From Gold to Eurodollar to Bitcoin: Six Centuries of Monetary Layering
Around the Block | June 4, 2026 | By William Sanchez Jr., Founder of A.W. Block
The dollar in your bank account is not the same thing as a Federal Reserve note. A Federal Reserve note is not the same thing as a gold coin. And a balance held offshore in the Eurodollar system is not the same thing as a domestic bank deposit.
Most people have never heard of the Eurodollar system. It is the largest pool of dollar-denominated credit in the world, denominated in dollars but operating outside the direct reach of the Federal Reserve. By some estimates it is larger than the entire domestic U.S. banking system. It is also the perfect illustration of what Nik Bhatia means when he says money has been layered for six centuries: each generation invents a new layer on top of the prior system, the new layer absorbs the function of the old, and the institutional structure becomes more abstract and more fragile in the process.
Bitcoin enters this history not as an incremental improvement to fiat money but as a new first-layer asset competing with gold for the role gold has held for thousands of years. To understand why this matters, you have to understand the path from Florentine banking in the 1400s to the Eurodollar system today.
Florence and the First Layer Above Gold
The starting point is fifteenth-century Florence and the Medici bank. Bills of exchange first allowed merchants to settle international trade without physically transporting gold. A merchant in Florence could pay a counterparty in Bruges with a paper instrument promising gold delivery at the destination. The gold did not move. The claim did.
The bill of exchange was the original second-layer instrument: a paper claim on gold held somewhere else. It worked because the issuing bank’s reputation made the claim redeemable in practice. It also introduced the first counterparty risk in a monetary system that had previously required physical delivery for settlement.
London Goldsmiths and the Bank of England
Over the following centuries, the second layer expanded. Goldsmiths in seventeenth-century London began issuing receipts for gold held in their vaults. Customers deposited gold for safekeeping and received paper receipts. The receipts began circulating as money in their own right because they were more portable than the underlying metal. Goldsmiths learned that not all receipt holders demanded their gold simultaneously, which allowed them to issue more receipts than they held in reserves. Fractional reserve banking was born.
The Bank of England, founded in 1694, formalized the practice at sovereign scale. Banknotes were issued against gold reserves, redeemable on demand, but treated for daily purposes as if they were the gold itself. The structure that would define Western banking for the next three centuries was now in place: a first-layer base of gold, a second layer of banknotes claiming convertibility, and the institutional trust that held the two layers together.
The Classical Gold Standard: Layered Money at Its Peak
The period from roughly 1870 to 1914 was the high-water mark of layered money under a sound base layer. National currencies were second-layer claims on a gold first layer. Trade settled in gold. Currencies were defined as fixed weights of gold. The pound, the dollar, the franc, and the mark were all interchangeable because they all redeemed to the same metal. Capital flowed across borders without currency risk because there was no currency risk.
The base was stable, and the layers above it could be reliably anchored to it. The result was more than four decades of virtually uninterrupted global growth and prosperity, in Ammous’s words. The productivity was not incidental. It was enabled by the monetary architecture.
World War I ended that system. Belligerent governments suspended gold convertibility to finance the war. The second layer broke free of the first. The interwar period saw competitive devaluations, trade barriers, and the German hyperinflation of 1923. The classical gold standard was never restored.
Bretton Woods: The Incomplete Restoration
Bretton Woods in 1944 attempted to rebuild a layered system with gold at the base. The dollar would be convertible to gold at $35 per ounce, the rate Roosevelt had set in 1934. Other currencies would be fixed to the dollar. In theory, gold remained the anchor. In practice, the dollar became an intermediate layer between national currencies and gold, and the United States was granted the privilege of issuing reserves that the world had to hold.
Robert Triffin identified the structural flaw in 1960: a reserve currency must export deficits to supply global liquidity, which inevitably undermines its own convertibility. The system was engineered to fail. Charles de Gaulle began redeeming dollars for physical gold in the 1960s. Gold reserves at Fort Knox declined. The gap between paper claims and the metal behind them was closing toward zero.
On August 15, 1971, Nixon suspended dollar convertibility to gold. The Bretton Woods arrangement collapsed. From that point forward, the dollar itself became the base of a new layered system, with no underlying first-layer asset.
The Eurodollar System and the Modern Dollar Stack
The Eurodollar system emerged in the 1950s and 1960s as a parallel offshore dollar market. The original participants were European banks holding dollar deposits that they lent out to other European banks, outside the regulatory reach of the Federal Reserve. The system grew rapidly because it allowed dollar credit to be extended without the reserve requirements and regulatory frictions of the domestic U.S. banking system.
By the 2020s, the Eurodollar system has become the dominant source of global dollar credit. The Bank for International Settlements and other regulators track its size in different ways, but the cross-border dollar credit market, of which Eurodollars are the largest component, is consistently measured in the tens of trillions of dollars. It is the layer of the dollar system that funds international trade, sovereign debt rollovers, and global financial markets.
In Bhatia’s framework, the Eurodollar system is a third-layer dollar market built on top of the second-layer commercial banking system, which is built on top of first-layer Federal Reserve liabilities. Each layer is a claim on the layer below. Each layer adds counterparty risk. The system functions because participants trust that the Fed will backstop the dollar layers if the system seizes up, as it did in March 2020 when the Federal Reserve extended emergency dollar liquidity to foreign central banks to keep the offshore dollar market from freezing.
Bitcoin Enters as a New First-Layer Asset
This is the system Bitcoin enters. Not as a replacement for the dollar at the second or third layer, but as an alternative first-layer asset that does not require the institutional backstops the dollar system depends on.
The historical pattern is clear. Every prior monetary system built on a first-layer base eventually broke at the institutional layer. The gold standard did not fail because gold failed. It failed because the institutions managing the convertibility of paper claims to gold were captured. Bretton Woods did not fail because gold failed. It failed because the United States issued more dollars than its gold could redeem. The pattern is institutional, not metallic.
Bitcoin is the first credible competitor to gold at the first layer since gold itself emerged as the dominant monetary good. Its supply is mathematically fixed by code enforced by tens of thousands of nodes worldwide. There is no institutional layer to capture because there is no institution. The base layer cannot be diluted by central bank decree because there is no central bank.
Bitcoin’s price exposure to dollar-system events confirms its place in the layered framework. Dollar liquidity crises, like March 2020, typically see Bitcoin sell off briefly as holders raise dollars to cover margin calls. The longer-run pattern has been that Bitcoin recovers and outperforms once the Federal Reserve responds with liquidity. Short-term Bitcoin selling reflects participants needing first-layer dollars in a hurry. Long-term Bitcoin demand reflects the response of holders who watch the Fed expand its balance sheet in answer.
Six Centuries, One Pattern
Money has been layered for six centuries. Each generation builds a new layer of intermediation on top of the prior system, and the new layer eventually replaces the function of the old. The progression from gold coins to bills of exchange to banknotes to the Bretton Woods dollar to the Eurodollar system is the same structural process operating across very different technologies.
Bitcoin enters this history as a new first-layer asset, the first credible competitor to gold in millennia. It is not replacing the dollar at the layers the dollar serves. It is competing with gold at the layer that anchors everything else. The dollar still occupies the second and third layers of transactional finance. Bitcoin sits at the base, alongside gold, as the asset to which other claims may eventually be denominated.
The lesson of six centuries of monetary layering is that the base layer outlives the layers above it. The institutions managing the layers come and go. Bills of exchange gave way to banknotes. Banknotes gave way to convertible national currencies. Convertible currencies gave way to Bretton Woods dollars. Bretton Woods dollars gave way to fiat dollars and Eurodollars. The base layer of each era persisted longer than the institutional arrangements built on top of it. Gold is still gold. Bitcoin’s first-layer properties are the structural reason it deserves the comparison.
Sources: Layered Money (Bhatia, 2021) | Broken Money, Ch. 7–9 (Alden, 2023) | The Bitcoin Standard, Ch. 4 (Ammous, 2018) | The Fiat Standard, Part I (Ammous, 2021)