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I recall Ray Dalio talking about a theory that societies cycle between hard money and soft money. Your society starts out by putting gold in a vault, because i
by csense 5y ago
I recall Ray Dalio talking about a theory that societies cycle between hard money and soft money.
Your society starts out by putting gold in a vault, because it's cheaper, easier and less vulnerable to robbery if you trade claim checks, as opposed to hauling huge amounts of gold around.
Then once everybody gets used to trading claim checks on the vault, the vault operators and the government realize you can just print new claim checks without them being backed up by actual gold. The exchange rate stays the same because you still have enough gold for the people cashing in and out.
Then they eventually print too many claim checks, and there's a run when everybody tries to cash out. So they let the exchange rate to gold float (historically by debasing gold coinage, but nowadays by leaving the gold standard behind).
Then with no restrictions on printing, eventually they'll make a mistake and print way way too much, the currency just collapses, and everybody starts saying "You know and I know those bills are worthless now and will be even more worthless tomorrow or next week. Gold only please".
It's looking like the world's economy has globalized enough that monetary systems often move in lockstep, and it also looks like we're nearing the end of this cycle. So it's really not surprising that a small, economically troubled country might have got caught in the whirlpool a decade or two ahead of the bigger players and be moving back to hard money.
- sytelus 5y agoCurrency is backed by only one thing: army. Even during ancient times, when people thought that the currency was backed by gold, it really wasn't. Why? Think who owns all the gold mines? In ancient times, if you discovered a gold mine, king will automatically take ownership while paying you handsomely. Soon, neighbour king will attack and swallow your kingdom with a gold mine because it had a bigger army. You get the point. Currently, US army is the strongest and so US gets to dectact the world reserve currency. US can print trillions and export the inflation out. It doesn't matter if country X adopts gold or bitcoin as currency. They are always valued against US dollar. So US gets to dectact what a gram of gold or 1 bitcoin is valued, not other way around. Therefore, gold and bitcoin are commodity, not currency. You can sure do limited barter trades using commodities but if rest of the world suddenly ganged up and try to force in gold/bitcoin as reserve currency then you can be absolutely sure for US army to intervene. At the last resort, you can be sure for US to secure majority compute resources so they control the bitcoin. There is no reverse cycle as Ray Dalio suggests. There is no real hard or soft money to begin with. Person with the army gets to control the cash and call the shots.