The Bretton Woods Agreement
The rules for money for the modern age were first formally established by the Bretton Woods Agreement in 1944. At Bretton Woods, 730 delegates from 44 countries met to agree on the post-war financial system. I believe Bretton Woods was the first such attempt at a global agreement. Bretton Woods lasted until 1973 or so.
The U.S. Dollar As Global Reserve Currency
The United States achieved two main objectives at the conference: creating the U.S. dollar as the world’s reserve currency and establishing the convertibility of dollars into gold at a fixed price of $35 per ounce. John Maynard Keynes, representing the United Kingdom, presented an alternative plan for a new world reserve currency and a centralized world bank. However, the United States won the day because of its status as the most powerful nation at the end of the Second World War, and the rest is history.
From Bretton Woods to the present day, we have seen many permutations and combinations of financial and monetary systems, structures, and policies. For example, the International Monetary Fund created its Special Drawing Rights in 1969 as an international reserve asset. Two years later, President Nixon closed the United States’ “gold window” in August 1971 and eliminated the convertibility of U.S. dollars into gold.
It is probably safe to write that most developed countries are not happy with continuing the U.S. dollar as the reserve currency for the world. However, reaching an agreement on a new reserve currency, such as a superior version of the IMF’s Special Drawing Rights, is not a trivial task. This challenge becomes more difficult with inflation and the quantitative easing policies.
The Future Of Money (Perhaps!?)
I believe the following four statements exemplify my perspective on the future of money. Of course, each sentence requires a lot more flesh on its bones. However, for purpose of this post, I believe these statements are reasonably self-explanatory, augmented as they are with the supportive comments.
CASH WAS KING: The U.S. dollar was the “king currency” for a long time and ruled the world without any competition. “Cash Is King” (meaning the U.S. dollar) was a favorite maxim often seen or heard in the financial world, especially on Wall Street.
CASH IS BECOMING TRASH: The U.S. dollar has become a fiat currency, and its purchasing power has decreased about 96% since the creation of the Federal Reserve in 1913. Put simply, this means that the U.S. dollar was worth 100 cents in 1913 but is now worth only $0.04 or $0.05 today. The Federal Reserve’s balance sheet now stands at $8.7 trillion in total assets, compared to $865 billion in 2007. The value of M-2 stands at 21 trillion dollars. Both latter points are causes for extreme concern.
CRYPTO IS RISING: The adoption of cryptocurrencies is rising exponentially. More than 12,000 coins and tokens are being bought and sold on over 500 exchanges. Several of these cryptocurrencies, over time, will become value-added mediums of exchange and transaction mechanisms for the four billion people in the unbanked world. The vast majority will go to zero.
BITCOIN WILL RULE: Bitcoin will eventually rule the roost because it is comparable to digital gold, and it is a decentralized and immutable digital store of value that is deflationary. We may once again see a new kind of bi-monetary system comparable to the gold and silver bimetallism standard in the 19th Century. A new world reserve currency will be agreed and Bitcoin will be either a junior or senior partner.
The global monetary system is moving rapidly into the world of digital currencies. How it will all play out is beyond anyone’s understanding or prediction. This much is certain, however. Whatever transpires will be one more battle in the war between centralized power and decentralized power.
Links
External: https://messari.io/
Internal: https://whitebeardwisdom.com/bitcoin-is-a-many-splendored-thing/
Recommended Book Reference
The Price of Tomorrow, Jeff Booth, Stanley Press, January 2020
