Dear Hendrick,
Thank you for your questions. In a nutshell, I would say that “I don’t know.” Because that is the most honest assessment of the future of the global monetary system.
However, if history provides us with any guidance, it is that our concept of value, money and what it means to have an economic life is not a static one.
Just as what we as economic citizens have grown to accept as valid currency has evolved, I would argue that on a balance of probabilities, what we accept as value will also continue to evolve.
Whether or not the fiat monetary system will survive is hard to say. We have seen, with specific reference to Germany’s failed Weimar Republic in the 1920s what hyperinflation can do to a national currency.
Yet despite the United States’ relentless printing of money, the dollar has continued to strengthen and inflation has been kept in check, much to the chagrin of many an economist who has predicted otherwise.
To be sure, those who predict the death of the dollar will continue to maintain their position and argue that they did not get their prediction wrong, just the timing of that prediction.
So while logically I would contend that the historically, reckless printing of money, particularly where such money is tied to nothing other than a promise, has led to the eventual devaluation of a currency — that simply has not been the case when it comes to the dollar.
It seems as if that the more the United States prints greenbacks, the more the world wants them.
And as geopolitical tensions rise, more dollars are being snapped up, despite that the source of such tensions may be coming from Washington itself.
I would maintain that given the United States proclivity as well as its ability to create money out of thin air, no administration, whether Democrat or Republican, will likely seek to give up this privilege any time soon.
To quote the words of Sir John Law, a convicted felon and contributor to the French Revolution,
“I maintain, that an absolute prince who knows how to govern can extend his credit further and find needed funds at a lower interest rate than a prince who is limited in his authority.”
To that end, the United States of America is that absolute prince.
For now at least, it seems that the ability of the United States to print money unabated with little to no consequence does not seem to be in doubt.
Whether or not such a situation will persist indefinitely is perhaps more difficult to predict.
For one, it is hard to say if the intention behind a fiat currency system was ever to provide a stable system of currency to begin with.
Noting that seigniorage continues to be one of the biggest incentives of governments to continue to be able to create their own currencies, stability is perhaps more a feature than a function of any currency.
As to what the alternative is, perhaps as economic citizens we must ask ourselves what the intention of any currency is intended to fulfill — as means of exchange, as a store of value, to facilitate trade?
And if so, does our current fiat currency system serve those needs?
Because if there is one thing about economic citizens, it is that they have shown a versatility to abandon ideas of limited use as and when their utility is no longer fulfilled.
The surprise with which many have expressed to the continued persistence of cryptocurrencies is one such example of how, for now at least, cryptocurrencies, whether in large or small quantities, continues to serve a purpose.
Though that purpose may not necessarily be widespread or mainstream and indeed perhaps it is confined to those seeking to use cryptocurrencies for capital flight or nefarious purposes — it serves a purpose.
Abandonment usually only occurs when the purpose, the raison d’être if you will ceases to exist — that will spell the end of the fiat currency system.
The million dollar (or Bitcoin) question of course is when that will happen — to that end, I really don’t know.
Thank you for your thought-provoking questions.
Yours,
Patrick
