Live Better: Escape the Tyranny of Fiat Money
• The article examines the different ways that fiat money has led to terrible incentives at the individual, corporate and national levels.
• It provides an historical context of how the Bretton Woods Agreement from 1944 influenced the world’s financial incentives.
• It discusses how inflation, fractional reserve banking, central banks and debt all work together to create a system of global fiat money incentivization.
The Impact of 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 in which the entire world is incentivized by fiat money. He begins with some historical context regarding the Bretton Woods Agreement from 1944 to provide readers with a better understanding of why our current financial incentives are what they are today.
Bretton Woods was a small town in New Hampshire where government bureaucrats from all over the world gathered to establish what they called “a new monetary world order.” The idea behind this conference was to fix problems caused by World War I (WWI) such as reparation payments and gold standard loopholes that eventually resulted in World War II (WWII). It proved too complicated for countries to return to pre-WWI gold standards since every country had become accustomed to central banking and monetary control. Thus, delegates at Bretton Woods came up with a solution: adding an intermediate layer between gold redemption and currency.
Prior to WWI, gold was directly convertible at banks into currencies such as $20.67 for one ounce of gold or £4.25 for one ounce in the UK. After WWII however, governments began printing more money than their countries were able to produce goods and services leading to inflationary pressures on prices due to too much currency chasing after too few goods/services available for sale – thus eroding purchasing power of currencies over time as each unit buys less than it did before due inflationary devaluation/depreciation . This made it difficult for countries whose economies were heavily reliant on export-driven production as their exports became more expensive compared against those from other countries who had managed their currency better leading them into competitive disadvantages in foreign markets pushing some into economic crisis while others prospered further exacerbating inequalities between nations globally .
Fractional Reserve Banking & Central Banks
Furthermore, fractional reserve banking further adds fuel onto this fire as banks have been allowed by governments (especially since Bretton Wood)to lend out more money than they actually have on hand creating even more currency units thereby increasing inflationary pressures on prices even faster while central bankers also get involved manipulating interest rates & money supply in order manipulate market conditions according their own interests rather than those of ordinary citizens creating additional distortions within economies that benefit themselves disproportionately at expense everyone else . This creates further imbalances around economy where certain sectors/groups gain advantages over others based solely upon access capital rather than any productive activity related meritocracy leading some towards success while leaving many others far behind in process .
Finally debt plays its part too by encouraging governments & individuals alike spend beyond their means ensuring continuous cycle stagnation growth whereby large sums are borrowed now repaid later usually at higher costs due interest compounding whereas creditors can make huge profits off these loans without having take any risks themselves making it easy them accumulate wealth without contributing anything meaningful society or generating new jobs etcetera thereby widening gaps between rich poor even worse inequality perpetuating status quo longterm detriment entire population except those atop pyramid structure which benefits most powerfully from system setup like this .