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

Impressed that Sam was able to go from nothing to fractional reserve banking in 3 minutes

He nailed some massive concepts in such a simple way

As someone who's been a fan of the channel for a while and working at Wise for almost a decade now, I'm very happy to see us mentioned in a Wendover video.

Managing resources and making good returns is not as easy as it seems, there are a lot of things that aren't well taught in schools. The market crisis gave me my first returns, when people stayed away from hard times I made the most of it..many credits goes to Sir Trevor James Beckerman

I kind of love the stock footage of the clay balls. Also, "It sounds like a scam, and maybe it is." Awesome video!

Man. You just explained in 20 minutes everything that took weeks to understand in a high school economics class, and I have way more understanding of the reasoning behind it all! Thank you!

I've seen a few (ok, maybe just two or three) nutshellish or step-by-step explanations/evolutions of money, but the blender analogy - getting two blenders worth of value out of one value - is the viewpoint that had never occured to me before, thankyou

SWIFT is not some miracle. Sending business payments by bank transfer is still a huge pain for small business owners. I have to supply the company name, the bank address, the local branch address, fill out a form in triplicate, and pay way too much for the privilege.

The initial question "how was the value created", you missed that the watermelon grower added fruit credits to the system by growing fruit. All the fruit growers do. But in that specific loan transaction, the melon grower spent 2500 in interest but presumably grew more than 9000 credits worth of watermelons; if she grew only 9k, then when she took in the 7500 loan and paid out 9k she broke even. So let's say she actually grew 10k credits but wouldn't have been able to without the irrigation loan of 7500. Meaning that in that complete transaction, the bank earned 1500 profit, the melon grower earned 1000, and the bank received back the original 7500 loan (it was just playing with other peoples' money here). But the melon grower didn't just put clay balls in the ground and turn on the sprinklers. She had to work. If she replanted last year's seeds, and you live in an area where water is free, she still needs to physically plant, harvest, and bring the melons to market. So one source of the "added value" is her labor. The melon grower is using land. Either she owns it, or she's renting it. Regardless, the space used to grow melon and the fertility of the soil represent a source of value, a resource which can be used to add value to the system. The bank can't operate without the work of people. Someone has to research whether the melon grower is an appropriate borrower, whether the loan purpose is worthwhile, actually offer the loan, do the paperwork, receive the repayment, and do that paperwork, send out the interest payments to depositors, serve those depositors' needs like deposits and withdrawals, etc. All that labor, and the place where the bank is located, represent the same labor and real resources which allow the bank to make that 1500 credits. What I'm getting at is that the labor and real assets represent the source of value-adding. The bank may create phantom money to lend beyond its deposits. In Adam Smith's time it was appropriate to lend no more than 7x your deposits, else you risk a run on the bank. Today, large banks can get away with lending a lot more than that. Lending 0.75x your deposits is laughable. This money-creation through lending is incredibly powerful but it is a risk. As we saw in the melon example, 10,000 real melons actually got created because (a) the bank made a loan available, (2) the bank and the grower were willing to take a risk, and (c) the grower was willing to employ her land and labor to make the melons. If the loan hadn't happened, the grower would have not fully employed their labor and land. So from the macro perspective, money is a government's way to make the economic exchanges happen smoothly, hoping to get all the labor and real assets in the country as fully employed as possible. All the people who labor and earn money can take care of their own needs instead of relying on public or government support. And the more goods are available, the more can be reinvested in improving the productivity of labor and real assets (making next year even more productive), and a surplus can be exported in exchange for additional value. At the micro level you can see this happen with a household's finances. A family with no assets or education can go out and get subsistence-level jobs and then pay rent on a small bad apartment. 1. If they have tons of kids, they can employ those kids in labor. This is what families around the world have done. 2. If one of them works to gain experience on the job, they might be promoted to a higher paying position or negotiate for a better wage because of greater productivity. 3. If one of them can get an education that allows them entry into a higher-paying job, they would be willing to take a loan to get that education. 4. if they buy some materials to make something at home as a small business and sell it for extra money, the limitation is often how much they can spend on the materials, marketing, distribution. Because it's such a small operation, big companies don't want to work with them. And there are inefficiencies to working in such a small scale. But if they can get a small business loan to increase their operation's size, they can maximize their labor input and take advantage of efficiencies of scale. 5. An extended family can come together to share expenses. Instead of the marriage-age / working-age adults always moving out from their parents' home, they could stay on. The elder takes care of the kids, the young adult goes out to work, and in this way the elders are still able to perform valuable labor and the young adults don't have to spend money on out-of-family childcare. This and the next one overlap a bit with the concept of keeping money local, because the more transactions that can happen before the money gets sent out of the community, the more that community benefits from the money. 6. Several households could join together to share skills and burdens. The most common version of this in the US is roommates, where four single people can split the rent on a large dwelling and it's way cheaper for each than if each one rented a studio apartment. They must share common areas and be good neighbors for it to work. And they must rely on each other to pay their respective portions. A more involved version would be four families joining together in a deal where each night one family cooks for all four, and each day each family watches the children of all four, which frees up 75% of the time that would take for each household for those tasks on rotation. The more things like this they can share, the more they all benefit. An even deeper version would be a commune where the households exchange labor without exchanging money, allowing them to benefit from each others' skills and work even though they are too money-poor to be able to ever afford those services and also underemployed meaning their labor would otherwise lie fallow. Heck, just a shared fence line is a sharing of burdens. One fence can be built for 1000 credits, but if it's between two lots then both properties benefit from it, whereas a fence built at the back of a lot that doesn't face anything important only benefits the one side of the fence.

Best Wendover video in a while. All are great but this breaks down an incredibly complex system.

$btc fixes this. A fully decentralized, peer-to-peer network is unstoppable. Crypto is inevitable & shouldn't be controlled politically as the case of CBDCs

No matter how complex the topic or subject, Wendover does such a fantastic job breaking it down.

There is a technical layer under this that I find fascinating, I deal with it sometimes as in my day job I work with airline/hotel loyalty currency systems. A lot of these bank systems still run on old mainframe infrastructure that uses nightly batch files, rather than API calls. It's crazy really, and it is what can make it take 24 hours+ to process a transaction. These file formats are so old that they still have special characters in them that relate back to the days of punch cards.

Fun fact, the etymology for 'money' in Korean(돈) is 'to circulate'(돈다). It's just like the word currency, a fancy word for money, sharing its roots with current, as in flow of something. It is kind of cool, because other languages often use the material or the mint it was made for their word root.

In Europe we have Sepa (single european payment area). Transfering funds between different member countries is as easy as entering the account number. It also works for foreign currencies without much fees. (Switzerland for example is a member but is not part of the EU) I think that is one of the main reasons why companies like wise and revolut are not very popular here. Our country to country banking works very well actually.

Comes down to the question, where else should I put money besides the financial market? We have a 13% RPI rate so cash is tough

As someone who worked on implementing SWIFT for a bank, I can only say it is impressive how detailed your explanation is.

As a non-finance student, this really helps me understand just how complex our financial systems are, and for the real need for smarter-than-me finance students... Thanks guys, couldn't be me

Nice, I would like to see someone attempt a video on how exactly the currency exchange rate of some currency is calculated by tracing the number all the way to who decides or calculates it, and how and why.

At any one time, a local bank is likely to have $100-250K on hand. They will move about $500K-$1.5M worth of money that day as people come to deposit and withdraw money. You have to remember that businesses also use banks so they tend to deposit a lot while people withdraw a lot. It generally balances out to more cash/money in the bank than our daily.