's some of the questions that we look at, for today to actually change that, it is so prevalent everywhere, the network is so deep and the liquidity is so deep also that actually to change that it's not going to be a matter of days or years, it's going to take a [clears throat] long time and it's all about network effect, right? So if anyone would want to actually become the reserve currency of the world, big question mark, but if anyone would want to start that
40:40 it's a cold start thing, right? You can build the rails, but then you can build the rails and nobody comes on it. Or you can build the rails, but there's no liquidity. So, it's not working, right? But to me, it's really the infrastructure, the liquidity, which is again what we see in crypto.
40:53 >> And US public debt markets are what provide a big chunk of that liquidity and the ability to manage outstanding liabilities and funding requirements, which is I think also something that people don't appreciate when they look at the state of US finances and they say, "Who wants to own US government debt?" Well, the primary reason that people want to own US government debt is not because they think it's a better long-term investment than, I don't know, gold or art or something else, but because they need it. They need dollars
41:20 if they have outstanding liabilities and they need to manage those outstanding funding requirements. And I think this is something we'll have a chance to certainly talk about in the second hour when we discuss where things could be going in the larger macro picture. I feel like we did a good enough job establishing the analog of the Nixon shock period to the London Big Bang and we discussed two aspects.
41:45 One was the set of primary drivers that led to the end of Bretton Woods and then we didn't talk as much exactly about the forcing function that led to the financial innovation but we certainly gave examples, Nicolas did, of forms that financial innovation took. What are today's drivers? >> Yeah.
42:04 And I think that's where I would call that modern history but I think there's a few drivers that have happened. So one, 2008 financial crisis, also the birth of Bitcoin, right, and we can debate related or not, whatever, but financial crisis, birth of Bitcoin. So you have now a technology that enables transfer of value in a peer-to-peer fashion with the rest of the industry as we've discussed a bit before which is Ethereum and smarter and smarter blockchains that enable you to do better and better things. So to us 2008 is
42:34 definitely a shift into what's happening. There's another shift that is actually also very interesting which is more 2014 and in 2014 actually when Russia invades Crimea and then there are sanctions that are being put on Russia, that's a wakeup call for many in actually the world and that wakeup call is oh hang on if sanctions can happen at that level and maybe next it's us, right, next we are the country, and one such country that looks at that very closely is actually China to think through and to say okay wait if that happens to
43:07 Russia, maybe it could happen to us. So, how do we build something that's independent and self-sufficient? And Nicolas has this amazing concept which, when he talks about China, he looks at a self-sustaining society. I think it's really thinking of a full stack society, how to build that, part of that is actually building the rails and having rails that are independent and that no one has oversight with and can cut.
43:30 So, that's a second shift that we look at, 2014, which I think is very interesting. Covid is another very interesting moment in this, again a massive shift of how everything is happening, not only because of course of what happens and most of us are locked in our flats but that enables actually a massive acceleration of everything that's digital, right, so if we were still debating is money going to be digital or not, what's going to happen, there's no doubt there's a tremendous acceleration of actually digitalization to that and
43:57 then there is Trump's comeback, right, and with Trump's comeback the GENIUS Act and all the laws that are basically starting to emerge and are being put in place to actually also fully embrace a technology with the understanding that actually the dollar has power through network effect but that the money of the future is technology and that therefore this is actually an instrument that is really important to protect, right? So I don't know if you want to add anything Nicolas but I think in modern history when we look at more
44:26 the points and everything that we see has been happening to start creating this moment of the reset, those are some of the key moments. >> Yes, I would add an older episode which is I think when the US ceased to be a surplus nation and became a deficit nation from a trade perspective and current account perspective.
44:51 That really echoes Ray Dalio's discussion about the rise and fall of empires and what he explains is that when the empire stops being a net exporter and becomes a net importer, which happened to the US sometime between 1976 and 1982, so also the 1970s, it creates a dynamic, at first it's very low, you don't see much at first, but in the end it peaks in terms of discontent because the empire imports so much and has to provide everyone with its own currency.
45:47 So that's where we are, the fact that Trump was elected twice in 2016 and then 2024 mostly because of his trade agenda, putting an end to the US being ripped off by the rest of the world, re-industrializing America etc. All of that implies that the dollar has to cease to be the reserve currency and you need to erect trade barriers and you need to reverse the trend that started between 1976 and 1982 which is when the US ceased to be a surplus nation and became a deficit nation.
46:28 And so you have those macro imbalances that are piling up and culminating now with China having this massive trade surplus including with the US. And Ray Dalio, another thing that he says is that effectively the reaction to that is that the empire becomes predatory towards others which is exactly happening with Canada, with Europe, with South Korea etc.
47:00 And he says the last thing that gives in the imperial construct is the reserve currency. That's the very last thing that will still be in place when all the rest is gone. And in a recent podcast conversation, geopolitical analyst Marko Papic was reminding us that Britain ceased to be the largest economy in the world at the end of the 19th century.
47:36 It was passed by the US back then. But the pound sterling remained the reserve currency of the world until the end of World War II when it was finally decided that >> okay we need something else, it'll be the dollar pegged to gold and that was Bretton Woods, but through all of those things, Britain ceased to be the largest economy in the world, then it didn't lose World War I but World War I was a massive blow to Europe and to everyone in Europe including Britain.
48:15 Then it tried to go back to the gold standard, then had to go off the gold standard in 1931. Then World War II, the Holocaust and everything that happened. Europe completely destroyed. Britain in ruins because it's been bombed down by the Germans. You needed all that for the pound sterling to cease to be the reserve currency.
48:39 So if you extrapolate from that following Marko's reasoning the dollar is here to stay for a few more decades. But the signs that its demise will happen at some point are already here if you know where to look >> which is also consistent with the observation that the dollar is a denomination.
49:02 It is an independent thing that people can continue to use and contract in even if the United States or the US empire is no longer around. So it explains the lag. In other words, I want to share a few thoughts before I move us to the second hour because it seems to me, having read the writings that both of you have been putting out on Currency of Power and Nicolas, your stuff at Drift Signal for at least two or three years now.
49:32 It seems that you each have grown less certain about whether America will be able to maintain its financial hegemony or dollar dominance or whatever term you want to use for as long as maybe you initially thought when you were working on your thesis around dollar-backed stablecoins. First of all, is that accurate? Am I correctly reading that from your most recent piece on the Great Financial Reset? Yeah, I think you are right because well one thing is I think through our work, one, we've actually started also to disentangle what it is
50:07 to be a reserve currency from what it is to be a currency used in trade, right, and I think actually that distinction is very important because as Nicolas says you could continue to be a reserve currency but maybe some other stuff is being used in trade, right, which I definitely think is probably some of the signals that we see with China. But the other realization has been, the dollar is so entangled everywhere, right? So for example, I know that people look at China and they say, "Oh, it's
50:35 going to take over." But the reality is that if you go to Hong Kong, which by the way is the key door from China to the rest of the world, if you go to Hong Kong, the Hong Kong dollar is pegged to the dollar. There's a fixed rate. That's it. It's pegged. So it is in a way, the Hong Kong dollar is the dollar, right? There's an exchange rate that's straight to that.
50:53 So it's way more intertwined in everything that exists out there. I think in our work what we found really interesting is this idea that if you are sat around members of the government in the US and you start putting the pieces of everything that's happening and you say okay what is the next financial innovation, what do we need to think about, the next generation of things, and then you start pondering that well maybe stablecoins are this next generation because they have all
51:23 the tools and the instruments that you could actually require for continuing to be able to dictate trade and to actually have an oversight. We haven't talked yet about financial regulation and oversight and freezing and being able to seize and so forth, but this is part of the power of the dollar, right? If it's happening in dollars, it's there.
51:41 So, I think the point that we found really interesting was to say, okay, there's this technology that can come up and do that. Now, how fast can this transition be? Uncertain, right? So, I think we, I don't know Nicolas, what would you say? Yeah, I feel personally I've grown a lot into, things are not like they look in the headlines.
52:01 Definitely not. It's catchy to make a headline like de-dollarization is there. I'm like, well, hang on. It's going to take way [clears throat] way longer. >> Well, I think so. I think in the second hour we'll have a chance to discuss what has changed. And I think one thing that's changed is this administration's policies or what we expected their policies to be and the seriousness with which they pursued the agenda.
52:24 Financial innovation and re-regulation of the financial system and what has actually consumed the energies of the Trump White House. When I was asking you about analogous drivers today, you touched on two that I had previously identified from your work. One of which was the rearchitecting of the financial system and of money itself primarily through the widespread adoption of dollar-backed stablecoins.
52:50 Another was the geopolitical fragmentation and localization as other countries began to feel the need to protect their own capital reserves from being expropriated to US dollar-backed stablecoins. And the third which you didn't mention but which I want to talk about in the second hour is machine-to-machine commerce as the increasingly dominant layer of the global economy.
53:12 And what does that really mean when we build all these automated systems that then need to engage in commercial activities and do we need by definition a new sort of financial system or financial innovation to do that? That seems to be in my opinion a primary driver. And one more thing for sure that I want to talk about in the second hour guys is what is both of your views on the likelihood or inevitability of debasement, of capital controls and other means through which to achieve financial repression?
53:43 Does the rise in Treasury yields for example suggest concerns about the state of US finances? Does it reflect to some degree just the preference that investors have for pouring more and more money into the AI trade? So, I'd love to have a broader macro conversation when we head into the second hour.
54:04 As well, for anyone new to the program, Hidden Forces is supported by listeners like you. Go to hiddenforces.io/subscribe and sign up to one of our three content tiers if you want access to the second hour of today's conversation. Guys, stick around. We're going to move the second hour, as I said, onto the premium feed.