What happened in 1971 and why it is so important for cryptocurrencies?
In order to restore the world economy, which suffered greatly because of the Second World War, in 1944, representatives of 44 states that were part of the anti-Hitler coalition adopted an agreement on the new currency system, called Bretton-Wood at the venue of the conference.
The new system was based on a fixed cost of gold ($ 35 per troika ounce) and solid exchange rates of the participating countries established in relation to the key currency-the US dollar. The binding was due to the fact that even then the economy of the United States was the largest and was least affected by the war.
About half of the world’s gold reserves were also stored in the United States. Although the Bretton Wood system changed the Gold Standard system, it was largely a continuation: the cost of currencies was provided by gold reserves.
The new system guaranteed the convertibility of the dollar and made it world reserve currency. Thanks to this and other measures, the post-war economy was able to completely recover by the beginning of the 1950s and continued to grow rapidly. In the West, this period was called about 25 years long “post -war economic miracle”.
During this time, a high demand for dollars has been preserved in the world. To satisfy this demand, the US Federal Reserve (Fed) printed money faster than the volume of gold in reserves increased. In addition, from the beginning of the 1960s, the United States has been increasingly involved in the war in Vietnam, which demanded to increase state expenses-they were also partially covered at the expense of the “printing machine”.
By 1969 https://gagarin.news/news/the-dutch-central-bank-fined-binance-3-37-million/, when Richard Nixon became the president of the United States, the total issue of the dollar exceeded the provision of gold by 4 times. According to Professor Yale University Jeffrey Gartner, who wrote a book about subsequent events, the country’s leadership was seriously afraid of economic destabilization. In addition, the “strong dollar” made the export of goods from the United States very expensive. In May 1971, Germany left the Bretton Wood system, and later Switzerland left. Other countries also began to gradually exchange American currency for gold.
In early August 1971, the US Congress recommended that the dollar devaluation. It was this decision that for some time was already secretly prepared in the Nixon administration. On August 15, the American president recorded an appeal to the nation, in which he announced the flexing of the dollar from gold. This event was called “Nixon shock”.
“What a solution means to you? If you want to buy a foreign car or go abroad, market conditions can lead to the fact that you can buy a little less for dollars. But if you are among the vast majority of Americans who buy products made in America, your dollar will cost as much tomorrow as today, ”Nixon said in his speech in his speech.
The consequences of Nixonian shock and Reaganomics
The main consequence of the rejection of the Golden Standard was the emergence of the global market of national currencies and free exchange rates of money. Central banks have been able to pursue a much more flexible monetary policy, including a large-scale to print money to solve the problems of the state and the economy.
The new monetary system showed itself in the early 1980s, after Reagan proclaimed neoliberalism in the economy and neoconservatism in politics.
During the 1970s, the United States and the Western countries were struck by stagflation-a consistent depreciation of the currency in the absence of economic growth. The Roagan administration significantly reduced the level of taxes, especially for business – this was designed to increase investments and reduce unemployment levels. Reagan actively reduced state expenses for social programs, but at the same time significantly increased the military budget and the costs of the state apparatus.
As a result, it was possible to defeat inflation and unemployment, however, reducing tax revenues and increasing military expenses led to a sharp increase in the US budget, which was actively covered by increasing national debt. As a result, by 1988, its indicator has grown three times, and the United States for the first time in many decades turned from the largest world creditor to the largest borrower.
Reaganomics also had long-term socio-economic consequences: real incomes continued to fall, and social stratification began to grow sharply. This trend could not be stopped to this day: in the period from 1964 to 2018. The income of Americans adjusted inflation by only 10%.
How cryptocurrencies are associated with the final abolition of the “gold standard”
Many researchers of the publications of Satoshi Nakamoto and his associates agree that Bitcoin created under the influence of the Austrian school of economics and its followers. In their messages on forums and in letters, future creators of cryptocurrencies mentioned such economists as Ludwig von Mizes, who supported the gold standard and opposed the principle of partial banking reservation. Also, the creator of Bitcoin drew inspiration, probably Friedrich Hayek, who developed the concept of private money, and Murray Rotbard.
Criticism of the concept
Despite the negative attitude to the abolition of the “gold standard”, the scientific community as a whole positively perceives the decision adopted by Nixon in 1971. A survey of professional economists conducted in 2012 showed that none of them sees the return of the gold standard as a way to improve the economic system.
In addition, the direct connection between the change of monetary system, on the one hand, and the growth of inequality and stagnation, on the other, did not prove. The authors of the WTF Happened in 1971 site showed a correlation, but not a causal relationship, which is often confused. In one of the comments, they even admitted that their project is rather an attempt to raise a question, and not answer it, and the site is a meme. In the end, the standard of living in both the West and in the world as a whole after 1971 did not fall, but increased significantly.