There is a lot of myth that exists about [money](https://leofinance.io/@leoglossary/leoglossary-money).  What is taught in economics and finance classes in school is simply not correct.  The difference between academia and the real world when it comes to this topic is enormous.  

Fortunately, as we embark upon the creation of a new [financial](https://leofinance.io/@leoglossary/leoglossary-finance) system, we can peel away the old theories that do not work and produce something that is in alignment with how things truly operate.

[Markets](https://leofinance.io/@leoglossary/leoglossary-market) are global.  This is a problem for the central bank system.  Most of these institutions can only operate within a specific geographic area.  This is not how money, nor the global [economy](https://leofinance.io/@leoglossary/leoglossary-economy) works.

It was also one of the reasons by blockchain, and by extension [Bitcoin](https://leofinance.io/@leoglossary/leoglossary-bitcoin), packed so much potential.  From the start, it had two advantages: being [digital](https://leofinance.io/@leoglossary/leoglossary-digital) and able to operate globally. 

These are both at the foundation of what we will see constructed that will carry us forward for at least the next half century.

Turning back to the [Hive Backed Dollar (HBD)](https://leofinance.io/@leoglossary/leoglossary-hive-backed-dollar-hbd), there are a number of reasons why this is going to be a powerful force.  There is a many characteristics which allow it to be a centerpiece for what is developing.

So let us dive right in.

<center>![image.png](https://images.hive.blog/DQmYdHkND75KkZD4DgoSMgNvbqy9H8fkngBzgA7dDC9F9nP/image.png)
[Source](https://images.hive.blog/DQmU2VHvyv9wS8pNBuCLFr9nhUg3p9K4MakGKYY3epSa28s/image.png)</center>

### Confidence

The world of money and finance is one of confidence.  This is what it all boils down to.  

At the same time, we have the moving around of [risk](https://leofinance.io/@leoglossary/leoglossary-risk).  Most assets allow for people to incorporate this into their decisions.  In other words, much of the financial world simply moves risk from those who do not want it to those who are willing to take it on.

When it comes to money, the idea of confidence stems from what is backing it.  Unlike the [asset backed security](https://leofinance.io/@leoglossary/leoglossary-asset-backed-securities-abs) people, this has nothing to do with a reserve.  Instead, we look at the [economic](https://leofinance.io/@leoglossary/leoglossary-economic) production that is backing the currency.  This means factoring in the actions of [governments](https://leofinance.io/@leoglossary/leoglossary-government) as it pertains to the ability to grow the economy.

Blockchain was established to get rid of the middlemen.  This, by definition, means it instilled trust along with eliminate [counterparty](https://leofinance.io/@leoglossary/leoglossary-counterparty) risk.  What we saw in 2022 reaffirmed how dangerous this can be.

With Hive, the base layer coins reside on the blockchain.  That is the counterparty.  Since it is run by a group of unrelated [node](https://leofinance.io/@leoglossary/leoglossary-node) operators, the counterparty risk does not exist.  This is one of the factors that can instill confidence in HBD.

### Money Is Debt

Money is not paper.  This is where people misunderstand the [fiat currency](https://leofinance.io/@leoglossary/leoglossary-fiat-currency) system.  We no longer use physical [cash](https://leofinance.io/@leoglossary/leoglossary-cash) for [settlements](https://leofinance.io/@leoglossary/leoglossary-settlement-financial).  

What money is for is to facilitate exchange.  This is where an asset, once it is liquid and tradeable can act as money.  The entire [Eurodollar System](https://leofinance.io/@leoglossary/leoglossary-eurodollar-system-market) operates on this premise.  So does the [Repo](https://leofinance.io/@leoglossary/leoglossary-repurchase-agreement-repo) market.  

The [central bank](https://leofinance.io/@leoglossary/leoglossary-central-bank) system broke down with globalization.  With the advancement of the post WW2 [economy](https://leofinance.io/@leoglossary/leoglossary-economy), we see how the limitations to this system fell short.  This allowed for the development of the Eurodollar System, which is now breaking down.  It is one of the factors leading to slowing growth rates.

Next up is the blockchain based system which can step in and provide what the Eurodollar System offers, minus [banks](https://leofinance.io/@leoglossary/leoglossary-bank) and governments.

All of this stems from simple [accounting](https://leofinance.io/@leoglossary/leoglossary-accounting).  What is a [liability](https://leofinance.io/@leoglossary/leoglossary-liability) one [balance shee](https://leofinance.io/@leoglossary/leoglossary-balance-sheet)t is an asset to another.  The holders of the debt has an asset paying a [return](https://leofinance.io/@leoglossary/leoglossary-return-on-investment-roi).  This something the banking system understood from the earliest days.

Where HBD excels is that we have [debt](https://leofinance.io/@leoglossary/leoglossary-debt) that can be driven by market demand.  Unlike coinage where the minter had to guess how much was required, or central banks trying to guesstimate things with their [monetary policy](https://leofinance.io/@leoglossary/leoglossary-monetary-policy), HBD simply is created as the community (market) sees fit.  This is a vital component.  It can be expanded or contracted as necessary.

### Global In Nature

One things about the elasticity of the [money supply](https://leofinance.io/@leoglossary/leoglossary-money-supply), from a national level, is the flow of capital. 

Many take their schooling and look at things like the M1 and M2 believing that it telling them about the money supply.  It is not.  What is the actually barometer is the movement of [capital](https://leofinance.io/@leoglossary/leoglossary-capital) around the world.  When the United States has a great deal of foreign [investment](https://leofinance.io/@leoglossary/leoglossary-investment), that means the domestic US dollar supply is increasing.  It has nothing to do with [the Fed](https://leofinance.io/@leoglossary/leoglossary-federal-reserve-bank-the-fed) or the "printing press go brr".  When foreigners buy US [assets](https://leofinance.io/@leoglossary/leoglossary-asset), dollars flow into the country.

This is true for all currencies.  That said, most are not the reserve currency meaning they lack global distribution.  Here is where the dollar stands out.

Since distribution is vital for the reserve currency, having it all flow into the United States is problematic.  Here we see one of the reasons why the Eurodollar System is breaking down.  With more money in the US banking system, [Triffin's Dilemma](https://leofinance.io/@leoglossary/leoglossary-triffin-s-dilemma) is suddenly an issue.

HBD does not have this problem.  Nothing is going to flow to and from the [blockchain](https://leofinance.io/@leoglossary/blockchain).  HBD is resident on Hive, a global, [decentralized](https://leofinance.io/@leoglossary/leoglossary-decentralization) network-state.  If the [coins](https://leofinance.io/@leoglossary/leoglossary-coins) flow to a particular geographic area where [trade](https://leofinance.io/@leoglossary/leoglossary-trade) and commerce is occurring, that is not to the determent of elsewhere.  This is a demand driven equation.  If more HBD is required for different pockets of activity, this can be created.

The key is that it is all part of the Hive economy.  Whether online or in person, if people are transacting using HBD, it is incorporating that trade in this economy.  It matters none where in the world it is taking place.  The blockchain does not care.  Nodes all over the world are validating the [transactions](https://leofinance.io/@leoglossary/leoglossary-transaction) and producing [blocks](https://leofinance.io/@leoglossary/leoglossary-block) regardless of where it is coming from.

### Unit Of Account Everyone Knows

One HBD is worth $1 in $HIVE.

This is an important component.  The fact that this is tied to the [USD](https://leofinance.io/@leoglossary/leoglossary-usd) in denomination yet has nothing to do with actual [US dollars](https://leofinance.io/@leoglossary/leoglossary-u-s-dollar) is crucial.

Most of the world understands the dollar as a [unit of account](https://leofinance.io/@leoglossary/leoglossary-unit-of-account).  While the US dollar as a [currency](https://leofinance.io/@leoglossary/leoglossary-currency) has a finite life span, as a unit of measure, it could carry on for a long time.

We have 4 generations of people walking the planet who understand the dollar.  It was something we were raised with. Since international trade is priced in this, all are exposed to it.

It is rather difficult to explain Hive to newer people.  By the same token, it could be a challenge to go through HBD, the [interest](https://leofinance.io/@leoglossary/leoglossary-interest) paid, and all the mechanisms tied to it.  What does not require explaining, however, is the USD.

In other words, when you tell someone HBD is worth $1 of [HIVE](https://leofinance.io/@leoglossary/leoglossary-usdhive), they understand immediately.  Nobody is going to ask you what a dollar is.

### In Conclusion

There are so many components to the global economy and the elasticity of money that no single person can comprehend it all.  That said, we must understand it is much larger than we were taught in school.

HBD is a trusted [stablecoin](https://leofinance.io/@leoglossary/leoglossary-stablecoin) simply because of the dynamics surrounding it.  This was created based upon the original tenets of [cryptocurrency](https://leofinance.io/@leoglossary/cryptocurrency).  Unlike most other situations we find within this industry, there is no counterparty risk.  At the same time, there is no monetary or fiscal policy that will alter the perception relating to the economic productivity, thus destroying confidence.

In the end, HBD simply will go where it is needed.  There is nothing that can stop a region for utilizing it for commerce.  Since the blockchain is [permissionless](https://leofinance.io/@leoglossary/leoglossary-permissionless-blockchain), one only need an account and some [resource credits](https://leofinance.io/@leoglossary/leoglossary-resource-credits-rc) to transaction.

From there, all transactions are handle by the blockchain based upon the [base layer](https://leofinance.io/@leoglossary/leoglossary-base-layer-blockchain) coding.

___
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