Vladimir Putin recently stated that “the Bretton Woods system is dead”. The world needs an alternative and Bitcoin seems obvious.
Imperial currency
Monetary hegemony rarely lasts more than 100 years. The Florentine florin, which reigned supreme in the fourteenth century, would ultimately be dethroned by the Portuguese real. Then came the Spanish real, the Dutch guilder, the French pound, the pound sterling, and then the dollar.
Here is a fantastic infographic tracing the evolution of the share of different currencies in international foreign exchange reserves since 1900:
It was from the 1950s that the dollar definitively supplanted the pound sterling. The transfer of power took place during the Bretton Woods conference. The 40 Allied nations agreed that the dollar would become the cornerstone of the international monetary system.
The United States was in fact in a position of strength given that most of the world's gold reserves were located at Fort Knox (nearly 70%). The American war effort was not completely gratuitous… In this regard, let us recall the famous declaration of President Truman two days after Hitler's invasion of the Soviet Union:
“If we see that Germany is winning, we must help Russia, and if Russia is winning, we must help Germany, and thus let them kill each other as much as possible, although I do not want in any case see Hitler victorious. »
In short… The dollar, the only currency freely convertible into gold, became the international reserve currency. It was decided that an ounce of gold would be worth $35 and that all exchange rates would be fixed.
This convertibility into gold was a way for the old continent to ensure that the United States would not finance its imports with money printing. Until…
1971
The Bretton Woods system collapsed in 1971 when President Richard Nixon suspended the conversion of the dollar into gold. Since then, exchange rates have been “floating”.
US Treasury Secretary John Connally famously said this to an angry European delegation: “The dollar is our currency, but it’s your problem.”
This decision was made for two main reasons. The first is that European and Japanese exports had become more competitive in the 1960s. The result was a decline in the United States' share of world production, which reduced the need for dollars. European countries therefore decided to drain the stock of American gold, which would drop from 20,000 to 8,000 tonnes.
Second, Washington knew that the national oil peak reached in 1971 would significantly worsen its trade deficit. The price of a gallon of gasoline increased by 20% between 1964 and 1970.
It was then that Secretary of State Henry Kissinger orchestrated America's greatest geopolitical coup: the petrodollar. Head over to this article for a retelling of this fascinating story.
The short story is that Saudi Arabia and other OPEC member nations were forced to sell their oil exclusively in dollars. So much so that despite the end of the Gold Standard, all industrialized nations had no choice but to keep their foreign exchange reserves in dollars.
Fifty years later, the American currency is once again at the heart of geopolitical tensions. The Russian president underlined this again last week.
Petrodollar, niet!
Vladimir Putin reiterated at the International Economic Forum in St. Petersburg that the world needs a new international monetary system:
“The Bretton Woods system, based on the gold standard, is long dead. […] The United States abandoned it for the system enshrined in the Jamaica Accords which separated the dollar from gold.does he have spear.
“In fact, what is the basis of this Jamaican system that still endures today? Confidence in the American economy. In today's global financial system, there is no other guarantee, so to speak, than confidence in the American economy..
The problem is that the Americans benefit enormously from the end of the Gold Standard. For the Russian tsar, “public data shows that the United States owes about $54 trillion to the rest of the world”. This figure probably represents the cumulative external deficit of the United States.
The existence of this massive external deficit is due to the fact that central banks keep several trillion dollars in reserve in the form of Treasury bills (public debt). These are all dollars which are not converted into other currencies and which artificially support the value of the dollar. And this, despite a chronically deficit trade balance. Only the United States enjoys such a privilege.
Not only does the United States benefit from the system, but it abuses it (disconnection of entire countries from the SWIFT network, freezing of foreign exchange reserves, etc.). Between the militarization of the dollar and payment defaults (“freezes”), it is not surprising to see the BRICS make dedollarization a priority.
From this point of view, the war in Ukraine can easily be seen as an attempt to destabilize Russia with a view to slowing down the dedollarization of which Moscow is the standard bearer.
From Dexter White to Satoshi
Little by little, the BRICS are replacing their national currencies with the dollar in their trade as well as in their foreign exchange reserves. In 2023, the share of gold (17.60%) in the reserves held by central banks will exceed that of the euro. First place still goes to the dollar, 48%.
[A noter que si l’Inde à récemment rapatrié 100 tonnes d’or de Londres, son voisin chinois a récemment cessé d’en acheter : Notre article à ce sujet]
However, gold is not a payment system. Difficult to send nuggets by mail. Hence the interest of the BRICS in a CBDC payment system. The Chinese-led mBridge project is probably the most advanced as an alternative to the SWIFT network.
But to be popular, the mBridge payment system will have to offer more advantageous conversion rates than with the current system centered around the greenback. It will be very difficult. There will be no direct conversions between the Vietnamese dong and the Uzbek soum. It's not realistic. Large volumes will be required, which requires a standard. The dollar currently plays this pivotal role, but what will it be in the BRICS system?
The Chinese yuan? India won't want it. Gold? Problem is, it doesn't travel via the internet. We would be back to promises that end like 1971. In other words, Vladimir Putin promises a payment system “protected from political pressure, abuse and external sanctions”but will it be competitive?
Why not adopt a solution that has proven itself for over 15 years: Bitcoin? A stateless and uncensorable currency, it is a payment system as well as a monetary standard, two-in-one.
Bitcoin is the perfect solution to the problem of a global store of value (absolutely finite money supply) and a reliable payment system. It would allow all nations to trade on equal terms, which is absolutely necessary to ease geopolitical tensions.
Tick Tock next block…
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