The form of money that we’ve used for the last 50 years has been an experiment, and it is ending before our very eyes.
Following World War II, global leaders met in Bretton Woods, New Hampshire to establish the new monetary order. Having won the war (and not having its homeland devastated by years of carpet-bombing) the United States was uniquely positioned to lead this new regime.
The leaders agreed to peg the US dollar to the price of gold, and have every other nation’s currency pegged to the US dollar. This meant that dollars were redeemable for gold, i.e. dollars were paper promises on a form of hard money that had been used for thousands of years.
Other nations had to trust that the US would not create more dollars than gold it had in its coffers. Any student of history can probably predict how this trust eventually broke down.
The Bretton Woods monetary system existed from 1943 to 1971, a period of only 28 years. Essentially, the US broke its promise at Bretton Woods and began creating far more US dollars than gold it had to back it up, and the French called its bluff.
Charles De Gaulle, a real pain in the ass to Western establishment powers, sent a warship to the States to redeem his nation’s dollars for gold. Other nations followed, thus sparking a global bank run on the United States. “We want our gold!”, they demanded.
Caught red-handed, and knowing there was not enough gold in his coffers to make everyone hole, President Richard Nixon went on live television and announced the end of the Gold Standard in the year 1971.
Dollars were no longer redeemable for gold, a hard money outside the control of humans.
Dollars were just… well, dollars. This good ‘old fashioned rug pull marked the beginning of the Bretton Woods II system, essentially creating “fiat currency”, i.e. money by government decree.
“Those green pieces of paper are money because we say they are money.”
Fiat currency is humanity’s latest iteration of a form of money, and it has largely been an experiment since Nixon’s announcement in 1971 — that’s only 50 years ago! A blink of the eye in the grand scheme of history.
I believe that Bretton Woods II ended in 2022 and that we have entered the next chapter of monetary history.
While evidence of nations trying to de-dollarize — mainly by selling US debt or pausing their purchases of it — have been going on for some time now, the US freezing of Russian reserves was the straw that broke the camel’s back.
That was a rug pull on par with the gold shock of 1971. It revealed what the US is willing to do if you don’t play nice. It revealed, once again, that it is willing to break the fiat promise of ledger entries in a centralized database.
As trust between nations continues to fall, and de-globalization trends intensify, I expect nations to turn to a monetary technology that requires minimal trust to conduct trade.
Fool me once, shame on you. Fool me twice, shame on me.
The net producers are done accepting paper promises from the net consumers. They are done trading their scarce resources for infinitely abundant paper promises that can be weaponized against them.
Anything that can’t go on forever, won’t.
Sovereigns are comfortable with gold. It’s what they used for thousands of years, so it’s reasonable to watch them habitually return to it and for them to be buying it hand-over-fist right now.
However, gold has failed time and time again and it will fail again if tried. Gold can serve as an excellent store-of-value asset, but it cannot be global money in today’s modern economy. It can’t physically move fast enough for global trade, thus mandating centralization and the creation of a credit-based system to be built on top of it.
Some sovereigns are rumored to be creating a gold-backed commodity money. However, this approximation of hard money requires trust.
As we have established, history shows that trust between nations eventually breaks down. A gold-backed BRICS form of money will ultimately fail in 10-20 years for the same reasons it has previously failed, and these nations should save themselves two decades of stagnation by adopting the superior monetary standard that is outside the control of humans.
The incessant desire for human intervention in the money is why it fails every time that it is tried. People from the future will look back upon this time period and be shocked that we allowed other humans to control and manipulate the money.
“How stupid could they have been!”
Forward-thinking nations have the opportunity to leapfrog incumbent powers by adopting the new form of monetary technology before others do. As is true with any new technology, early adopters benefit disproportionately compared to majority adopters and laggards (gun powder, the wheel, the printing press, the internet, etc.).
Satoshi created an engineering solution in Bitcoin. He created “gold with wings” by perfecting the monetary characteristics that gold approximated for thousands of years.
His solution does not require trust between nations. Instead of floating warships across oceans to collect a pile of rocks, bits of information can be zapped across cyberspace in the blink of an eye.
No need to melt down rocks to verify your adversary provided you with the metallurgy that was promised; an iPhone can verify that you received the asset that was promised, instantly and at zero-cost.
This is how technology develops: gradually, then suddenly. We are living through this inflection point right now.
Satoshi’s monetary discovery is purpose-built for the next chapter of monetary history. The future is here, it’s just not evenly distributed yet.
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