52 Years of Fiat Money

On August 15, 1971, President Richard Nixon terminated the rest of the gold standard. Since then, the world’s monetary system has been a mess. Time to change it!

In a televised address to the nation, President Nixon announced that the USA would “temporarily suspend the convertibility of the dollar into gold”. When governments call something “temporary”, such as a tax or a new restriction on our freedom, you can bet it will last forever. A good example is the passport, which was introduced in World War I as a “temporary measure” to prevent enemies from crossing borders. Of course, the government has never let go of this wonderful tool to control the movements of “their” citizens.

Before August 1971, the US dollar could still be redeemed for gold. This was determined in the so-called Bretton Woods agreement of 1944. It was not a real gold standard, as not every citizen but only central banks had that privilege. All other currencies were pegged to the dollar by a fixed exchange rate.

The Bretton Woods system worked OK for a while, but when the USA printed more and more dollars to fund their wars and welfare programmes, their gold reserves dwindled away. it was understandable that the US had to do something, but few people could imagine the bad consequences this decision had for the world.

Signing of the Bretton Woods Agreement in 1944 (source: Wikimedia Commons)

Since Nixon’s historic speech the world’s financial system is merely built on trust in governments and their central banks – and of course they have breached this trust a million times. The so-called Fiat Money system (from the latin expression: Fiat = “let there be”) has led to many economic crises, an explosion of government debt and an unfair distribution of wealth. This article by Dominic Frisby explains the Fiat Money system and its flaws very well.

The good news: with Bitcoin we have an asset that is even harder than gold and better suited for the digital age. We don’t need to trust governments and banks any longer. We can build a new monetary system on the cold hard math of cryptography.