• The article examines the ways that fiat money has led to terrible incentives at the individual, corporate and national levels.
• It provides historical context of the Bretton Woods Agreement from 1944 which established a new monetary world order.
• The article goes on to discuss how global incentives are affected by fiat money.
This is an opinion editorial by Jimmy Song, a Bitcoin developer, educator and entrepreneur and programmer with over 20 years of experience. In this article, he goes through the ways the entire world is incentivized by fiat money. The previous articles spoke more generally about how individuals, companies and nations are affected by fiat money. This article will be a lot more specific as there’s only the one world we live in and we don’t need to speak generally.
Bretton Woods Agreement
We start the analysis of global fiat money incentives with one of the major historical events that precipitated the world we live in today and that’s the Bretton Woods Agreement from 1944. Bretton Woods is a small town in New Hampshire where government bureaucrats from all over the world came to establish what they called “a new monetary world order.” If that sounds ominous and sinister, that’s because it is. The idea of the conference was to fix the problems from World War I (WWI), where reparation payments and loopholes around then re-established gold standard wreaked havoc over so many economies and eventually led to World War II (WWII). Returning to pre-WWI gold standard was too difficult to square with central banking monetary control that every country had gotten used to, so conference was way figure out how establish some other monetary order.
Pre-WWI Gold Standard
Prior to WWI, gold was convertible directly at banks. In U.S., exchange $20.67 for one ounce of gold while UK exchange £4.25 for one ounce of gold . Currency backed by gold convertibility kept it scarce . Most currencies were gold-backed foreign exchange easy didn’t fluctuate because gold standard . Advent central banking changed this some central banks created own currency , allowed them print create much needed funds war effort . Central banking also gave governments ability tax citizens without actually raising taxes .
Bretton Woods Solution
The main problems were every country wanted legitimacy of gold but also stealth taxation central bank fiat money solution they came up with adding level indirection redemption . Under agreement , U.S dollar became reserve currency would redeemable 1:1 ratio against U..S equally weighted basket commodities such as wheat soybeans etc . Other currencies fixed rate dollar , but could adjustable if deemed necessary International Monetary Fund (IMF) created ensure countries followed rules created Bretton woods agreement
In conclusion , this article examined different ways global incentives are affected by fiat money , specifically in terms history behind Bretton woods agreement solution proposed address problems WWI WWII eventuated current financial system based on inflationary currency units controlled governments themselves .