The Evolution Of Financial Systems: Did Bitcoin Get Its Start In The 1970s?
Cryptocurrencies and decentralized systems are regarded as the future of financial systems, and as these digital assets grow in number and popularity, the possibility becomes stronger. Bitcoin, the leading cryptocurrency, has regained its dominance on the markets and social media giants such as Facebook and Telegram have plans to launch cryptocurrencies of their own.
Fiat Currency Systems and their Origins
The monetary system, as we know it today, was started after World War II as a product of the Bretton Woods agreement. The allied nations came together and created a financial system that would create a new world order. Through this agreement, the pillars of financial systems in existence today, such as the International Bank for Reconstruction and Development (IBRD), which would later be the basis for the World Bank and the International Monetary Fund (IMF), were formed.
It was during this agreement that the nations involved decided that the US dollar would be the base currency for the world’s currency reserves. The dollar’s value was pegged to the value of gold, and at the time, it was determined that an ounce of gold would be worth $35. This created a system in which the US dollar was the new gold standard, and the currency remained flexible when compared to the precious metal.
Exchange rates were introduced to ensure that all the other currencies would be pegged against the gold-backed USD. There would need to be constant trading of currencies to ensure that exchange rates are kept at the prices they had initially been pegged.
Challenges Faced by Fiat Currency Systems
The system created by the Bretton Woods agreement has led to the widening of the gap between the haves, and the have nots. From 1971 to date, the top 1% earners have acquired more wealth while the rest have seen their earnings dwindle significantly. The widening of the gap may be a result of the US dollar moving from being a gold-backed currency to being purely fiat currency.
National debt in the US has also skyrocketed since 1971. The debt has grown from just under a trillion dollars in the early 70s to well over $20 trillion to date. These challenges need to be addressed if financial systems will ever re-establish a level playing field for people across the globe and address the inequality that has been created through fiat currency systems.
Cryptocurrencies, a New Financial Order
Financial systems as we know them may be on the brink of an overhaul. Bitcoin’s creator(s), Satoshi Nakamoto, came up with an idea to create a currency that would not be controlled by a country but whose control lies in the hands of the users of it. The power the US had over their money, which was being used as the reserve currency worldwide is a significant source of the challenges faced by fiat currency systems, and cryptocurrency seeks to undo that.
Cryptocurrencies aim to restore balance to financial systems and create a level playing field for all who participate in the system. As cryptocurrency use grows around the world, fiat currency systems will be replaced entirely by a new system in which users are in control over the progression of the currencies and their use.