Bitcoin: The End of Money as We Know It Page #2

from people to people,

people would cut

little bits off.

And in fact,

some of the taxation

that the kings would do,

would actually be

take one eighth

of the coin off.

- [Voiceover] Taxes

built castles,

and financed military campaigns,

expensive hobbies.

Soon, royal mints were

substituting cheaper metals,

for silver and gold.

This is called debasement.

And Europe's kings

made a habit of it.

The currency of France was

debased every 20 months,

for 200 years.

If no one can trust the

gold or silver content

of your coins,

how can you trade

with other countries?

International merchants

found a solution.

They recognized that

one persons debt,

has value.

It can be traded or transferred.

When those IOU's came

from reputable sources,

they could be used

as a form of money.

Paper money.

This money was not based

on hard commodities,

or metal, but instead,

on someone's promise to pay.

Merchant families

like the Medici,

in 15th century Florence,

acted as clearing

houses for these IOU's.

It worked like this.

An English trader ordered a

shipment of Italian cloth,

from the Medici

for 100 gold coins.

His promise to pay the

Medici was put on paper.

Meanwhile, the Medici

owed 100 gold coins,

to another trading partner,

for delivery of

wine from France.

The parties didn't

go to the expense

of transporting and

exchanging gold coins.

Instead, the paper

was transferred.

Everyone agreed that

the paper had value,

100 gold coins.

But only because the

everyone trusted the Medici,

as solvent middlemen.

They had created a

paper money machine.

Within a few generations,

they rose from low crime

to high finance.

Their great wealth,

helped fuel the

Italian renaissance

and elevated the family

to levels of enormous

political power.

The power to marry

into royal families

and get elected as popes.

The ties binding money

to power, politics

and influence now ran

through church and state.

Merchants had proven that

creating paper currency

could be wildly profitable.

Goldsmiths wanted

in on the action.

- Imagine it like this,

if the goldsmith had seen

over a period of time that some

of the coins he is storing for

people were gathering dust.

The people who own them,

don't need them right now.

So what if I go and lend

them out into the community

and I charge them

interest on this loan.

So he starts out lending

some of these gold coins

and then later he

realizes, actually people

don't even want the gold

coins they just want the piece

of paper that says that the

gold coins are in the bank

and with the goldsmith.

So I can now make a loan

with these pieces of paper.

And whatever I write

on the piece of paper,

as long as the people trust

me, they'll trust the paper.

And effectively the goldsmiths,

the early day bankers,

they had literally acquired

the power to print money.

- [Voiceover] More and more

such private paper money

from merchants and

banks circulated

and began to rival

the crown's coins.

The power inherent

in controlling

and issuing money began

slipping away from the rulers.

They couldn't tax or de-base

this new kind of money.

But they had bigger ambitions

than ever with trading posts,

colonies, and empires that now

stretched across the globe.

For centuries,

European countries

would take turns

building massive fleets

and waging war on each

other to rule the world.

(yelling)

- Government wanted to

take the people's money

in order to finance its wars.

That's essentially

the history of money.

Money and warfare go together.

- [Voiceover] War is expensive.

One year's income taxes

simply aren't enough.

Kings and queens had to borrow

money against future taxes.

They needed a ground breaking

financial innovation,

government bonds.

The loans came from rich

merchant families and goldsmiths,

who by now had become powerful

financiers and bankers.

Sovereign debt and deficit

spending had been born.

(upbeat instrumental music)

In 1694, the bank of

England was established

to fund a war against France.

England's central bank

was privately owned

and granted the monopoly

to issue banknotes,

paper that could be

redeemed for an equal amount

of gold from the

government's coffers.

The central bank soon also

managed the entire debt

of the crown.

- Money has been a tool of

sovereignty for centuries.

Being able to issue

currency gave you the power

but it also gave the value

to that monetary supply

by backing it with

the force of state

with essentially

the debt of state.

- [Voiceover] When the U.S.

won independence from Britain,

the first article of

the new constitution

gave congress the exclusive

right to "coin money".

This currency's value was tied

to gold in government vaults.

From 1781 until

the panic of 1907,

the financial system of the

U.S. was an economic Petri dish.

Brief central banks, state

banks, private banks,

private currency,

government currency,

depressions, strong

growth, recessions,

regular boom and bust cycles.

- The long term, as far

as capital is concerned,

people want predictability,

people want stability.

From the back of

that they can plan

and it is very hard to

plan in the long term

with it such a

evel of volatility.

- [Voiceover] In 1913, bankers

and politicians decided

that it was in the country's

best interest, and theirs,

to have a permanent

central bank.

They created the

Federal Reserve.

Among its jobs, expand

or contract the supply

of a single national currency,

the Federal Reserve note.

The dollar was tied to

gold and strategic control

of it would avoid booms

that lead to busts.

At least that was the plan.

Then came 1929.

(yelling)

The great depression would

have a profound effect

on monetary policy worldwide.

- [Roosevelt] I shall

ask the Congress

for the one remaining

instrument to me the president,

broad executive power.

- [Voiceover] Soon, the Fed had

printed nearly all the money

it legally could to pump

life back into the economy.

It needed gold to

fire up the mint.

So in 1933, President

Roosevelt issued

a controversial executive order,

forcing all U.S. citizens

to sell their gold

to the Federal Reserve

at a fixed price,

or go to prison.

The Fed offered far more cash

to foreign governments

for their gold.

Many jumped at the offer.

Gold flowed in,

and dollars spread

across the globe.

World War II devastated

nearly every major economy,

except the United States.

The military and industrial

juggernaut emerged

as the global

financial super power.

The dollar had become

the world's most stable

and trusted currency.

Other countries pegged their

currency to the dollar,

which could still be

redeemed for gold.

In fact, the U.S.

owned more than half

of the world's gold reserves.

In the next few decades,

more dollars flowed

to foreign countries.

Governments began

debasing their coins

with cheaper metals

and printing more

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