The New 'Bretton Woods Moment'​ and How Bitcoin Will Play a Part

A lot has been said recently about a “New Bretton Woods Moment,” as proclaimed to save the world’s monetary system, by International Monetary Fund Managing Director Kristalina Georgieva. What does it all mean, and what could such a moment hold for the world’s first cryptocurrency, Bitcoin?

What was the Bretton Woods Agreement?

On October 15th, 2020, Kristalina Georgieva compared the current economic suppression and subsequent grand scale stimulus packages/quantitative easing - or global money printing - to the state of the world’s finance near the end of World War II, in 1944. Regardless of how accurate this assessment may be, let’s review what precipitated the Bretton Woods Agreement and what it meant to world finance. 

Before Bretton Woods, most state currencies adhered to some form of a gold standard. Each guaranteed its currency redeemable in gold. 

July 1st through 22nd of 1944, a group of 730 delegates of the World War II Allied nations from 44 countries deliberated at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire. They eventually agreed to establish what became known as the Bretton Woods System. Effectively, it established the United States Dollar as the world’s reserve currency. Each member agreed to redeem its currency for U.S. dollars, not gold. Interestingly, the Bretton Woods Agreement also created the IMF (International Monetary Fund). 

Ostensibly, this adoption of the USD as the world’s reserve currency was for convenience, simplicity and to lend some kind of stability to the world’s fragile financial state at the time. Since the United States held no less than 75% of the world’s gold supply, it presented as the most stable choice. The value of one dollar was established as 1/35 of an ounce of gold, hence the pegged price of gold at $35 per ounce. 

Henry Hazlitt, a prominent writer for the New York Times from 1934 until 1946, predicted the Bretton Woods System’s attempt to peg world currencies to the dollar could not last. Hazlitt saw that the system would not instill sound monetary discipline in governments. Instead, it would and did allow the U.S. government and others to increase their national debts and increase their money supplies to pay them down.

In 1971 due to continued irresponsible monetary policy, U.S. debt grew while its monetary supply was increased. U.S. dollars redeemable in gold from the U.S. treasury by those preferring a hard asset/commodity to “trust” in the U.S. government or even “God” as printed on U.S. currency became unsupportable. 

President Richard Nixon historically took the U.S. off of the gold standard - effectively ending the Bretton Woods Agreement - and opening the floodgates for the USD’s real loss in value. This was reflected in the rise of inflation and higher prices in goods and services. 

What exactly is suggested by the IMF? 

The “New Bretton Woods Moment” speech delivered by Ms. Georgieva included lots of lofty-sounding goals for the future. All seemed general and vague, so it’s expected these may be expounded on in the near future. 

First, Georgieva acknowledges the current “economic calamity that will make the world economy 4.4 % smaller this year and strip an estimated $11 trillion of output by next year.” She goes on to encourage support of international healthcare and financial support “for workers and businesses.” 

A logical translation of these altruistic wishes might be summed up as the IMF urging state governments to continue and perhaps even increase stimulus and quantitative easing financial policies (corporate subsidies and inflation of national currencies). Logically, this will lead to a higher level of wealth for corporations receiving these subsidies (most likely, the largest pharmaceutical companies, as represented by the plea for focus on health care). And it will also lead to higher prices for goods and services for the middle and lower class of populations worldwide who always suffer the most in times of inflation. She also stresses “greater debt transparency and enhanced creditor coordination,” encouraging a common framework for “Sovereign Debt Resolution.” Perhaps details on how this management of sovereign debt will be attained are forthcoming.

Her second imperative is that policies “must be for people.” She urges more investment in people, protecting the “vulnerable.” She includes education and training systems, gender equality, and closing the gender gap. She also pushes for more universal access to the internet as a way for more to access the digital economy.

Her third imperative is addressing climate change concerns worldwide. She seems to threaten citizens worldwide with a climate crisis on the horizon, saying, “If we don’t like this health crisis, we will not like the climate crisis one iota.” 

A common theme running through these vague ideas seems to be the wish by those at the IMF for greater top-down state controls - this time perhaps from a centralized, global authority such as the IMF itself. (For our own safety, of course.) With all this talk of the inherent good of strong, centralized power, we are reminded of the famous words of Lord Acton when he said, “Power tends to corrupt, and absolute power corrupts absolutely.”

This centralization brings us to the ground-breaking idea of a decentralized system of value, an immutable ledger, with a mathematically programmed system of limited availability and true scarcity that creates value between individuals—a trustless system, inherently inclusive for all who seek a better way of exchange.

The Rise & Role of Bitcoin

Recent events and innovations in FinTech, blockchain technology, and the convergence of both have brought Bitcoin to its own “moment.” 

The Summer saw adventurous yield farmers pour onto DeFi platforms like Uniswap, Sushiswap, Aave, Compound, and Balancer. Using these platforms and others, users can lend and borrow using cryptocurrencies as collateral and earning interest in the process. A “wrapped” or tokenized version of Bitcoin (WBTC) gained such popularity that at one point, it was being created at a higher rate than actual BTC.

As BTC’s price shot above $13,000 on October 21st, 2020, many were reminded of the frantic ICO-fueled run up to $20,000 in 2017. However, in many ways, this time it’s different. 

The recent push may be attributed to many factors, all happening over the last six months or more, increasing slowly and building, not least being the current state of financial uncertainty caused by increased inflation through liberal state monetary policies. BTC always has been and will continue to be seen as a hedge against inflation or “digital gold” as some call it. 

Included in these favorable factors has been the “halvening” which occurred in late May for miners who then received only half of their mining rewards, slowing the production of BTC and theoretically decreasing its rate of availability. 

Another significant development for Bitcoin and other cryptocurrencies was the announcement that banks would be allowed to offer custody of cryptocurrencies to their customers. 

This announcement increased BTC availability and other cryptocurrencies to individuals unfamiliar with blockchain technology could only improve adoption overtime. 

Some of the biggest news in the rise of Bitcoin has been its recent popularity with institutional investors. Billionaire Michael Novogratz is bullish on bitcoin along with hedge fund veteran Paul Tudor Jones who recently bought BTC as a hedge against inflation. At least 4% of all Bitcoin is locked up in long term holdings by institutional investors. Publicly traded companies have now invested over $10 billion in Bitcoin. The growing list and reserves in BTC of these companies can be checked here.

Most recently, PayPal integrated crypto assets onto its platform. This addition, though, is a bit misleading. Currently, users who buy Bitcoin on PayPal get exposure to BTC and can purchase goods with it but can’t move the BTC out of the platform or to other addresses to take private custody of the asset. 

Will Bitcoin prove to be the real scene-stealer in this next global finance “moment?” Even the most educated of us can only guess. The signs, though, are certainly there. Follow us at Beyond Enterprize as we follow the moment.