It seems that the more intense the chaos, the deeper the changes emerge. In the current post-COVID-19 chaos of supply disruptions, 40-year high inflation rates, and a war in Europe, it seems that we are on the brink of a major monetary turnaround. To understand its implications and how digital assets fit in, we first need to review the reboot above.

World War II as the first great reset

As the chaos of World War II was drawing to a close in July 1944, it birthed a new paradigm that we still live in today. In the mountain resort of Bretton Woods, 44 nations establish a new international monetary system. The fix was simple.

As an economic and military power, the United States would become the monetary center, as other nations pegged their currencies to the dollar. In turn, the dollar itself would be pegged to US gold reserves at $35 an Other nations would then contract or expand their USD supply within the 1% range of the fixed rate, as investors used to do. forex brokers to exchange currencies.

President Richard Nixon abandoned gold parity in 1971 and, indeed, the Bretton Woods system altogether.framed What “There is no longer a need for the United States to compete with one hand tied behind its back.” However, the legacy of Bretton Woods remained. Both the International Monetary Fund (IMF) and the World Bank have served as key cogs for the post-Bretton Woods era: the petrodollar.

The United States as controller of the world’s money

President Nixon was right that parity with gold hampered American expansion. On both sides of the equation, the gold peg has a number of problems:

Because the money supply was constrained by a fixed exchange rate, so were the government’s expansionary policies. These ranged from unemployment interventions to military spending. Also, the gold peg was a double-edged sword. Although the countries that pegged their currencies to the dollar gave up some of their domestic economic policies, they were also able to exchange dollars for gold. While gold itself is rare and expensive to mine, its supply is not fixed. Even so, its offer does not correspond with the economic growth of the global economy. If a nation falls into a deficit, when government revenues are lower than its spending, it has fewer options available to steer the course of the recessionary storm.

Taken together, it was the last point that made Nixon cut the gold pin. He needed the Federal Reserve to provide a cheap money supply through lower interest rates. In this way, the economy would be awash in cash, meaning it would grow enough to offset a recession, regardless of whether the dollar is devalued in the process. Sounds familiar?

To be sure, we have seen record gains in the stock market thanks to the Fed’s injection of trillions of dollars, sparking a new era of retail traders using commission-free stock trading platforms. Needless to say, with the demise of the stabilizing gold peg, the 1970s were a period of the Great Inflation, just as it appears to be happening now.


However, things would have been worse if the USD had not achieved its petrodollar status. Simply put, the USD has become the world’s global reserve currency because the US spends almost as much on the military as the entire world.

With its influence over Europe stemming from World War II firmly entrenched and its control over the Gulf states, the US has been using the petrodollar as a vehicle to offset the downsides of unlocking its money supply and relentless spending. Both OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC nations such as Russia and Qatar have been using dollars to trade oil and gas.

Such a system has a glaring vulnerability that the West pierced in March as it took unprecedented financial action against Russia.

Emerging New World Monetary Order

As a nation with the largest land mass in the world, Russia has a large number of energy reserves. Consequently, Russia’s main exports are energy-related products, at 63%, of which 26% and 12% are crude oil and gas, respectively. This puts Russia in a dominant position vis-à-vis Europe, which is heavily dependent on Russian energy imports.

Furthermore, according to National Geographic, Russia and Ukraine are supplying the world with a caloric intake of 12%, through a wheat production of 30%. So what happens when these two nations go to war with each other?

Much of this depends on the response of the West, which to date has been sanctioned. It would take quite some time to list all the sanctions against Russia so far. Suffice it to say that the key was the seizure of Russian foreign exchange reserves by the G7 nations. This marks a clear break with established international norms, which China and India have taken note of, as well as Saudi Arabia. Consequently, all have expressed plans or considerations to begin trading energy products in currencies other than the petrodollar (USD).

President Putin also accelerated these considerations by signing an executive order requiring hostile nations (those imposing sanctions) to pay in Russian rubles not only for oil and gas imports, but also for wheat. In other words, Putin has primed the ruble to become a commodity-based currency.

Like Zoltan Pozsar, a former US Federal Reserve and Treasury Department official. put it:

“A crisis is developing. A crisis of raw materials. Commodities are collateral, and collateral is money, and this crisis is about the growing appeal of foreign money over domestic money.”

So far, the G7 ministers have rejected Russia’s demand to pay for its energy products in rubles. Similarly, Germany and Austria are already preparing for gas rationing, with the first often referred to as the economic engine of Europe. In addition, the CEO of the German multinational BASF SE, the world’s largest chemical producer, warned of a total collapse of the supply chain.

“To put it bluntly: This could plunge the German economy into its worst crisis since the end of World War II and destroy our prosperity. For many small and medium-sized businesses, in particular, it could spell the end. We can’t risk that!

Between the US and Russia, Europe is at a turning point, just as it was in 1944 with the establishment of the Bretton Woods monetary order. However, although these cycles seem to repeat themselves, a novelty cannot be ruled out: decentralized networks that have the ability to create sovereign digital money.

Bitcoin: the global reserve currency for the little ones

Amid the current state of the global monetary world order, new assets have emerged that have the potential to remain neutral. This is a fundamental benefit that Bitcoin offers the world: a sovereign, stateless digital currency with a fixed supply.

However, unlike gold, Bitcoin is also not seized. If you remember your initial recovery phrase, you can always restore access to your assets on the Bitcoin blockchain network. While a recent EU proposal try to crack down on unhosted walletslegislative words are very far from technological reality.

Corporate investors are already viewing Bitcoin in this light, as a new Bitcoin Standard is evolving beyond the gold standard. Last week, Michael Saylor’s MicroStrategy got a BTC-secured loan from Silvergate Bank worth $205 million. Why? To buy more BTC, of ​​course, on top of MicroStrategy’s already substantial 125,051 bitcoins (~$6 billion).

Both parties can only rely on such debt leverage if they consider Bitcoin’s rise to be inevitable. Similarly, the foundation of Terraform Labs is gradually increasing your Bitcoin supply with the ultimate goal of surpassing $10 billion in BTC.

This is quite significant as Terra aims to replace both Visa and Mastercard as a global payment system with its TerraUSD (UST) algorithmic stablecoin. Just as Russia is in the process of expanding its ruble collateralization with commodities, Terra’s UST is being collateralized by Bitcoin.

In turn, Terra’s own ecosystem is bolstered by its Anchor Protocol, which yields approximately 19% APY on UST deposits. Environment makes yield farming attractive ways to generate passive incomeespecially considering the current CPI inflation rate in the US, which is approaching 8%.

The difference is that Russia must now negotiate complicated deals with other nations, which means there are multiple hurdles ahead. Rather, blockchain assets are native to the internet, where decentralized and secure environments can potentially create conditions without geopolitical or ideological constraints. More importantly, if the petrodollar is about to disappear, regardless of how long it takes, the cost of the Fed’s endless money supply will no longer be eased.

With so many uncertainties in this new monetary world order, Bitcoin’s fundamental appeal and track record speaks for itself.

Guest post by Shane Neagle of The Tokenist

Shane has been an active supporter of the movement towards decentralized finance since 2015. He has written hundreds of articles related to developments related to digital securities: the integration of traditional financial securities and distributed ledger technology (DLT). He remains fascinated by the growing impact technology is having on the economy and everyday life.

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