The Bretton Woods Agreement

In the modern day and age, much of the world’s currencies are based on the US dollar, and therefore fluctuate accordingly. Surprisingly, this wasn’t always the case. In fact, foreign currencies being pegged to the US dollar is sort of a new concept, and there’s a possibility that this is all about to change. 

The Original Agreement

Prior to World War II, a country’s government was responsible for maintaining the value of their own currency. This did not lead to the facilitation of widespread international trade because many countries were worried about the currency conversions and were not sure that the foreign currency would be valued correctly at the time of sale. This all changed in 1944 at the Bretton Woods Conference when 190 countries came together to formulate the IMF or International Monetary Fund. 

Following WWII, numerous countries, especially those located in what is now known as the EU, faced financial ruin. It was so bad that it was quickly deduced that these countries did not have enough gold to keep their own currency on the gold standard. The only country which did have enough gold to back their currency at the time was the United States. Thus, in the Bretton Woods Agreement, the US dollar would be pegged to the value of gold (at the rate of $35 per ounce) while the all of the other currencies in the world would be pegged to the US dollar. This immediately stabilized a number of currencies decimated by the war as well as lead to an increase in the value of the US dollar as well as began the facilitation of widespread international trade.

Times Change

Thanks to the Bretton Woods Agreement, the 1960’s proved very prosperous for the USA as well as for a number of other countries around the world. However, as the 1970’s approached, the USA began to have monetary struggles, which led them to want to print more money and inflate their currency. Under the gold standard, this of course was not possible and thus, in 1971 under the Nixon Administration, the US left the gold standard.

Although they were no longer using the gold standard, numerous currencies continued to peg their currency to the value of the US dollar based on the recommendations of the IMF. This quickly turned into a disaster as the US dollar fell in value from $35 an ounce to about $850 an ounce. And other currencies fell even further at an even quicker rate. Towards the end of the 1980’s these prices eventually stabilized leaving the US dollar value at about $300 per ounce of gold. Despite all of these difficulties however, the US dollar did not return to the gold standard. And as a result, the issue of inflation has become increasingly more prominent as the years have gone by.

Modern Issues

Now, in the year 2020, there have been many whispers that we are once again at a Bretton Woods Agreement moment in time. And there is some truth to this statement. Due to massive amounts of inflation in the USA (especially in response to the COVID pandemic) the IMF has been concerned that is it no longer a good idea to peg all currencies to the USD. Although the US government routinely reports levels of inflation levels right between 1-2%, the reality is that the US rate of inflation is definitely somewhere above 7% and growing, and this is not a good thing. And pegging other currencies to a currency as unstable as the US dollar is certainly not a good idea for posterity.

The IMF has begun discussions towards replacing the USD as the international standard currency. They have discussed replacing it with other national currencies such as the Chinese Yuan, the Japanese Yen, and the British Pound. Of course, using one of these currencies as the international standard comes with issues of their own, especially when it comes to the Chinese Yuan seeing as the Chinese government is currently a communist regime. And none of these currencies are inflation proof in the way the IMF desires.

This has led discussions in the IMF in a completely different direction, as they have brought to the table using their self-created currency known as SDR, which was originally pegged to gold, but is now pegged to a combination of the three national currencies linked above. Although this idea was more well received, the IMF is still not enthusiastic about switching from one human controlled (or centralized) currency to another. And thus, the discussions have actually turned towards using a decentralized cryptocurrency such as Bitcoin or one which is named Sogur. The idea of using Sogur was received slightly more favorably than using Bitcoin, as Sogur is a smart-contract backed blockchain version of the aforementioned SDR. Not only that, but Sogur is perhaps a premium version of SDR as it is pegged to real world fiat assets and would always be redeemable in a way that the USD or SDR is not. The most attractive part of this deal would be that using Sogur as the international currency would take power away from any one government and instead return it to the people where it belongs.

When Is This Going To Happen?

Even the folks at the IMF agree that a new version of the Bretton Woods Agreement is long overdue. The US dollar should have never remained in power of all the international currencies after leaving the gold standard in 1971. But that’s the exact problem, being named the international comparison currency gives the US dollar a lot of purchasing power, and you better believe the US government isn’t ready to give that up. And it’s likely that if the US dollar is removed as the national currency, it’s value will hit a dive never before seen in modern times. 

If the IMF were to go completely public with their discussions and timeline of any pending changes, it’s likely that the US government would start taking massive action to make sure they are not removed as the international currency. This is why, and the IMF has stated so themselves, that any change, or new agreement, will be pursued with some secrecy. It’s likely a new an agreement could already be underway. But either way, it’s likely that most people outside of the IMF won’t know about it until the day it actually occurs. 

Regardless of your feelings about cryptocurrencies, it’s clear that the world is headed for a massive change as numerous people begin to realize the inherent instability of fiat currency. The timeline may be uncertain, but it’s definitely coming. And therefore, it is now more important than ever to consider diversifying your portfolio and including non-fiat options you may not have previously considered.