Hardcore PK Gold: What is the history of abandoned gold, what can it inspire Bitcoin? (under)
Do Bitcoin believers remember that Satoshi Nakamoto's vision in the white paper is to create a peer-to-peer electronic cash system? Ten years have passed, and the Bitcoin experiment targeting "currency" has not been successful, and it is time to make a review.
Believers who hold this view often take Hayek's Denationalization of Currency as the spiritual program and gold as the target. They believe that Bitcoin, like gold, has a fixed amount and limited production, so it will not cause inflation. And compared to gold, Bitcoin is fairer, freer, and transparent in terms of issuing and trading. Yet history has proven that gold is the currency of failure. Can you do better with Bitcoin?
Many people only see the extensive value recognition that gold has gained in its long history and the rationality of it as the ultimate settlement. However, it is often overlooked that before the Bretton Woods Conference was held, countries around the world had abandoned the gold standard as their national legal currency, and later abandoned the gold standard as an international currency. What can gold's abandoned history enlighten Bitcoin?
Abandoned fuse of "gold standard"
After World War I, European countries produced a large number of war reparations, which led to severe inflation. As a result, in the early 1930s, most countries were forced to abandon the currency system of government-issued paper currency convertible to gold, and even the pound and the dollar broke away from their original price relationship with gold. The only remaining gold market in the world at that time, the London Gold Market, closed in 1939.
Against this background, the Bretton Woods Conference was held in 1944, establishing an agreement on the pegging of the US dollar to gold and the pegging of national currencies to the US dollar. But in the next 30 years, the US dollar broke out three serious crises one after another, and the last fuse was also a war. The United States was trapped by the Vietnam War, the government fiscal deficit was huge, and the international revenue situation worsened. In order to make up for the balance of payments deficit, the United States is printing money wildly, and domestic inflation is transmitted and intensified worldwide inflation. The credibility of the US dollar has been seriously questioned. As a result, governments and people of all countries sold their dollars and snapped up gold, causing a redemption crisis in the official US gold reserves.
Although the U.S. government and Western countries have spent years trying to stop the price of gold from rising, it ended in failure. So in 1974, the International Monetary Fund (IMF) announced that the SDR was decoupled from gold. Two years later, the IMF officially made clear that gold is not monetized. We may be able to see if Bitcoin faces a similar dilemma through the unsustainability of the "gold standard."
Internal: "Gold Standard" means abandoning currency management
In 2008, Satoshi Nakamoto released "Bitcoin: A Peer-to-Peer Electronic Cash System", known as the "Bitcoin White Paper". He wrote a sentence in the Bitcoin genesis block, which was the headline of the Times headline that day: "On January 3, 2009, the Minister of Finance was on the verge of implementing the second round of emergency bank assistance." Ben Satoshi's original intention to create Bitcoin. In fact, this is related to the underlying logic of people's redemption of gold and the country's abandonment of gold, which reflects the dilemma of such currencies.
People are more willing to hold gold during periods when real interest rates are negative. The starting point of transmission is the irreversibility of the issuance of credit currency, and it has a multiplier effect. Existing currencies can only be more and more. When the growth rate of the currency exceeds the growth rate of the real economy, the currency will depreciate and inflation will occur.
However, gold cannot adapt to a complex and changing economy. As Keynes slammed in "Monetary Reform", "the ruins of the wild era of the gold standard, people are willing to give up their conscious management of currency and entrust this responsibility to a natural structure-the international gold standard."
A heaven, a hell. If the currency issue is free to adjudicate, there is a risk that the assets will be “diluted”. History has shown that this is extremely likely. If the total amount of currency is fixed and the increment is fixed, then it will lose the flexibility of regulation and it will be difficult to face the complex and changeable modern economy. Bitcoin can't solve this problem, and the issue mechanism of Bitcoin is not only fixed, but also deflationary, which will make people tend to save rather than consume in decision-making, reduce investment, reduce liquidity, let alone every huge black The Swan incident was enough to defeat it.
Externally: "Gold Standard" Faces Triffin Dilemma
The above explains why gold-like currencies are not sustainable within a country. Let ’s take a look at why the gold standard cannot be the ultimate means of settlement for international currencies. What can this enlighten Bitcoin?
In 1960, American economist Robert Triffin pointed out in his "Gold and Dollar Crisis: The Future of Free Exchange" that the Bretton Woods system had inherent flaws that were difficult to overcome. Because the US dollar is pegged to gold and the currencies of other countries are pegged to the US dollar, the US dollar has achieved the status of an international core currency. However, in order to develop international trade, countries must use the US dollar as the settlement and reserve currency. This will cause the currency flowing out of the United States to continue to sink overseas and a long-term trade deficit for the United States. The premise of the US dollar as the core of the international currency is that it must be Keeping the value of the US dollar stable and strong requires the United States to be a long-term trade surplus country. These two requirements contradict each other and are therefore a paradox.
The above paradox is called the "Triffin Dilemma". The root of the problem lies in the fact that global economic integration has generated the demand for world currencies, but without the role of a world government. At the same time that the US dollar has become the world currency, it is still the United States' own sovereignty. currency. A currency system that relies on the sovereign currency's currency as an international solvency will eventually fall into the Triffin problem and eventually collapse.
The "Triffin Dilemma" also shows how sharp the irreconcilable conflict between deflationary currencies such as gold (including Bitcoin) and sovereign credit currencies in the international economy can be. If gold in the Bretton Woods currency system is replaced by Bitcoin, this problem remains unsolved.
Will the proposition of world currency be terminated by the blockchain?
With the end of the Bretton Woods agreement and the US dollar becoming a fully meaningful world currency, the Triffin problem no longer exists, but another problem was born. The US dollar broke free from the prison of gold, floated freely on the foreign exchange market, and transmitted its economic crisis to the world. People are thinking: Is there a better world currency mechanism?
Long before the Bretton Woods conference, Keynes had proposed the establishment of a liquidation union to issue the super-sovereign currency "Banker", which was directly linked to gold at a fixed ratio; in 1945, Hayek in It is proposed to replace the monopoly of fiat currencies with "competitive currencies" and allow private currency issuance. The exchange ratio between each currency is floating. Under the flow of market economic value, people will naturally choose currencies with stable value. In 2010, former Bank President Zoellick Robert Zoellick called for a revised gold standard to establish a "cooperative currency system" that includes the US dollar, euro, yen, pound, and renminbi.
Obviously, this is not a new proposition, but it has not been successfully solved so far. But now, the story seems to be turning around. In June 2019, Internet giant Facebook launched the Libra White Paper, which is committed to providing a simple set of global currency and financial infrastructure services for billions of people. Whether Libra based on blockchain technology can achieve its imagination is still unknown. However, the extremely nervous response of global central banks and the digital currency research started by various countries have proved that this matter cannot be underestimated.
In summary, the abdication of gold has declared the failure of this currency form. If gold is the target, Bitcoin has failed to solve its pain points and will not surpass it to become a better currency. But from the moment Bitcoin was born, it added a powerful new tool to the world currency proposition, and the high probability of the blockchain will be the core element of the next generation of world currency. The future is here, maybe we can be more imaginative.
Hardcore PK gold: Bitcoin and gold, who is the better hedge asset? (on)
References: 1. Duan Shihua, "A Practical Reading of Gold Investment", Tsinghua University Press, 2011 2. [US] James Ricaz, "Currency War", Shanghai Translation Publishing House, 2018 3. [US] Clay Craig Rowland, J, M. Lawson, "Harry Brown's Permanent Portfolio: Undefeated Investment Law Fearless of Market Fluctuations", Machinery Industry Press, 2017