Bretton Woods 2.0 is knocking on our door and it is not to help

A second Bretton Woods era will be even more centralized and far from a true democracy.

Just 100 years ago, in the early 20th century, people could exchange dollars for gold at their local bank. While gold was too difficult to trade between people, the banking institutions had gold and gave people cash. This was during what became known as the gold standard. The value of each sovereign currency was determined in relation to a fixed amount of gold. However, over the next few decades, that standard changed rapidly.

Towards the end of World War II, dozens of powerful people organized a meeting to discuss a new monetary arrangement designed to minimize the economic damage caused by the war. This meeting was named after the place where it took place: Bretton Woods, New Hampshire, in the United States.

It was a long-term plan with several parties that spanned decades. And the Bretton Woods delegates decided that the multiple trust currencies would now be backed by the US dollar instead of gold itself. At first, the dollar proved stable enough to support the Bretton Woods agreement in 1944, until it became so in subsequent decades. During the Vietnam War, President Richard Nixon asked for more money. There was no more money in circulation. So he started printing.

In 1971, President Nixon ended the convertibility of the dollar into gold, which ended the Bretton Woods agreement after almost 30 years.

The elimination of the gold standard turned each country’s trust currency into a floating exchange rate that was no longer fixed. Money was no longer measured in dollars; each currency was now measured against any other currency, with prices constantly changing, creating volatility in the foreign exchange market.

Bitcoin as an opposition

Today, one asset with which trust currencies are measured is Bitcoin (BTC). As I mentioned in 2019, I believe that Bitcoin is the best investment when it comes to coins in the solid money sense.

In certain countries, such as Brazil, Argentina and Venezuela, to name a few, the price of Bitcoin is currently at an all time high compared to their national fiat currency. In relative terms, that would mean that the price of Bitcoin is already around USD 20,000.

The problem is that Bitcoin is not ready to be a monetary system on its own. Most people who own Bitcoin only have it, do not sell it or use it as a currency because of its potential to appreciate rapidly, despite the downside risks.

Bretton Woods 2.0

Meanwhile, the International Monetary Fund is now calling for the announcement of a second era of Bretton Woods in 2020. This would establish the Special Drawing Right, or SDR, as the new reserve currency in place of the US dollar. The SDR serves as the most stable investment option for the IMF. Its value consists of the five major global fiat currencies as protection against volatile movements in foreign exchange markets. The problem with the SDR approach is that it could make the economic situation even worse than it is at present.

History has shown that when people have an inflated amount of power over money, they will use it. Just look at President Nixon during the Vietnam War and the original Bretton Woods agreement in the mid-20th century. Even worse is that now, almost all central banks are printing more money, which in turn leads to inflation as fiat currencies lose their purchasing power.

We cannot have a single powerful entity with the power to print itself out of temporary problems, especially when it would put us into future debt that would be impossible to manage. This is the opposite of democracy, where only a few people control the big monetary decisions that affect everyone. Crypt coins such as Bitcoin aim to solve this dilemma, thanks to their limited supply, among other favourable qualities inherent in the Blockchain technology.

The Blockchain technology has a solution

Blockchain has raised our standards to expect decentralization in the institutions that are meant to serve us. True decentralisation is achieved when the hierarchy is broken. Everything becomes transparent and incentives are given to push the system in the right direction.

Sogur, for example, is a startup that faces the ambitious challenge of creating a new monetary system based on its MGS cryptomoney that models the RDS while taking advantage of Blockchain technology and intelligent economic design advised by world-renowned economists.

I like the idea of currency baskets that serve as a much more reliable and stable medium of exchange. I do not like that the IMF has unlimited decision-making power over our global monetary system. Blockchain-based solutions are different: they have a basis that is governed by an assembly and, for example, can give MGS holders veto power over every decision at any given time.

Blockchain technology can combine the elements of decentralised governance into a classic corporate structure, in order to comply with international laws and anti-money laundering requirements, while using a smart contract-based bonding curve to control inflation and volatility, which remain two of the biggest problems with traditional fiduciary currencies that can be solved.