Month: July 2026

There’s a lot of talk about “digital currency,” but as far as I can tell, my bank account and retirement account, along with my credit cards and mortgage payments, have already been maintained in digital form for many years now. I benefit from greater speed, less paperwork, and probably greater accuracy, too. The genuinely new idea at present is “tokenization.” Tobias Adrian dispassionately lays out the potential risks and benefits in “Tokenized Finance” (International Monetary Fund, Note/2026/001, April 2026).

In the current conventional form of digital currency, money flows between institutions and their balance sheets: my credit card company pays the restaurant for my meal, at the end of the month my bank pays my credit card bill, my employer puts money into my bank account, and so on. The institutions in this system provide checks and balances, making sure the payments are correct. For example, maybe 2-3 times each year year I get an email from my credit card company asking if I have authorized a certain transaction. My answer is often “yes,” but sometimes “no.” As Adrian writes:

In traditional architectures, trust is embedded in regulated intermediaries, layered institutional processes, and the sequencing of settlement over time. … Financial sector policy frameworks have evolved around institutions, balance sheets, and markets that operate with temporal frictions: end-of-day settlement, batch processing, and delayed reconciliation. These frictions are not only costly to end-investors, but they also provide temporal buffers that allow exposures to be netted, liquidity to be mobilized, and authorities to intervene before settlement becomes final.

In the current form of digital money, the safety of transactions involves each main party having their own account, or “ledger,” which records payments made and received. Maintaining and checking these records involves a behind-the-scenes series of delays and double-checks, which imposes costs and fees. But tokenization is different. As Adrian writes:

Tokenization enables financial claims—including money, securities, and derivatives—to be represented as programmable digital tokens recorded on shared ledgers. This capability allows for real-time atomic settlement, collapsing multiple stages of the traditional financial value chain into a synchronized process … Tokenization challenges crisis management and resolution frameworks that are built around nationally domiciled institutions, territorially bounded infrastructures, and jurisdiction-specific legal authority. In tokenized systems, transactions are executed on shared ledgers spanning multiple jurisdictions, allowing assets, liabilities, and collateral to move across borders at machine speed and without a clear geographic anchor. This creates a fundamental mismatch between the global, continuous operation of tokenized finance and resolution regimes that rely on jurisdictional control over institutions and locally situated assets, as the key levers of control may instead lie in governance keys, consensus mechanisms, or smart contract logic operating across borders.

As Adrian puts it, the fundamental shift here is that instead of financial transactions being carried out, monitored, and double-checked by an interlocking set of institutions–each with their own ledger–a tokenized financial system would shift these responsibilities to the programming and infrastructure behind the tokenized system. There are obvious concerns about such an approach, which Adrian enunciates clearly:

As financial logic migrates into smart contracts, governance must extend beyond institutions to algorithms. In tokenized financial institutions, smart contracts calculate margin requirements, execute collateral transfers, and initiate default procedures. These functions are central to systemic stability, yet they are increasingly encoded in software. Therefore, the governance challenges concern not only code quality but also the processes that design, validate, modify, and, if necessary, override code.

Algorithmic risk differs from traditional operational risk in important aspects. Errors can propagate instantaneously and autonomously, without human intervention (FSB 2024). A faulty price feed or coding error can rapidly trigger cascading liquidations before authorities respond. The very features that make smart contracts efficient—speed, determinism, and automation—can also amplify the consequences of design flaws or data errors.

Therefore, effective governance requires multiple layers of control. Formal verification and independent audits should be mandatory for systemically important contracts. Change management processes must be transparent and subject to regulatory approval. Crucially, tokenized systems should incorporate clearly defined ex-ante intervention mechanisms in governance frameworks that allow contract execution to be paused or adjusted under predefined emergency conditions.

Tokenization embeds governance in code, which could be referred to as “code is law.” In important financial entities, legal mandates for stability must ultimately prevail over automated execution. Embedding this principle into technical design is one of the central policy challenges of tokenization (see Garrido 2023). When assets exist as tokens on a distributed ledger, questions arise regarding the applicable law, the location of the asset, and the enforceability of claims in insolvency.

Legal uncertainty is a major barrier to scaling tokenized systems beyond pilot projects. Market participants require clarity on whether tokenized records constitute a definitive proof of ownership and whether the settlement finality achieved on a ledger is legally recognized. Without such clarity, tokenized markets risk remaining fragmented and peripheral. A dual-layer legal approach is likely to emerge as best practice. Smart contracts define operational rules, whereas traditional legal agreements establish rights, obligations, and dispute resolution mechanisms. Legislators and courts must clarify the relationship between these layers, ensuring that legal certainty is preserved even as execution becomes automated.

I admit to skepticism about a broad-based shift to tokenized finance in the near term. I can see the potential benefits of a dramatic reduction in transactions costs, especially for transactions that are small, or international, or both. But trying to set up a single global financial ledger with a “code is law” framework seems to me a utopian project, with the stability of national and global economies at stake. Perhaps this just confirms my status as a 20th-century fuddy-duddy. But I’d prefer to see tokenized finance bubble up through the private sector first, and if and when it shows viability, scaleability, resilience, and stability in that context–or in response to the specific and limited problems that arise–then we can talk about possibilities for making tokenization more widespread.

The most recent Federal Reserve Payment Study has published data for 2024 on “core noncash payment methods used in the United States by consumers, businesses, and governments, including payments by general-purpose and private-label cards, automated clearinghouse (ACH) transfers, and checks. This release also covers ATM cash withdrawals.” 

One way to summarize the results is to look at the value transferred by different method; another is look at the number of noncash payments. You would expect these to be quite different. For example, imagine a person who has their paycheck automatically deposited at their bank and has their mortgage payment made automatically by a transfer from their bank. that person might quite likely have a greater number of credit card payments and checks than those two big bank transfers, but the amount of value in the two big bank transfers could be greater than the total value of credit cards and checks.

Here’s a figure showing the value from different noncash transactions. Again, this includes consumer, business, and government noncash payments. The value of bank transfers is way up over the last 25 years or so–and in particular transfers received as a credit to bank accounts. The value of noncash payments by check is gradually falling. It’s striking to me that the total value of credit card payments looks so small in this graph.

Here’s a figure showing the number of noncash payments made by these different methods. It was unexpected to me that the number of transactions made via non-prepaid debit cards was so high: I suspect many of these debit cards make payments directly from bank accounts. Credit card payments are also up, especially since the pandemic. The fall in the number of checks is especially apparent–indeed, the number of checks is now well below the number of bank transfers. The number of banks transfers is low, although the average value of such transfers must be high to account for the figure above.

In this study, the Fed is just estimating value and volume of non-cash payments–not doing policy recommendations. But it’s important to remember that with every non-cash payment involves, some party is being paid a small amount to make that payment. When you talk about several hundred billion payments for trillions of dollars, those transactions fees received by the parties carrying out the payments can add up to large numbers.

Thomas Jefferson wrote out the first draft of the Declaration of Independence, but he did not do so alone and without guidance. After all, he had been a member of the Continental Congress that summer, listening to the discussions about what a Declaration should say. Jefferson was also part of a five-person committee that also included John Adams, Benjamin Franklin, Roger Sherman, and Robert R. Livingston. After the committee produced a draft, additional changes were made by the Continental Congress before a final version was created.

Back in the 1950s, a professor named Julian Boyd worked back through the documentary record of edits and changes–which include handwritten notes inserted on top of Jefferson’s early draft–to create the “original Rough draught” of the Declaration. These day, of course, one can run the original draft of the Declaration available through the Library of Congress and the final version available from the National Archives through the “Track Changes” command in Word. Some of the changes are just capitalization and punctuation. Some are more meaningful. Here are the opening paragraphs of the Declaration of Independence in Track Changes:

When in the courseCourse of human events, it becomes necessary for aone people to advance from that subordination indissolve the political bands which they have hitherto remained, &connected them with another, and to assume among the powers of the earth, the separate and equal & independant station to which the lawsLaws of nature &Nature and of nature’s godNature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the changeseparation.

We hold these truths to be sacred & undeniable;self-evident, that all men are created equal & independant, that fromthey are endowed by their Creator with certain unalienable Rights, that equal creation they deriveS rights inherent & inalienable, among which are the preservation of life, & liberty, & these are Life, Liberty and the pursuit of happiness; thatHappiness.–That to secure these ends, governmentsrights, Governments are instituted among menMen, deriving their just powers from the consent of the governed; that, –That whenever any formForm of government shall becomeGovernment becomes destructive of these ends, it is the rightRight of the peoplePeople to alter or to abolish it, &and to institute new governmentGovernment, laying it’sits foundation on such principles & organising it’sand organizing its powers in such form, as to them shall seem most likely to effect their safety & happiness. prudenceSafety and Happiness. Prudence, indeed, will dictate that governmentsGovernments long established should not be changed for light &and transient causes:; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. butBut when a long train of abuses &and usurpations, begun at a distinguished period, & pursuing invariably the same object,Object evinces a design to subjectreduce them to arbitrary powerunder absolute Despotism, it is their right, it is their duty, to throw off such government &Government, and to provide new guardsGuards for their future security. such.–Such has been the patient sufferance of these colonies; &Colonies; and such is now the necessity which constrains them to expungealter their former systemsSystems of government.Government. 

OK, maybe you have to work as an editor (like me) to appreciate this kind of stuff. But I do find it fascinating. The first sentence originally refers to “advance from that subordination,” which is changed to “dissolve the political bands.” No admission that Americans were ever subordinate!

The opening sentence of the second paragraph refers to “sacred” truths, but in a time when readers took the connection from “sacred” to the text of the Bible quite seriously,this is altered to “self-evident. ” However, in the first paragraph, “laws of nature” is amended to include “Nature’s God,” which in a way replaces the reference to the “sacred” that was cut. Similarly, Jefferson’s first draft just refers to humans being “created,” which is changed to “endowed by their Creator.” The last sentence of the second paragraph starts with a call to “expunge” the former system of government, which is amended to “alter.”

One of the biggest changes from the rough draft was that in the list of grivances against the King of England, Jefferson included this entry in the rough draft:

he has waged cruel war against human nature itself, violating it’s most sacred rights of life & liberty in the persons of a distant people who never offended him, captivating & carrying them into slavery in another hemisphere, or to incur miserable death in their transportation thither. this piratical warfare, the opprobrium of infidel powers, is the warfare of the CHRISTIAN king of Great Britain. determined to keep open a market where MEN should be bought & sold, he has prostituted his negative for suppressing every legislative attempt to prohibit or to restrain this execrable commerce: and that this assemblage of horrors might want no fact of distinguished die, he is now exciting those very people to rise in arms among us, and to purchase that liberty of which he has deprived them, & murdering the people upon whom he also obtruded them; thus paying off former crimes committed against the liberties of one people, with crimes which he urges them to commit against the lives of another.

The passage is notable in a number of ways. It shows that there was a considerable anti-slavery sentiment among those attending the Continental Congress. It is a clanging historical irony that a slaveholder like Jefferson was writing fierce moral denunciations of slavery. It’s historically accurate when Jefferson blames the existence and persistence of American slavery in 1776 on King George III and previous kings of Great Britain, who after all had ruled over the area for decades. It’s intriguing that Jefferson mentioned British efforts to weaponize the slave population.

The practicalities of declaring treason against Great Britain ultimately drove the members of the Continental Congress to remove the anti-slavery sentiments. Benjamin Franklin may never have said: “We must, indeed, all hang together, or assuredly we shall all hang separately” — but the sentiment was nonetheless true. It’s unwise to be definitive about counterfactual historical scenarios. But if the northern eight US colonies had insisted on the anti-slavery language, but lost the support of some or all of the southern colonies, and then tried to declare independence on their own, the British would not have had to devote military resources during the Revolutionary War to, say, blockading the harbor at Charleston or dealing with guerilla warfare tactics led by Francis Marion and others across the South. The US Revolutionary War might well have been lost, and at least some of signers of the Declaration could have been imprisoned or executed–and mostly forgotten today by anyone but historians of the period.

I wrote this short essay about the “pursuit of happiness” for the editorial page of the StarTribune newspaper, where it was published on July 3.

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Opinion | What did the founders mean by the pursuit of happiness?

The authors of our founding document were deadly serious about a goal we might see as whimsical.

By Timothy Taylor

When the five-person committee that drafted the U.S. Declaration of Independence declared it to be “self-evident” that there was a right to “the pursuit of Happiness,” what manner of happiness did they have in mind?

In a declaration explaining why the signers felt compelled to commit treason against their existing government and to prevent “the establishment of an absolute Tyranny,” it seems unlikely that they were foreshadowing the whistling cheeriness of the 1988 Bobby McFerrin hit, “Don’t Worry, Be Happy.”

When you are announcing that you “mutually pledge to each other our Lives, our Fortunes and our sacred Honor” for the purpose of fighting a Revolutionary War, it seems unlikely that they were thinking of the giddy, throbbing happiness of the 1986 Beastie Boys hit: “You gotta fight for your right to party.”

The authors of the declaration — Thomas Jefferson, John Adams, Benjamin Franklin, Roger Sherman, and Robert R. Livingston — were not being playful, whimsical or ironic. They were deadly serious about “the pursuit of happiness.”

Drawing on a long philosophical tradition going back to ancient Greece, they believed that happiness was the result of living a virtuous life. Franklin wrote that “virtue and happiness are mother and daughter.” Jefferson later wrote: “Happiness is the aim of life. Virtue is the foundation of happiness.”

Naturally, any self-respecting modern American will quickly stand up and declare: “No virtue-monger gets to tell me what cookie-cutter set of rules I am obligated to follow.”

For 21st century Americans, this notion of happiness as virtue may seem self-contradictory. After all, isn’t virtue almost by definition dry and boring: that is, about discipline and abstemiousness, not the freedoms of fun and pleasure?

But as understood by the authors of the declaration, happiness isn’t about the feels. Instead, in a tradition going back to Aristotle, virtue was understood to be developed through a lifetime of practice. The goal is a deeper and richer satisfaction gained as a person grows into a full and flourishing existence. It’s about taking seriously the idea that you can pursue a version of your best self.

Of course, the pursuit of happiness may not succeed. Real life is messy. Personal goals can change. Families can quarrel. Marriages and friendships can crumble. Health and finances can go sour. Happiness, virtue and flourishing are never guaranteed.

The Nobel-prize winning novelist V.S. Naipaul, who was born in Trinidad in 1932 and lived there for 18 years before receiving a scholarship to Oxford and moving to the United Kingdom, offered a paean to “the beauty of the idea of the pursuit of happiness” in a 1991 essay, in which he wrote:

“Familiar words, easy to take for granted; easy to misconstrue. This idea of the pursuit of happiness is at the heart of the attractiveness of the civilization to so many outside it or on its periphery. I find it marvelous to contemplate to what an extent, after two centuries, and after the terrible history of the earlier part of this century, the idea has come to a kind of fruition.

“It is an elastic idea; it fits all men. It implies a certain kind of society, a certain kind of awakened spirit. I don’t imagine my father’s parents would have been able to understand the idea. So much is contained in it: the idea of the individual, responsibility, choice, the life of the intellect, the idea of vocation and perfectibility and achievement.

“It is an immense human idea. It cannot be reduced to a fixed system. It cannot generate fanaticism. But it is known to exist; and because of that, other more rigid systems in the end blow away.”

The Declaration of Independence proclaims the “Right of the People … to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

Americans have disagreed for 250 years over how best to enunciate the foundational principles of their government and how to organize its powers, and it seems right and proper to me that such disagreement should continue. But the lodestar of such discussions is that people have a “self-evident” and “unalienable” right to pursue their own concept of their own happiness. The concept was radical then, and remains so today.

Timothy Taylor is managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul.

Douglas A. Irwin offers a brisk overview of a great American tradition–specifically, “America’s been arguing over trade for more than 250 years” (Peterson Institute for International Economics, July 1, 2026). I won’t rehearse the arguments here, but instead offer a couple of his big-picture graphs.

The first shows imports (blue line) and exports (red line) as a share of GDP from 1790 to 2025. Two patterns jump out at me. One is that from about 1840 to 1970, US imports and exports tended to hover around about 5% of GDP. From about 1970 up to around 2010, trade as a share of GDP rises dramatically, but in the last decade or so it has levelled off. The other pattern worth noting is that during most of US history up through the early 1990s, imports and exports were in rough balance, with occasional exceptions. But for the last 30 years or so, US imports have consistently exceeded exports. To put it another way, total US consumption (including imports) has been exceeding total US production (including exports). While the standard political tendency is to blame other countries for not buying enough US exports, addressing the trade deficit in a real way will require facing up to the question of why the US economy consumes more than it produces–which in turn will require coming to grips with the enormous US budget deficits.

The second figure shows US tariff rates from 1790 to 2025. The average tariff rate can be calculated in various ways: in this figure, the black line shows average tariffs only for imports where tariffs apply, while the blue line shows average tariffs relative to total imports, including the imports where tariffs don’t apply. The big-picture pattern here is that tariffs where much higher for much of US history, then drop off dramatically after the Great Depression and World War II, before the recent Trump bump to tariffs. It’s also interesting to consider the size of the gap between the two lines; if tariffs are applied to most imports, then the black and blue lines appear quite similar, as they did from 1790 up through about 1870. But then tariffs start being applied much more selectively to specific industries and goods, so the tariffs applied to those imports are higher than tariffs considered in the perspective of total imports.

A final point not illustrated here is that US federal spending was typically around 2% of GDP for the first 130 years or so of US history. But after the sequence of World War I, the Great Depression, and World War II, federal spending rose substantially, and has averaged about 21% of GDP in the last 50 years. The sources of federal funds are primarily individual abnd corporate income taxes, along with payroll taxes, with tariffs much less needed as a revenue source since around 1950.

Christopher Jeffrey interviews “Mervyn King on his career and big ‘mistakes.’” The subtitle reads: “The former BoE governor speaks with Christopher Jeffery about the value of transparency, lessons from the GFC [global financial crisis], the need to track broad money and tie short-term funding to haircut collateral, and danger presented by non-banks” (Central Banking, June 30, 2026, free registration required). The interview is delightful and insightful throughout, but here are a couple of points that caught my eye in particular:

On central bank transparency:

The great tradition in central banks was the opposite of transparency. At the Bank of England [BoE], there was a famous session in the 1930s, when the then deputy governor, when asked if the bank had considered publishing a report on any of its activities by a parliamentary committee, said: “Well, I have considered it, but I can’t say that I have considered it for long enough to have reached a conclusion.” When asked “Well don’t you think you should explain?”, he said: “It would be very dangerous to give reasons for our actions.” Even more recently than that, 40 years ago, the Federal Reserve never published a statement about the interest rate that it was setting. Market participants had to go into the market and infer the interest rate that the Fed was setting.

And I remember the very first year that I joined the Bank of England full-time, in 1991, Paul Volcker came over to London … and said he wanted to have dinner with the new member of the Bank of England … [A]fterwards I said to him: “Give me one word of advice for a new central banker.” And Volcker, who was 6 feet 7 inches tall–so he certainly looked down on me–just said: “One word, Mervyn: `mystique’.”

I came to the view that we had to go in the opposite direction. And, in 1992, when Britain was forced out of the Exchange Rate Mechanism, we had to develop a new domestic framework for monetary policy. Although Britain wasn’t the first to introduce inflation targeting –we followed New Zealand and Canada–we were the first major bank to push explanations of policy to the forefront.

What King calls the “pawnbroker for all seasons” method of preparing for the next crisis:

I think the secret here is to deal with many of these problems before the crisis hits. That’s why I proposed a system where banks pre-position collateral with the central bank. And the central bank says you cannot issue more short-term funding–anything that rolls over within three or four months–then the amount of money the central bank is willing to lend against the collateral that the bank has pre-positioned, allowing for the haircuts that the central bank would impose. If it’s a very obscure financial instrument that we don’t really understand, the central bank might impose a haircut of 90%. If it’s long-term government bonds, it could be just 2% or 3%. … That would be a massive improvement on where we are now. …

Certainly, the Bank of England and the Federal Reserve are moving to do more pre-positioning of collateral. … It has the great benefit that, done properly, bank runs would just disappear as a threat. I think regulation will carry on developing in that direction. I don’t expect any central bank to suddenly say they’ve “seen the light”, and want to adopt a “pawnbroker for all seasons”. They’ll use their own language … But people are making progress in that direction, and the Bank of England has gone further than anyone else.

King was Deputy Governor of the Bank of England from 1998 to 2003, and then Governor from 2003-2013. The interview is a good place to see what the issues of the time looked like on the other side of the Atlantic: for example, the UK bank run at Northern Rock in September 2007, which was a canary in the coal mine for the financial crisis that followed; the question of how to act in advance to make central bank interventions in a crisis less needed; how quantitative easing starts off as an emergency measure in 2008, with no one expecting that it will last more than a few years; and the reaction of the European Central Bank when the euro crisis hit from 2010-2012.