How To (Re)Make Money


Money is one of the world's most widely used but least understood technologies.
We often wonder how human society could have evolved—or even existed—without language. But could we have cooperated without money? Language enables us to share information, our inner worlds. With collaboration and trade, later improved upon by money, we share our value, in the form of our goods and services. Without people to use it with, money is powerless—and yet we live with the feeling that money holds a tremendous amount of power over us.

As we commemorate the historic Bretton Woods Agreement, which took place 75 years ago last month and ushered in the modern era of money, the world is on the verge of a new financial age—one potentially driven by people rather than financiers. It's an appropriate juncture to take stock of how our system of money began, what it's evolved into and where we go from here.

This much has been true throughout: Money functions as a collective accounting system, to help us keep track of who has given what to others, and thus who is entitled to how much from others. That's it. That's all money is supposed to do. But as we know, it's far from that simple.

What makes money work as intended is the shared willingness of many people to receive it in exchange for their time, things or knowledge. This network effect of belief in a particular money is the only actual condition for anything that we use as money to have value.

Take gold, for example. Put aside that it has actual utility in manufacturing processes: Because gold is widely recognizable, divisible (by melting), hard to counterfeit and scarce, it is also said to have intrinsic value. But gold's value is actually due to its almost religious power—the fact that many people believe they will be able to exchange it for goods and services. Same goes for national currencies. We accept them as long as we are confident someone else will accept them later. Lose that belief, and currencies lose their value—as we see in crisis after crisis around the world.

Our methods for creating and maintaining this belief throughout society have changed dramatically over time, and with it, so has our money.

The United Nations meeting at the Mount Washington Hotel to discuss programs of economic cooperation and progress on July 4, 1944. Bettmann


In the beginning we used rocks, shells, sticks and eventually metals to perform money's functions: giving and getting of units of account to maintain each individual's balance with the greater system over time. We used materials we could touch, hold and move. Shells of a certain kind were recognized by a tribe that used them. Gold was uniformly recognized and hard to replicate, hence the elusive alchemy.

Money allowed us to separate the act of buying from the act of selling with greater ease. Rather than trade real items directly with others in real time, we could use money to all trade our items for the same thing, preventing us from needing to find buyers or sellers with similar and opposite needs. This is what's known as the "Double Coincidence of Wants Problem" in economics: Money allowed us to trade with those near and far, and greatly expand our circles of collaboration, knowledge, creativity and productivity.

This was Money 1.0—and as far as archeologists can tell, it worked for centuries, all around the world.

In the next era, money came from governments. Emperors, kings, presidents and parliaments, for centuries and still today, have assumed the responsibility of defining what we use as money. From stamped coins to printed bills to digital ledgers, governments everywhere—democratic, communist, dictatorial and otherwise—have decided what money is, how much of it there is, and most importantly, who gets it first. They require tax payments in these currencies alone, so all citizens are using the shared governmental money. They often outlaw, sometimes by force, the use of other forms of money (see Venezuela). They create cooperation agreements between governments to honor each other's money.

Since those in charge can both create and sanction money, they gain increasing control over the assets and means of production within a society. This was not the case when money came from the earth, when presumably anyone could find it, mine it or make more of it.

This is Money 2.0, the era most of us are exclusively familiar with and can hardly imagine beyond.

Inspection of new $100 bills after they went through the plate printing step of production at the US Bureau of Engraving and Printing's Western Currency Facility on October 11, 2013 in Fort Worth, Texas. AFP/Getty Images/BRENDAN SMIALOWSKI/


In this era, no event has been more significant than the Monetary Conference of Bretton Woods, a small gathering you might have read about in high school history class.

In July of 1944, about 700 delegates from 44 nations convened in the picturesque town of Bretton Woods, New Hampshire, to determine the fate of the post-war economic order. This year's 75th anniversary of that historic gathering provides an opportunity to reflect on the grand legacy of the conference and the institutions created there.

Almost a year prior to the end of the World War II, the United States gathered the Allied Nations, far from the chaos of Washington or the carnage of Warsaw, to design the economic framework that would define the post war economic arrangements between nations, aiming to end world wars. President Franklin Delano Roosevelt issued an optimistic entreaty to participants at the beginning of the conference, emphasizing that "the economic health of every country is a proper matter of concern to all its neighbors, near and distant. Only through a dynamic and a soundly expanding world economy can the living standards of individual nations be advanced to levels which will permit a full realization of our hopes for the future."

The two key players in the dramatic unfolding of Bretton Woods were John Maynard Keynes, an intellectual economist from the U.K., and Harry Dexter White, a realpolitik senior official in the U.S. Department of Treasury—each fiercely evangelizing conflicting plans for global economic rehabilitation. Keynes' unconventional proposal outlined the creation of a new supranational currency called Bancor, which would have a fixed exchange rate to all national currencies as well as gold. Keynes called for a quota system on the amount of Bancor that each nation could amass in proportion to the nation's share of world trade. His framework was ostensibly meant to create more equilibrium between rich and poor nations, while jump-starting weaker economies. It could also be said that the Bancor was an attempt at undermining reliance on the U.S. dollar and positioning the U.K. for continued global leadership after London's reconstruction.

According to Benn Steil, an economist and author of The Battle of Bretton Woods, White disliked the idea of the Bancor, and was determined instead to establish the U.S. dollar as the world's dominant currency. By the end of the 21-day conference, White had managed to unanimously pass the Articles of Agreement, which instantaneously established the (then gold-backed) U.S. dollar as the global reserve currency—the standard that's still in place today, minus the gold backing, of course.

Between establishing U.S. dollar dominance and creating pivotal global monetary organizations—the International Monetary Fund, the World Trade Organization and the World Bank—the Bretton Woods Conference of 1944 determined the trajectory of global cooperation. What is most apparent here, as in every era of money, is that a system of agreements is needed to govern the world economy, which is itself made of countries with currencies, which are themselves domestic systems of agreements. As FDR so wisely stated, each economy's well-being is intimately tied to the others'. We are all parts of a holistic system on which we all depend, and to which we must all agree.

Ross Durant Photography/Getty


Today, 75 years after Bretton Woods, we are entering the next era of money. Thanks to new technologies like the Internet and blockchain, we now have globally scalable ways of "stamping" and transferring digital assets, or tokens, with widespread, provable legitimacy—the kind that has the power to create networks of belief on which all money depends.

This is Money 3.0, in which money comes from people.

Which people? The people who created Bitcoin. The people who created Ethereum. The people who created Facebook, now launching a cryptocurrency of its own called Libra. The people who created any of the thousands of cryptocurrencies available today, many of which function like money in that they can be given to another person in order to unlock their energy and receive their goods or services. That's exactly what makes money, money. And the ability to create it is now becoming open source, to people, corporations, organizations and communities—in a way that's never been possible before at scale.

Sure, many of these monies will not gain the network effect of belief needed for them to be accepted and they won't last very long. But some will. A few already have. And many more new monies will cross this chasm in the years and decades to come. Perhaps currencies created by other companies, competing with Facebook. Perhaps currencies created by cities, where over half of the world's population, and quickly rising, currently lives. Perhaps currencies created by people you know, or people you follow online.

Money is, after all, a belief system between people. And thanks to increasingly sophisticated digital networks, we can create, monitor and upgrade the interactions and patterns that connect us, more than ever before. We can believe in people we don't know, and in money not backed by countries, because we can believe in the technologies that connect us globally, like the Internet.

Money is now programmable, like software, and can be designed according to any criteria. Imagine a currency that is programmed to pay its taxes, bit by bit, with every transaction. Imagine a currency programmed to donate a tiny proportion of each purchase to charity, or to cleaning pollution. Imagine a currency used by a growing network of parents, allowing them to better meet each other's needs even when traditional money is scarce.

These monetary experiments and more are under way in the emerging field of tokenization. And due to the decentralized nature of these technologies, they are very hard to stop. We will likely soon see tokens for artists, art, neighborhoods, non-profits, startups, schools, teams and more, creating new interoperable network models and embedding localized incentive structures into online and offline communities across the globe.

This is Money 3.0—and it will forever change the landscape of human collaboration, just as Money 2.0 and Money 1.0 did before it.

Economics, often believed to be the science of money, is actually about incentives. Money is the tool we use to represent the value of our diverse interests, and it's a pretty blunt instrument at that. We have a hard time using it to account for things like well-being and connection. We don't feel comfortable involving it in matters of the heart, which also vie for our attention.

A more complete economic framework for why people do what they do might take into account the crucial work performed at home (which prepares labor to enter the workforce decades later); new evidence from neuroscience that human capital is affected by the quality of our environment; the ethics and costs of growing inequality; metrics beyond GDP that distinguish between healthy and unhealthy growth; natural resource limitations; the air and oceans that we all share and rely on; and a host of other elements that could make for an economics that is rooted in humanity—where it belongs.

After all, humans invented money. We can now reinvent it so that it works for us, and not the other way around.

→ Galia Benartzi is the co-founder of Bancor, a protocol enabling decentralized liquidity between digital assets, named in honor of Keynes' 1944 monetary proposal by the same name.