Cryptocurrencies

Bretton Woods 2.0, why would it be a disaster? – Cryptocurrencies

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The thesis of a Bitcoin (BTC) acting as a world central bank, acting as a benchmark for other currencies, therefore ultimately not hold water? We are negotiating a second Bretton Woods. The first had crowned the dollar; the second would crown the greenback and some of his friends. After all, power is only shared between the powerful, for decentralization we will come back.

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Bitcoin is not ready!

The era of ” gold standard “Allowed any citizen to acquire gold from a financial institution.

This standard was modified during the Bretton woods in 1944, at the end of World War II, to minimize the economic damage associated with the war.

The dollar became the standard of the economy and each country had to define the value of its currency against it.

In 1971, with the end of these agreements, each fiat currency is now valued against the others in a floating exchange rate regime.

Bitcoin is one of the assets against which fiat currencies are measured today. The BTC is certainly one of the best investments in the market, however it is not ready to become a functioning monetary system.

Bitcoin must sit in Bretton Woods

The IMF would in the meantime study the establishment of a second Bretton woods, with the Special Drawings Rights (SDR) as reserve currency, in place of the US dollar.

The value of SDR is measured through a basket of currencies that protect it from fluctuations in the foreign exchange market.

The problem with this approach is that it could lead to a dire economic situation.

The SDR indeed gives a disproportionate power to certain countries and, can lead to an excessive impression which would encourage inflation.

Blockchain technology can provide a solution through decentralized governance that promotes transparency.

In addition, financial incentives help steer the system in the right direction.

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The blockchain would solve the 2 main problems of fiat currencies: controlling inflation and volatility using smart contracts – since even CBDCs will not use blockchain, there is little chance that the latter will appear in the next Bretton woods.

How could Bitcoin become a monetary system with its volatility? Could not BTC serve as a “solid” benchmark asset for stablecoins? We are trying to save the failing fiats system by giving more power to fiats: do we really need to have a degree in monetary economics to understand the absurdity of such a strategy?

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