Sam Callahan (00:03:23):

They actually have their own deposits and they have their own investment strategy where they’re trying to get their best risk adjusted return just like everybody else. And on top of that, they do a couple different functions in the global economy. And one of them is that they’re one of the largest databases of financial data in the world. So they have a mainframe computer that sweeps all the data and they are the eye in the sky, best vantage point to understand the flows of international finance.

Sam Callahan (00:03:54):

So because of that, they’re also a research center for essential banks. And then the last thing they do is they are basically like an event planner. So they have an innovation hub. They have a nice headquarters in Switzerland and central bankers go there to get away from those pesky politicians and those journalists. There’s no cameras there. There’s no recordings of those conversations. They can let their guard down and behind closed doors just speak candidly with other essential bankers about issues facing the global economy, what they’re doing policy wise.

Sam Callahan (00:04:30):

So they have all these kind of events and committees and big time planning sessions with other central bankers and members of high finance. So that’s what their functions are. They’re a central bank that they move through all the services of regular commercial bank. They are a research center where they collect all the data, and then as well as an event planner, where they host all these very elite exclusive events for people of high finance.

Preston Pysh (00:04:59):

In preparation for this discussion, I read the book, The Tower of Basel, which is all about the BIS. One of the things that I highly recommend the book for people that are interested in this, it gets into a lot of the historical like standing up of it, which I think Sam will cover next. But before we go there, one of the things that surprise me in what you just said, this idea of them trying to achieve their own risk adjusted returns, especially considering that from reading the book, one of the really big points that it made was that they have complete legal immunity there in Switzerland for their activities. They don’t fall under any jurisdiction whatsoever. So it’s just mind-blowing to me.

Sam Callahan (00:05:46):

Yeah. So they are a bank beyond the reach of any national or international law. And it’s because they’re set up under international treaty. So they’re in Switzerland, but the Swiss have no authority, or they can’t even enter the business premises and their assets can’t be seized. Employees and the BIS are exempt from paying any kind of taxes on any profits that they get. They just have extraordinary legal privileges that extend not just to the bank, but also the bank managers and the directors. They’re basically treated like ambassadors or diplomats. Just like the UN or the IMF.

Sam Callahan (00:06:22):

So these bank officials that are traveling are immune under Swiss law for life, for all acts carried out in the act of duty, which is, I guess, just going to their headquarters and hanging out. I don’t know. But it’s pretty phenomenal that… Or I guess not phenomenal, just insane that they have complete legal immunities.

Preston Pysh (00:06:43):

So let’s talk about how this… So somebody who’s hearing that is probably saying, “Well, how does something like that stand itself up, right?” How does that stand itself up and how does it get the buy-in from every single country around the world for this to even happen, right? So tell us the cliff notes version of, in your point of view, how it all came to be?

Sam Callahan (00:07:06):

Well, it’s amazing because it always goes back to the treaty of 1919, the Versailles Treaty to end World War I. It’s amazing that how poorly that treaty was made and how many after effects was caused by it. It was a very emotional treaty. There wasn’t a lot of logic to it because they basically put all the blame on World War I on the losers on Germany, and they made them pay outrageous war reparations.

Sam Callahan (00:07:28):

It was very, very unpayable for Germany because they went back and they had no productive capacity. Their land was destroyed. Their labor force was killed off, millions died, and there’s just no way that they could pay back these unreasonable war reparations set up by that treaty. So what followed was the Weimar hyperinflation because they tried to pricked their way out of it and they just had these war reparations and they were trying to rebuild, and the easiest thing to do was print money, right?

Sam Callahan (00:07:56):

So once they stabilized in about 1924, when they created a new currency called the Reichsmark, and they started to stabilize. Well, something was happening across the ocean, and that was the roaring ’20s. And everyone was making money over there and they saw Germany stabilizing, and Americans thought, “I’m going to buy low and sell high in Germany. I’m going to go invest all my money over in Germany. It’s Germany. The worst is behind them. How could they not rebuild?”

Sam Callahan (00:08:25):

So they pile money. All these American investors pile money into Germany and then of course, 1929 happens. And the stock market crashes. All those foreign investments dry up, and then suddenly Germany is in another terrible situation where they’re worried that they’re going to have Weimar hyperinflation event.

Sam Callahan (00:08:43):

Coming out of that was a kind of nations got together at the Hague Convention. They realized that to facilitate these war reparations and to rebuild Germany, they first had to restructure these war reparations. So it was more reasonable, but then also they wanted to create a bank, a neutral bank that worked above the law that could kind of facilitate loans to help rebuild Germany, to help stabilize it, and then to help facilitate the war reparations.

Sam Callahan (00:09:13):

And that’s how the BIS was born. It was just because of these war reparations amazingly. So that’s how they all agreed to basically give all these legal protections to this neutral bank because they thought it would be a really good idea. And now we fast forward 90 years later, or almost 100 years later, and they’re still in existence because they’re so legally protected. So that’s kind of how they came to be.

Preston Pysh (00:09:38):

Well, and I think your point earlier too about how secretive a lot of it is and how there’s no auditability to go in there and really even fully understand the context of everything that’s happening. So when that environment persists and the there’s huge beneficiaries and an interest and incentive to keep it that way, I guess we can see why there’s very little known about it and it still hangs around. Right? It’s pretty fascinating.

Sam Callahan (00:10:09):

Yeah. They still have a lot of power and they still have a lot of use. Most people think about the financial system and they just think about the federal reserve, the US Treasury and that’s where they think it stops. But we live in a very globalized world and there’s these organizations that are filled with unelected. They’re non-governmental. I didn’t vote for anybody at the BIS, but they work in this stratosphere like above everything else.

Sam Callahan (00:10:35):

Actually, when they make these plans and they have a lot of influence over what happens and the design of the global financial system. So I think that it deserves to have some oversight and some accountability, but unfortunately that’s pretty much nonexistent today.

Preston Pysh (00:10:52):

So who are the partners? As the bank of central banks, who are the participants or what’s that governance look like?

Sam Callahan (00:11:01):

So there’s a board of governors. It’s pretty much like the who’s who of central banking. Right now I think Christine Lagarde is one of the board of governors, which is the ECB and it’s basically finance ministers, central bankers, and other members of high finance that sit on the board of governors. And then they vote for a managing director, which right now is Agustin Carstens who’s been at it since 2017. So that’s kind of like the structure. And then they answer to their shareholders who are central banks.

Sam Callahan (00:11:32):

So there’s 63 member banks, which make up 95% of GDP. And they’re just the biggest central banks in the world. Those are the shareholders in the BIS. So they receive a portion of the profits that the BIS makes and it’s just like any other business essentially.

Preston Pysh (00:11:54):

That’s just crazy because those shareholders, and I think it’s important for us to really kind of quantify this. Central banks, at least here in the United States, are these quasi-private entities, yet government entities that straddle. And I don’t know how that is in other countries. Are you familiar with what that governance is in other countries?

Sam Callahan (00:12:17):

Yeah, it’s a little different in every single country from my understanding. So it just differs from case to case, but it gets confusing because you’re like, “Okay. There’s this huge organization that’s making profits and then they pay out dividends to central banks.” What’s the point really? But when you look at Bank of Canada and the federal reserve, when they receive the profits or the dividends from the Bank of International Settlements, they have a system where it just goes straight to the treasury. So in a way, it’s just like basically feeding into the treasuries of both of those countries. I think a lot of countries are similar structured.

Preston Pysh (00:12:53):

So which would just be a reduction in the tax burden?

Sam Callahan (00:12:56):

Yeah. Exactly.

Preston Pysh (00:12:58):

Not that anyone being fiscally responsible but…

Sam Callahan (00:13:03):

It is interesting. I’ve tried to dig into the profits of the Bank of International Settlements. And their profits are up like 169% compared to 2019 when it was a more normal year before the pandemic. Since the pandemic, their profits are up 169%. And that really was curious to me. Then I looked into where the profits go and about 25% go to dividends to member banks. And then there’s these three opaque funds that I’m not sure what happens to those profits or what they’re used for.

Sam Callahan (00:13:33):

I don’t know if anybody does to be honest with you. That’s where they get really secretive about their internal operations. I know one of them is used for emergencies to provide liquidity for countries that go through financial crisis. But, yeah, it gets mysterious once you understand where do these profits go? And then they have 180 clients and there’s 63 member banks who receive the dividend of the profits, but there’s 180 clients. All I can surmise is that those are smaller central banks from third world countries that haven’t gotten big enough to become member banks. And they still use the services of the Bank of International Settlements.

Sam Callahan (00:14:11):

So they pay these in commissions, they add to the profits then, but they don’t receive any of the dividends. So in my mind, it’s like, “Is this just like a perpetual machine of almost wealth and equality at a level that I haven’t even thought about? Because if the only member banks are large central banks from large developed nation and they receive part of the dividends that go straight to their treasuries and the smaller clients that aren’t member banks are using their services… You see what I’m saying here? It’s like this is just like a massive perpetuation of wealth and equality on a level that I’ve never thought about.

Preston Pysh (00:14:48):

With no auditor. Yeah, with no auditor.

Sam Callahan (00:14:53):

With no auditor.

Preston Pysh (00:14:53):

Yeah.

Sam Callahan (00:14:53):

So I’ve thought about this and there’s still questions that arise around it, but the Bank of International Settlements, they’re really open about their research. They’re really open about what their plans are. So they’ve kind of promote transparency. But what they’re not transparent about is their internal operations. Like I said, there’s nobody above them. There’s no audit, like you said. So it’s really interesting.

Preston Pysh (00:15:16):

The thing I question and think about is when I’m looking at the currency, especially right now, if the dollar is screaming higher, the markets are getting crushed. And if the dollar is selling off, I mean, the markets are just bidding like crazy. It’s almost like you’ve got this total polarization of market performance just based on how the currency is performing. So when I’m watching that interaction and I’m watching Europe close in the afternoon here in the US, and then I’m watching the US markets either go up or go down and you’re looking at the currency moves, as soon as that European market closes, I’m thinking to myself how much of an interaction is something like the BIS playing in the valuation of that currency relative to all these other Fiat currencies?

Preston Pysh (00:16:02):

Are they stepping in aggressively and manipulating those currency markets to maybe try to create stability between these opens and these closes of US, Europe, Asia, or are they much more out of pulling those strings than maybe the tin foil hat than you might think that’s happening?

Sam Callahan (00:16:27):

It does. The secrecy of these organizations makes it, so you feel like you’re being a conspiracy theorist thinking about these things. But in reality, we’re just looking at this stuff and wondering about their role in the global financial system. Right? So their mission is financial stability to promote stability and economic growth and prosperity for all. In 1947, basically, there was an agreement made between central banks that they wouldn’t transact between each other directly. They would work through the BIS to do foreign currency transaction, cross-border transactions. So they do play a role there, but from what I’ve read, it’s more of just like an infrastructure and they’re just moving funds around.

Preston Pysh (00:17:13):

Think about that. Don’t go direct. Use this central entity that we can claw attacks out of for its “service”. But yeah, Canada don’t go direct to the US fed. That’s crazy to me to think that-

Sam Callahan (00:17:30):

Yeah, they didn’t want to have direct relationship with the borrower and the creditor between central banks. They wanted this neutral bank in between for whatever reason. It’s amazing because this was 1947 and this is the same system we have today in a world that has changed so much since then. But this is just the world we live in where the BIS is in between everything. And it’s amazing because they take a fee in commission when they use their services. But it all goes back to the central banks.

Sam Callahan (00:18:04):

I picture like an octopus. I know it sounds funny, but who has tentacles who just moves everything around for these central banks and above them and also keeps an eye on all the flows and then shares their research with them and warns them about maybe some cracks in the system here and there and what they’re seeing. And that’s what I pictured them is being.

Preston Pysh (00:18:25):

Well. So from country to country, they might have different strategic interests and you who have these central bankers that are making decisions that are greatly impacting the population of these various jurisdictions and regions that most countries have elected officials there in place to represent the population. But if you’re controlling the purse strings, and you’re one of these privileged central bankers that participate in this very niche secretive way of doing business. You’re actually implementing policy beyond, I think, any type of comprehension without any representation, which is just crazy. It’s crazy.

Sam Callahan (00:19:04):

Well, that’s why I read into this stuff because I feel like it’s an infringement on sovereign nations. If you think about America as a Republic, we elect representatives that represent sovereign individuals who make policy for our country, but you have this organization full of unelected officials, and it just so happens they’re in the ears of politicians all the time because it’s their job to track everything. It’s their job. They have the best vantage points and they have all the data.

Sam Callahan (00:19:35):

So politicians increasingly listen to them. I didn’t vote for them and nobody voted for them. You have to wonder like, “What are their intentions?” And it’s unfortunate because there’s no way for us to know. And if you look at history, what they plan to do becomes our reality, 10 or 20 years later. The perfect example was the Euro. They had planned the Euro as early as the early 1980s. And then fast forward, 20 years later, the Euro becomes a reality for the people of Europe. And this was all the business plans. Who elected them to make these plans that became vital part of the global financial system. And for the people of Europe, I know that they didn’t vote for that. It was really decisions made above them. So it’s just really interesting to think about.

Preston Pysh (00:20:26):

All right, next. What is the IMF?

Sam Callahan (00:20:30):

The IMF was created out of Bretton Woods. So everyone remembers Bretton Woods as being the creation of the US dollar reserve system. All right? Coming out of that, it’s basically… The way that was, was there’s a fixed rate of the US dollar to gold, that $35 an ounce. And then you had all the different currencies that had adjustable rates to that dollar. What they were worried about was in the 1930s, there was a lot of competitive evaluations occurring when people went off the gold standard and then they devalued their currencies, essentially currency wars at the expense of their trading partners.

Sam Callahan (00:21:12):

So there’s a lot of disequilibrium of the balance of payments between countries. So the IMF was created to be almost like a monitor and supervisor of all the countries and make sure that they maintained competitive exchange rates, but they didn’t do it in a way that they were devaluing their currency excessively at the expense of their trading partners.

Sam Callahan (00:21:35):

And there were certain ranges that they kept watch on. Then if they came out of whack and it was disequilibrium between the balance of payments, they would provide loans and liquidity to certain trading partners, and then it would soothe everything out. So that’s kind of what the IMF was originally created for. And then that lasted until 1971 when Nixon overnight just took us off that and suspended convertibility of gold.

Sam Callahan (00:22:06):

Suddenly there was a free floating exchange system and the IMF no longer had a purpose. Literally, I wonder what they thought when they went to work that day and they were like, “Well, what do we do?” because it’s just a completely different system and our purpose is gone now, right? And then in 1976 at the Jamaica Accord, they basically gave the rights to manage exchange rates back to the countries. So the countries could look at their own economies, set their own exchange rates, and the IMF couldn’t tell them what to do anymore. But there was a very important stipulation where they said, “The IMF is still going to do firm surveillance and there was no justification or no detail explanation what that meant to make sure that they didn’t competitively devalue their currencies.” So it kept the IMF alive because it was really no reason for it to exist.

Preston Pysh (00:23:06):

What type of executive authority did they have to enforce a bad actor? If somebody is not playing nice, what can they do?

Sam Callahan (00:23:16):

Well, nothing really. That’s the funny part. Because in 1976, like I said, all the rights went back to them after the Jamaica Accord to the original sovereign nations to control those interest rates. So that’s why it’s funny because they just a firm surveillance, but they really had no authority. But before 1971, they had all the authority. They could tell anybody what to do with the exchange rates. And if they got out of whack, they just said, “No, you’re not doing that. We’re going to fix this right now and soothe everything out and make sure that all the exchange rates are the balance of payments are in a good equilibrium.

Sam Callahan (00:23:52):

But after 1971, and especially after the Jamaica Accord in 1976, they really didn’t have any authority. And this is when the IMF shifted its purpose into organizations that maintained exchange rates into basically an international development agency that focused on providing loans to distressed nations. And this happened in the early 1980s when the Latin American debt crisis happened. And then the IMF kind of shifted roles completely. Just think of them as like no longer being the same role post-1971, then pre-1971.

Preston Pysh (00:24:33):

When I hear that, so they’re going around with a tin cup to various central banks saying, “Hey, let’s raise a rainy fund day, and then we will be the determining body of how that can it’s applied and who it gets applied to depending on whether we like them or not.” Is that pretty much the impetus of it?

Sam Callahan (00:24:53):

Yeah. I mean, there is some kind of discrimination and this is where it gets into who actually is a part of the IMF and it gets into their voting rights. So the voting rights are based on the quotas and the quotas are determined on two things. They’re determined on the GDP of the country and the openness of the country, meaning like with trades. So that’s why the US has a lot more voting rights than, say, China because technically they’re more of a closed economy you could say. And so the US has about 18% of voting power in the IMF.

Sam Callahan (00:25:29):

To give you a sense, the next highest is 6%. So we almost have triple the voting rights of everyone else. So over time, it can be said that the IMF is used to push US interest because the US has greater voting rights than everyone else. And that’s kind of what you see historically in terms of the IMF and who gets loans and who doesn’t.

Preston Pysh (00:25:53):

Now, let me ask you this, Sam. Is 18% of the funding that’s being provided to the IMF to be lent out coming from the US, is it proportional to the amount that’s being allocated into the fund?

Sam Callahan (00:26:05):

Yeah, exactly. So if you have a greater quota, you’re also providing more funds to the fund, if you will. Right? And so the IMF has basically two forms of how it gets revenues or money. And one of them is quotas. So every year, depending on how many voting rights you have or what your quota number is, you receive money from that nation as well as just interest from their loans that they give out. So that’s kind of the two ways they make money.

Preston Pysh (00:26:33):

Recently, I want to say in the last five to 10 years, I know China was really vying to become part of the IMF where before they were not part of it. Strategically, why would they be so interested in being a part of this process?

Sam Callahan (00:26:48):

Yeah, that’s a good question. I mean, the thing about the IMF is they have control over a lot of these third world countries because these third world countries have come to the… It’s come to… They depend on them. They depend on them for loans to keep going. So when you have that power over a third world country, you can decide through conditions in those loans what they do policy wise. So I think China maybe thinks it’s a way for them to influence policies in other countries to their benefit to spread their policies around the globe. So that’s probably my best guess.

Preston Pysh (00:27:29):

I know they have an interest in many developing nations in order to resource capture especially you see it in Africa a lot where they’re going in and they’re strategically setting up hubs and influencing and doing some really dramatic, not in good way, deal structures with those developing nation countries in order to extract what they find to be strategic resources. So I’m sure that that plays into what you were just describing there with the IMF. Let’s go to the World Bank. This is the one that I know the least about.

Sam Callahan (00:28:02):

So the World Bank has the most, I’d say like benevolent or altruistic mission because they were created at Bretton Woods as well and they were created for the purpose of post-war reconstruction and to foster economic development. So they were always meant to be that lender for developing nations to help foster economic growth and reduce poverty. Okay?

Sam Callahan (00:28:25):

Now, over the years when it was created in 1944 into the 1950s, third world countries became ideological battle battlegrounds for the Cold War. Each of them wanted to support countries that were in alignment with their interests. 1950 up to that point, the World Bank was pretty much used the way it was meant to be used. World Bank chiefs actually went to third world countries and walked around and met them, and understood the problems that they were trying to solve and were the empathetic for poverty.

Sam Callahan (00:29:02):

It was around in the 1960s in the midst of the Cold War that I would say that World Bank funds and loans became almost geopolitical. It went because of when Robert McNamara became leader of the World Bank. Robert McNamara was a secretary of defense for JFK as well as Lyndon B. Johnson in Vietnam. And after Lyndon B. Johnson left, he became the chief of the World Bank.

Sam Callahan (00:29:30):

So this was a man with a military background and an economy background, as he was economist. But he decided that he would control these nations by basically entrapping them in debt. Because once you own them, when they have a bunch of debt, you can control their policies. So the World Bank kind of shifted from a organization that had really good intentions to one with ulterior motives, I would say.

Sam Callahan (00:29:59):

So after Robert McNamara became the leader of the World Bank from 1968 to 1973 in five years, the World Bank granted more loans than the last 23 years combined. It was mostly to poor South American countries. They were massive loans. And in hindsight, they were pointless infrastructure projects. They had insufficient social programs. They built these expensive dams that went nowhere, energy products that went nowhere and they had no action to curb embezzlement or corruption. And most of the funds were siphoned to the political leaders to their personal accounts.

Sam Callahan (00:30:37):

So they granted loans to these countries that were adopting political policies when it went against the capitalist model to basically stabilize them and control them to basically align back with the US interests. Even the World Bank’s own research looks back on those loans and those projects of Robert McNamara’s and they call them failures. They were complete failures.

Sam Callahan (00:31:02):

So the World Bank was almost co-op to have a different purpose around the 1960s in the midst of the Cold War. So it’s kind of wild, but that’s exactly what happened. And that’s what the World Bank themselves say what happened. So it’s really interesting.

Preston Pysh (00:31:22):

That’s really fascinating. So here’s the yes or no question, and this is more from my own entertainment to what you respond to this. Do they understand Bitcoin? Do the people in these organizations understand Bitcoin?

Sam Callahan (00:31:36):

Six months ago, I’d say no. So the IMF has reports, or annual reports of all their recipient countries of their loans, and they just monitor them and make sure that they’re spending the funds the right way. And El Salvador’s came out five days ago and I read it. And Bitcoin is mentioned 236 times in that report. So they’re on it now because I think not only the legal tender, but the Bitcoin bond hasn’t shook.

Preston Pysh (00:32:07):

Yes.

Sam Callahan (00:32:08):

Because they have had a monopoly distressed sovereigns for a long, long time and it’s basically like I said, it’s a way for them to control the policies of these countries. And it basically infringe on their sovereignty for a long, long time. El Salvador is basically a proof of concept in my mind. And they’re on it now. So it’s going to be really interesting how it plays out.

Preston Pysh (00:32:33):

One of the things that I think was totally missed with this bond down in El Salvador is the special coupon that is part of the deal. This special coupon is massive. Massive hundreds of millions of dollars in value at the time of issuance of the bond itself. So if you’re a fixed income investor and you’re chartered in fixed income, now all of a sudden you can get practically direct access to a portion of the amount that you’re buying in the bond. In this case, I think it’s 50%.

Preston Pysh (00:33:14):

They’re raising a billion. Half of it is going straight into Bitcoin. It is Bitcoin buy from the very first day that they received the funds. El Salvador is then custodying that Bitcoin and then paying it as a coupon at a date in the future. So now, if you’re a fixed income chartered entity, wherever you’re at in the world, you now have direct access to Bitcoin performance even though yields everywhere on the planet because of organizations like the ones we’re talking about is nothing percent.

Preston Pysh (00:33:49):

I think it’s a way the structure of this bond is so intelligently constructed. I don’t think it’s received nearly enough air time on what the implications of that are because of the access that it provides to fixed income investors.

Sam Callahan (00:34:07):

Yeah. I mean, in this low rate environment, it’s looking pretty attractive with the upside potential of just Bitcoin’s price appreciation. 50% of it is just Bitcoin and the other 50% is infrastructure to build out their mining operations in the city. So it depends on their execution a little bit as well.

Preston Pysh (00:34:27):

Yes. But for El Salvador, it’s no detriment to them to be a custody holder of something that they’ve declared as legal tender organically inside of their jurisdiction to custody that on behalf of that fixed income investor, and then just hand it back to them at a later date. They’re not out anything. Right? But they’ve created an incentive structure to attract what I would describe as locked up capital that has to force itself into a zero yield environment. And now it’s almost a relief valve on a pressure tank that I think has never been there ever in a situation like this. It’s totally crazy. I’m with you 100% on that comment about the bond being a big deal here.

Sam Callahan (00:35:18):

Let’s back up a little bit about the IMF. All right. So the IMF, I mean, it’s amazing. There’s basically two critiques of the IMF. One of them is why do they exist when their original purpose no longer exists after 1971? Right? Because they basically do the exact same job as the World Bank. They’re both just like developmental agencies now giving out loans to distress their world countries and influencing their policy and advising them on what to do to achieve economic growth.

Sam Callahan (00:35:52):

There’s a long, long history of… The other thing is that their loans, you can make a really good argument that the IMF has not come through on their mission and reduced poverty and helped these nations, but actually made their lives worse. And this is their statistics for it. I’ll give you an example. There’s a study that looked at all the recipient countries who received loans from 1947 to 1989. And it looked at how long the countries relied on the IMF.

Sam Callahan (00:36:27):

So the ideal situation is that they take the loan, they create economic growth and they don’t have to use the IMF again. They don’t have to go into debt because the policies worked and they grew their way out of it and make their self sustainable, right? Well, six of those countries relied on the IMF every year for 30 plus years. And 24 countries relied on them from 20 to 29 years. And 47 countries relied on them from 10 to 19 years.

Sam Callahan (00:36:55):

83 of those developing nations who received IMF loans relied on the IMF every year for 60% of the years from 1947 to 1989. So it creates long-term dependence on these external creditors. So are they actually doing their job? And then do they actually create economic growth in these less develop countries?

Sam Callahan (00:37:19):

In another study they looked at from 1965 to 1995, they looked at about 48 out of the 90 loan recipient countries were not better off than before in terms of per capita wealth and 32 of those 48 countries, their economies actually shrunk by an average of 50% after they’ve received a loan from the IMF. So there’s real data to support the fact that is the IMF actually helping these countries?

Sam Callahan (00:37:48):

I think when you look at El Salvador, El Salvador is finally trying to get themselves out of relying on the IMF and they’re using this open monetary network that doesn’t have any gatekeepers that is completely permissionless to raise money and to use it the way they want to, without any conditions attached to it like the IMF loans.

Sam Callahan (00:38:13):

If you look at, even since they made Bitcoin legal tender, 30% had bank accounts before Bitcoin became legal tender. And that’s after 40 years of IMF and World Bank policies. 30% only had bank accounts. Four months later after making Bitcoin legal tender, that number has doubled. So they have doubled the amount of people who have access to financial service in four months what the IMF and World Bank policies did in 40 years. So this is like a huge deal.

Preston Pysh (00:38:43):

It’s insane. It’s insane.

Sam Callahan (00:38:46):

It’s insane. And they estimate that the potential benefits of remittances alone could save them about 0.25% of GDP a year. So about 54 million in savings back to Salvadorians by using the Bitcoin. And they expect Bitcoin tourism to bring in an additional $5 million a year, which isn’t a lot, but still this is a man who’s trying to lead his country and bringing innovation and use a new technology to bring in entrepreneurship. And the IMF is sitting there and their arms are crossed and they’re like, “No, because they don’t like it because they’ve had a monopoly on this distressed sovereign debt for so long.”

Sam Callahan (00:39:29):

What they’re really worried about is other nations looking at El Salvador and being like, “Hmm, this is interesting. I don’t like the IMF either. They’ve actually made our lives really hard for the last 30 years. Let’s try something different.” And that is a huge deal to me. I’m very empathetic to the millions of faceless and nameless victims of these policies throughout the entire world from the IMF and the World Bank. And to see them take their sovereign rights back into their own hands and use Bitcoin to do that, I mean, it makes me incredibly excited, incredibly excited.

Preston Pysh (00:40:11):

It’s crazy to understand that stat, that you’re doubling the remittance or the number of people with a bank account access in four months. But yet the IMF is still making statements telling them that they think that this is bad policy or whatever it is that they’re saying. I don’t have a word for it other than disgust.

Sam Callahan (00:40:34):

Well, it raises the question that lot of people have had for a long time is what the true intentions of these organizations are because it doesn’t seem like it is to help the people of these developed nations. It seems to be very, very different. And one example-

Preston Pysh (00:40:53):

Parasitic self-interest.

Sam Callahan (00:40:54):

Parasitic self-interest, as well as pillaging the wealth of these nations. So the chief economist of the World Bank, Joseph Stiglitz in the ’90s, he was one of the first whistleblowers of these policies. He came out in 1999. He was the first one that had really high ranking in these organizations, Nobel Prize winning economist. He said, “We need to reform these policy because they are doing the opposite of what the goals are. They are worsening these third-world countries.” He said, there’s basically a four-step process here. They basically privatize state own assets and industries, particularly electricity and water companies in a process that involves a ton of backhand deal, handshakes behind doors and significant amount of corruption.

Sam Callahan (00:41:44):

And then he basically explains how they open up the third world countries with deregulation and liberalization, opens at their financial markets which allows capital flows to go into these nations. And then once things hits the fan and there’s a recession, all the money flows out. It’s a hot money cycle and all the capital flows go out, and all the investment, and then the IMF recommends that they increase the interest rates. And then suddenly the interest rates go up 60, 70, 80% in these countries, and the economies are just wrecked.

Sam Callahan (00:42:19):

This happens over and over and over again. And then when there’s a recession after it’s wrecked, the IMF recommends austerity. They recommend cutting spending. And what they cut is subsidies for food, essential consumer products. They cut everything, all the healthcare programs, all the education programs in order for these countries to afford to repay their IMF debt. So they take all the programs that are meant to help the poor, and they cut them to pay off their debts that they brought on these people.

Sam Callahan (00:42:50):

And that happens time and time again. And if you know anything about out the history of the IMF, after they do that, and they cut the subsidies, it leads to riots. It leads to protests. It leads to civil unrest. In the 1980s and 1990s, there was literally a term called IMF riots because they were so frequent.

Sam Callahan (00:43:11):

In 1976 to 1992, there was a 146 IMF sponsored program or riots against IMF sponsored programs in almost 40 different countries. So when we say these things that they hurt the poor people and hurt these developing nations, the data supports it and their track record is not pretty. This has been going on for a very, very long time. So to see El Salvador finally stand up against these people and use a technology, finally, that’s there that they can use, that they don’t have to ask permission, they don’t have to ask the IMF, “Can I do this?” But they just did it, it’s incredibly empowering for these third world countries.

Sam Callahan (00:43:54):

I just don’t think people will really understand the history of how hard of a time these third world countries have had dealing with these organizations.

Preston Pysh (00:44:05):

That was one heck of a response to the yes or no question. I was trying to have a little fun with you, and you had a whopper of a response. So you think that Bitcoin is making a splash. They are paying close attention to this. I know Jack Mueller’s PR recently provided a presentation to… Was it the IMF that he… Or no. Was it the World Economic Forum? Who did he provide that presentation to?

Sam Callahan (00:44:31):

I think it was the IMF. I think it was.

Preston Pysh (00:44:34):

So he went in there, provided his presentation to the IMF. I just caught a little bit of it. I know he was talking about french fries and stuff, and really having fun with it. So they’re aware of this. This is my personal opinion. I don’t know. I think for them they’re looking at Bitcoin and they’re saying, “Hey, that’s a cute little movement that’s happening over here. But at the end of the day, we control everything and we’re going to roll out a central bank digital currency. And this whole Bitcoin thing is just going to disappear.”

Preston Pysh (00:45:04):

I think that’s how they… That’s not my opinion. I totally disagree with that opinion. I know you disagree with that opinion. Just because of the game theory, that’s going to play out here.

Sam Callahan (00:45:11):

Right.

Preston Pysh (00:45:12):

But from their point of view, I think that’s how a lot of these people that are running these organizations view how things are going to play out moving forward here. What do you think those conversations sound like, look like with respect to central bank digital currencies and how they plan on stepping into this new tech insertion with respect to monetary policy and economics around the world moving forward?

Sam Callahan (00:45:41):

Well, this is where it gets into basically the Bank of International Settlements because like I said, the Bank of International Settlements is more of like the research and innovation hub and they’re the ones putting out all these working papers on central bank digital currencies, and then they interact with the IMF and World Bank and let them know what’s going on. But to them Bitcoin is still just like a speculative asset. It’s not really a threat.

Sam Callahan (00:46:06):

I think maybe the Bitcoin bond woke them up a little bit, but in reality they still just think it’s like a play toy. They don’t really respect it as an actual threat to their power. And really when I look at them, they’ve held onto power for a very, very long time. It’s going to take a lot to take them out if you will.

Sam Callahan (00:46:26):

But when you’re looking at the central bank digital currencies, there’s a lot of different ways that they can go about this. They’re figuring it out. Basically, they’re in the design planning stage of how a global CBDC system would work in our world and it’s moving quite fast. So it’s early days in terms of what they’re thinking about, but I think 83% of central banks are doing research and have their own programs with central bank digital currencies.

Sam Callahan (00:47:00):

So a lot of people say like Bitcoin’s inevitable, but CBDs are also inevitable. They’re coming and they’re going to come in some kind of shape or form and it’s going to be interesting to see how it plays out.

Preston Pysh (00:47:14):

But even though they’re coming, they still control the central ledger, each one of these countries. And they still have to base the number of units inside of that central bank digital currency in order to compensate for all the momentum, and trends, and policies of a fractional reserve system. It’s just part of a fractional reserve system.

Preston Pysh (00:47:38):

So I guess what I’m getting at with that comment, that’s much more of a statement than any type of question, but when I’m looking at it, they’re really competing with stable coins because the stable coin market is just representing the existing currency. But the difference is, is that it immediately clears unlike the dollar that you might have in your traditional bank account, which doesn’t clear immediately.

Preston Pysh (00:48:05):

It doesn’t permissionlessly over that network that it’s on. So they’re saying, and I think that’s what you’re implying here is they’re coming in with their central bank digital currency. They are saying, “We’re going to basically pull that authority away from these private entities that are putting that technological feet in place today.

Sam Callahan (00:48:31):

Yeah. I think most of the regulatory pressure that you’re seeing today is not actually about Bitcoin. I think it’s mostly about the stable coin adoption which has been explosive really in a lot of these third world countries in reality. And the thing about it is this is when centralization comes into play because they’re also centralized. So it wouldn’t be hard for these governments and central banks to shutdown these private stable coins, I mean, in reality.

Sam Callahan (00:49:00):

So what I see though is government is not very good at tech. In the federal reserve, I really question their ability to come out with a really good stable coin. So it’s my theory that actually they’re going to eventually talk to really well-regulated stable coins into maybe using their technology-

Preston Pysh (00:49:22):

I totally agree.

Sam Callahan (00:49:23):

… to create their fed coin. So I see kind of a merge happening with, especially some of these US-based stable coins that have been really regulatory compliant and kind of like the fed reaching out to them being like, “Hey, can you help us create a fed coin?” And that’s how I see this playing out.

Preston Pysh (00:49:44):

Totally agree with you. The research and development and everything else that would have to take place for them to hit all the roadblocks in the government acquisition type process is not something that happens in six months or a year. That is a five-year plus type timeframe to get to something that could actually start to be issued.

Sam Callahan (00:50:05):

Yeah. Think about the government. They usually use the private sector to make things for them. It’s not like they do it all internally. With stable coins, it’s one of those things where the fed has to think about, they don’t want to rush this. My biggest worry actually is that Bitcoin starts to put a ton of pressure on them quickly. If Bitcoins are to explode and then they rush out their CBDC and it has some kind of like critical bug in it or something like that, think about how devastating that would be in this environment for a country’s currency to have like an inflation bug in the code.

Sam Callahan (00:50:44):

It’s kind of a crazy thought to have, or a vulnerability where it could be hacked or something. So you want to make sure that you get this right. I mean, this is going to be the foundation for the new digital financial system. You want to take your time with this. So the recent report show that the fed coin is coming out in 2025 to 2030. I think that’s probably realistic. I would say probably closer to 2030 that we’re actually going to see like a functional product here. Because they move slow. They know that this is very important. This is going to be the foundation here. So that’s kind of how I see this playing out.

Preston Pysh (00:51:22):

And I agree with your timeline. I agree with your timeline, but I’m smirking at the same time because I’m thinking 2030 might as well be 2300 in the timeline here because 10 years is hundreds of years in a relative comparison to how fast this is moving out. This is-

Sam Callahan (00:51:41):

Exactly. I mean, that’s two halving cycles.

Preston Pysh (00:51:46):

My lord.

Sam Callahan (00:51:48):

We’ll see what happens with that.

Preston Pysh (00:51:52):

I’m not even looking at it from a halving cycle, I’m looking at it from the macro backdrop of how broke the fixed income space is today. That’s like, it is so broke and they’re going to have to do so much more QE and they’re going to have to do so much more UBI in the coming five years that whenever I hear a number like 2030, I’m just like, it’s just crazy to think that that’s going to have any type of impact of slowing down Bitcoin.

Sam Callahan (00:52:23):

It’s true. There’s also like a competitive nature. I mean, we know that China has been making their digital yuan and experimenting on it for a long time. So it’s kind of like a race there too with Bitcoin, but also between China and America in terms of like who’s going to be the digital currency of future? Obviously, I think the dollar has big-

Preston Pysh (00:52:47):

Privacy wins.

Sam Callahan (00:52:50):

Privacy wins, right?

Preston Pysh (00:52:50):

Privacy wins.

Sam Callahan (00:52:51):

Privacy wins.

Preston Pysh (00:52:52):

And I think that’s when I hear that China is moving out on the… I’m thinking, “Yeah, but who the hell would ever want that.”

Sam Callahan (00:52:57):

Who’s going to want that? Who’s going to want that. I don’t know who would want that, but that’s what I’m saying. It is moving fast and the system seems to be breaking or seeming increasingly fragile, let’s say.

Preston Pysh (00:53:10):

Yeah.

Sam Callahan (00:53:12):

It is a moment in time where they have to be thinking about this stuff really seriously. And that’s what it seems like is happening behind the scenes. You’re seeing more reports coming out, more research reports. The fed just came out with their first research reports, which was a huge letdown, honestly. They didn’t really say much in it. They’ve been thinking about it for three years and there wasn’t really much that we didn’t know in that report that came out like I think a month ago.

Sam Callahan (00:53:41):

So we’ll see what the CBDCs come out with. But when I look at this and I think about how the CBDC can be implemented in a way that protects the privacy of everyday people, it’s tough to see a scenario where people would want to use that and it’s basically just a fancy dollar that’s still has the inflationary policies behind it. Why would somebody want to hold that when there’s something that nobody can control that has much more… yet preserves its value over time?

Sam Callahan (00:54:16):

So that’s when it’s like who would choose to use a CBDC that’s being surveilled by politicians and bankers and has less attractive monetary policy versus something that’s open, permissionless, that’s not controlled by anyone, that has a much more attractive monetary policy. So it’s going to be really interesting to see how it all plays out.

Preston Pysh (00:54:41):

Hey, I want to talk to you about the SDR a little bit just to kind of capture your thoughts. Describe what it is for people and then whether you see that playing any type of role moving forward, or is it just going to really diminish its influence, going to diminish moving forward?

Sam Callahan (00:54:58):

Yeah. Well, the special drawing, right? It came out of the Triffin dilemma. So that’s why the special drawing became a thing. It was actually the idea for it started it with John Maynard Keynes with the bancor in 1944. But in the paper that Robert Triffin describes the Robert Triffin dilemma, and for everyone who doesn’t know that in the Bretton Wood system, it was the dilemma where the US dollar was the reserve currency of the world. So they had to run current account deficits.

Sam Callahan (00:55:29):

So if they wanted to reduce the deficits, it would actually remove liquidity from the system and create depress economic activity. So that wasn’t good. But if they kept running deficits, it jeopardized confidence in the dollar itself if it had enough gold reserves to back the dollar. So it was this dilemma where they couldn’t really figure out what to do.

Sam Callahan (00:55:54):

So Robert Triffin in that paper where he turned that he said, “Hey, let’s have the IMF create a currency that can be used for liquidity, for reserves and so that the dollar can have a little bit more flexibility.” So that’s when the SDR kind of came about. So it provided a new source of liquidity for these banks, so you could kind of allow the US to have a little bit more flexibility with its deficits.

Sam Callahan (00:56:22):

So that was created in 1968 and it’s basically a basket of currencies now. It used to be in that area was backed by about like 0.88 gold which equaled $1. Today, it’s a basket of currencies that changes weights every five years, and it’s equal to about $1.40 for every 1 SDR. And it’s used as the unit account for the Bank of International Settlements and the IMF and these international global organizations.

Sam Callahan (00:56:53):

I don’t really see it… It seems like it’d be almost like going backwards to change the system to an SDR. And then you’re trusting these organizations full of unelected officials with [inaudible 00:57:07] which that doesn’t sound like a good idea for anybody. How would that work in terms of governance when you have one organization that has that exorbitant privilege over the rest of the world? So I really don’t see the SDR becoming like a big thing.

Preston Pysh (00:57:25):

Yeah. If it’s a basket of Fiat currency underneath of it with none of them being backed by anything, it’s all getting the base. You’re not fundamentally solving anything by it just being a unit that represents all these other Fiat units that are getting the base at a breakneck pace.

Sam Callahan (00:57:42):

Yeah. It reminds me of Facebook when they tried to come out with their DM where they actually included some other things besides the Fiat currencies. So it is something like that. That’s kind of what it reminds me of with the Bitcoin bond because when Facebook came out with the DM, that’s what lit the fire under the essential banks to start really looking into CBDCs. Now, I feel of like the Bitcoin bank or Bitcoin bond is lighting the fire under the IMF and World Bank into looking at Bitcoin as well. So things should get interesting here in a bit.

Preston Pysh (00:58:17):

Who’s more powerful? The BIS, the IMF, or the World Bank?

Sam Callahan (00:58:23):

That’s interesting. That’s an interesting question. I’d probably say, man, so the IMF and World Bank are more arms of the United States because we have the most voting rights and control over there. The BIS is really like its own thing. So I think the BIS probably has most independence outside of politics. So I think the BIS acts in its own stratosphere. So I’d probably say the BIS to be honest with you.

Preston Pysh (00:58:52):

What is something that we haven’t covered that you think is really important in this particular area?

Sam Callahan (00:58:59):

I tried to go on my rant of all the history of the IMF and I really just touch the surface. It’s like, “Man, when I’m doing my research and you can think what you want, and I implore everyone to just do your own research here.” Obviously, I’m biased. I have my own life experience that I’m looking at this stuff through and I’m a Bitcoiner. So I’m going to have a more negative connotation towards these organizations. So I hope that everyone just does their own homework here.

Sam Callahan (00:59:29):

But when I’m doing my research, there’s a couple things that come to mind. I’m watching videos in YouTube of a random economist in Ghana who’s saying the exact same thing about the IMF as a protestor in Argentina who’s saying the exact same thing as a Nobel prize winning economist who’s saying the exact same thing as somebody else, if you get my gist. And this is across multiple decades.

Sam Callahan (00:59:55):

This is real. These countries have suffered. I can’t get that message out enough that I don’t know if Bitcoin is the all and be all of the solution here, but at least it’s something that’s going to free these people from these organizations that have basically just entrapped them. One of the things I did in my research was I looked at political cartoons and it sounds funny, but when you look at political cartoons, it gives you an idea of the sentiment on the ground about these organizations.

Sam Callahan (01:00:29):

I looked at political cartoons from 1984, 1996, and they’re all telling the same story about these organizations, about what they do to these countries. I just can’t get that message through enough that we’re in a situation here where finally there might be a sly roundabout, like Milton Friedman said of working around these organizations and taking a little bit of power away from them and providing an option. Just an option, an alternative for these countries to look to.

Sam Callahan (01:01:05):

So I hope I got that message through, but I hope everyone just thinks about that and understands the history here because it’s a big deal. It’s a big deal that there’s at least just some alternative that these people can go to. And that’s kind of the message I want to get across.

Preston Pysh (01:01:24):

I love it. And for anybody who likes free and open markets and freedom in general, competition is a good thing, right? From the IMF’s perspective, if there’s this other thing over here that’s competing with their model and what they’re doing for a person who is truly about free and open markets, they want competition because it’s going to breed for their success and maybe a better way of doing business.

Sam Callahan (01:01:52):

Right.

Preston Pysh (01:01:52):

We’re seeing nothing of the sort based on the messaging that’s coming out and it’s funny because you’re just seeing it with El Salvador, which is a very small country relative to everything else in the world, but boy, are they making a stink about it, which I think tells you everything you really need to know.

Sam Callahan (01:02:08):

Yeah. And it’s ironic because they actually preach free market neoclassical. That’s what the IMF and World Bank always… They want competition. They just don’t want competition in their monopoly of [crosstalk 01:02:22].

Preston Pysh (01:02:23):

Exactly. Exactly.

Sam Callahan (01:02:23):

It’s a little bit ironic. Just one more thing. This is just more of an interesting thing, because when El Salvador did this, I immediately looked at their history with the IMF. And I just think this is interesting that people should know about this, where they say that El Salvador has a debt problem and they say, “Whoa, their fiscal position isn’t well.” And they’re 100% right. They have about 84% that’s GDP right now.

Sam Callahan (01:02:52):

They’ve had a hard time building their labor market over the last 30 years. And we talked about the unbanked situation there too. But this has all happened on the IMF and World Bank’s watch, under their policy direction and advisement. Nobody thinks about how… The debt problems happened a long, long time ago. And El Salvador was the recipient of one of the largest, most controversial political IMF loans in history, in 1982 during their civil war.

Sam Callahan (01:03:27):

Really, they’re still working off the loans from that super controversial loan in the early ’80s. And it builds, and it builds, and it builds. And the IMF to turn around and say like, “Whoa, well they haven’t listened to our reforms. They just put the blame on them.” They should look in the mirror and say, “Why are they in this position when we were supposed to be the ones advising them to build economic growth?”

Sam Callahan (01:03:53):

So who has really failed here in El Salvador? I think everyone should look to the history of IMF and El Salvador. It’s really quite fascinating.

Preston Pysh (01:04:05):

Sam, I’ve loved this conversation. Is there anything that you want to hand people off? I know you’re active on Twitter. Is there any other thing that you want to highlight?

Sam Callahan (01:04:16):

I write blog posts at Swan. So I work at Swan Bitcoin. We’re a place to buy Bitcoin for cheap. We match that with a lot of education. So I write a lot of content. So you can check out some blog posts by going to swan.com. I write a lot of more kind of beginner friendly Bitcoin stuff on there. So that’s where you can find some of my work. And then you said Twitter, @samcallah, S-A-M-C-A-L-L-A-H where I share some of my thoughts around some of this other stuff, which when I’m not busy teaching people about Bitcoin at Swan, I like to read about organizations like this.

Preston Pysh (01:04:56):

Well, thanks so much for coming on the show. Well, for people that are interested in that, we’ll have links in the show notes to Swan and your articles and also your Twitter handle. So Sam, thanks for making time.

Sam Callahan (01:05:07):

Thanks, man. Thanks for having me on. I really appreciate it.

Preston Pysh (01:05:10):

If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires. The Bitcoin specific shows come out every Wednesday and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm.

Preston Pysh (01:05:35):

So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening. And I’ll catch you again next week.

Outro (01:05:43):

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