[Spoiler Alert] Money Heist, a Spanish Netflix series whose Part 3 has just been released is based on how institutional finance works. After attacking the ECB’s “liquidity injections”, the band of robbers in red jumpsuits and Salvador Dali masks want to destabilize the system by stealing gold from the Bank of Spain. Perhaps this series should be screened in economics classes?
Scenes from the Royal Mint of Spain to the Bank of Spain
The big-hearted thief is a well-known character in literature, theatre and film. You have Robin Hood, created in the 12th century in the form of poems, but also Arsène Lupin, the gentleman burglar, not to mention the puppet Guignol.
Here, the Professor – the brains behind a band of robbers code-named after major cities – plans to seize hold of the printing presses at the Royal Mint of Spain and print billions of euros, with the aim of carrying off a successful heist without stealing any money from the people. This way, despite being a criminal act, it comes off as laudable, because he is perceived as a sort of Robin Hood 2.0, Anonymous-style. After a nearly successful attempt, the thieves come back a few years later, this time with their sights set on the Bank of Spain, where they want to steal the 90 tonnes of gold bullion in its vaults.
Liquidity injections from out of nowhere!
In a famous scene where the Professor speaks privately with police investigator Raquel, he proclaims, “In 2011, the European Central Bank made 171 billion euros out of nothing […] 185 billion in 2012; 145 billion euros in 2013”. He notes that the ECB called it “liquidity injections” and not theft. To him, that liquidity was pulled “out of nowhere”.
Worse still in his eyes, hundreds of billions of euros were given to the banks, that did not then transfer them into the real economy in the form of personal or business loans. The Professor and his band of robbers (Tokyo, Berlin, and so on) want to inject the money they steal directly into the real economy. They decide to print billions of euros.
Fiction: Money Heist – Reality: Quantitative easing
His argument is largely true. Aside from the fact that the ECB did not actually run the printing press itself. But that is no longer necessary in a computerized society which is becoming increasingly cashless.
After the 2008 crisis, the European Central Bank (and the Fed) launched a far-reaching campaign of buying up government bonds (i.e. State debt) from the banks. This is known as quantitative easing, or QE. It involves exchanging securities for a receivables line in euros. As a result, the banks found themselves with many receivables lines in euros in the balance sheets. Obviously, this was not paid in cash, in banknotes and coins, and all that money pulled out of nowhere was of course not then loaned out to companies and individuals. Otherwise, our wages would not have stagnated over the last decade, and the public and private debt burden would not have swollen as much as it has.
So, where did that money go? In reality, a portion was used by the banks to speculate on the stock market (which is why listed companies pay dividends each year which are ever more colossal than the time before), while another portion was reinvested in central banks… Yes, you read that right. That money, which came from the central banks to help commercial banks, eventually returned to the coffers of those central banks, for the sole purpose of generating interest.
And to further play down the actions of the Professor and his gang, they “only” plan to print €2.4 billion… Do you know how much the ECB has printed since the financial crisis? Want a hint? All right, all right, we’ll give you the answer: €3 trillion (a 3 followed by 12 zeros, just to give you an idea of the scale), 2,000 times the amount targeted by the robbers.
In addition, the stolen €2 billion wouldn’t have had any impact on the Spanish economy! When banks print money, they are required to report it officially. Because the euro is regulated by the ECB, all countries in the Eurozone follow the same monetary policies, including Spain. Roughly speaking, more money means more inflation. Take the example of the Weimar Republic: after the First World War, Germany, which was already experiencing major economic problems after having sold too many long-term treasury bonds to the population (to finance its war effort), was compelled to pay 132 billion gold marks in compensation. So, Germany set its printing presses in motion at top speed, but given that unemployment had already reached a record high and that productivity was not increasing, the only thing this created was a country in a situation of hyperinflation, incapable of repaying the imposed debt other than in devalued paper money. When an economy continues to produce the same volume of goods but is also printing money, inflation occurs: prices increase, because the reserves of money are larger than the reserves of goods.
Turning back to Money Heist, not only would €2 billion have no real impact on the economy, but because money printed must be reported officially – from a perspective of monetary policy strategies – in order for inflation to truly exist, there is a very good chance that our robbers in red jumpsuits would not have caused any economic instability. Conversely though, the ECB uses and abuses ineffective monetary policies which have terrible repercussions on our daily lives.
Part 3: Spanish gold to destabilize the system
Since this latest instalment in the Money Heist series was only recently released, we won’t reveal too many details, but it is important to know that the Professor needs to “destabilize the system”. He first starts by dropping 140 million €50 and €100 notes from the sky above Madrid. Then, he intends to steal 90 tonnes of gold from the coffers of the Bank of Spain.
The argument here still holds, although it should be noted that Spain has 280 tonnes of gold in its reserves and that it is absolutely not a certainty that those 12 kg gold ingots are actually stored inside the country. It is common for countries to store the reserves of others (as the United Kingdom does, for example).
At the same time, the subject is clearly relevant today, when many countries have decided in recent months to reinforce their gold reserves. In many cases, this is believed to be a desire to reduce dependence on the US dollar. For example, this is true of China and Russia, as well as Turkey. As for Poland, which doubled its reserves in the space of a year, its aim was to diversify its monetary reserves in anticipation of another crisis.
And beyond governments, it is evident that gold is enjoying an upsurge in popularity amongst the citizenry. In a geopolitical and economic climate which is as menacing as today’s, people are turning to instruments which do not generate value but which above all do not lose value, and gold is one such safe investment. It is precisely because, in this post-2008 world, we find ourselves starved for growth at a time when our currencies are worthless, that VeraCash offers a stable, secure solution: an account, a prepaid card and a currency outside the traditional banking system, all backed by gold.
Money Heist’s Professor challenges the principle of fiat currencies!
In the first season of Money Heist, the robbers’ mentor rips up a €50 note, yelling, “It’s nothing […] It’s paper, you see! It’s paper!” (In fact, the original title of the series is La Casa de Papel, or “The House of Paper”.) This is where the concept of fiat currencies comes into play. They have very little intrinsic value (the cost of the paper and of production). In fact, its value is imposed by the authorities. The State – or the EU in the case of the euro – gives a €50 note its function: it can be exchanged for a good or service valued at €50. And it also offers a guarantee of that assigned value. For this to work, the users must have complete confidence in the stability of the institution: whatever happens, my €50 printed on this piece of paper will be worth €50. But what happens if the financial institution or the government should waver? The Professor is gambling on the assumption that the Bank of Spain will not be willing to take that risk…
Who said watching telly couldn’t be educational?!