LONDON: Aug. 15 marks the 50th anniversary of Bretton Woods and the end of the gold standard, which pegged all currencies to the yellow metal.
That ushered in the era of fiat currencies, whereby their value was pegged not to gold but to each other. Cryptocurrency fans love referring to the dollar and other central bank-backed currencies as “fiat” because it drives home the fact that the financial system is a potential house of cards that relies on the faith of everyone involved in it to assign value to currencies and other financial assets.
The alternative, of course, is cryptocurrencies, which cannot be debased by central banks printing more of them.
They are, though, even more than so-called fiat currencies reliant on the whims of the market. Such are the swings in the likes of bitcoin, they are essentially unusable as currencies, unless you are OK with seeing the value of your savings drop by 20 percent in a matter of days.
Coindesk marked the Bretton Woods anniversary with a column by its Chief Insights Columnist David Z. Morris, who pointed to the dollar’s slow erosion as the leading reserve currency held by central banks. He does, however, acknowledge that it still makes up a dominant 59 percent.
He also suggests that the next wave of adoption could come from small countries, such as El Salvador, which said it will allow make bitcoin legal tender from Sept. 7.
Just a few days ago the IMF warned that using cryptocurrencies as legal tender could threaten macroeconomic stability, but that’s what you would expect to hear from one of the main institutions overseeing the currency financial system, right?
It will be a big experiment and, of course, it could work out fine. However, if I was ever forced to accept bitcoin in return for services, I would be converting it into something more stable as soon as I could.
Financial stability is one of those things, like fresh air, that few people appreciate until it’s gone. For all their quantitative easing and other measures that potentially debase a currency, central banks do an incredible job at maintaining stability.
So good, in fact, that we can undergo the kind of pressure that has been exerted on us by the coronavirus pandemic and see only a relatively small amount of financial disruption, albeit it devastating for many individuals.
Elsewhere, in cryptoville, Intel Corp. on Friday disclosed a stake worth less than a million dollars in US cryptocurrency exchange Coinbase Global Inc.
The chipmaker held about 3,014 shares of Coinbase’s Class A common stock as of June 30, Intel said in a regulatory filing. The Coinbase shares would be worth around $788,191, based on trading price of $261.51 at 15:01 p.m. ET on Friday.
Major players have doubled down on crypto holdings including star stock picker Cathie Wood and Tesla Inc. Chief Elon Musk.
One of the largest cryptocurrency exchanges in the world, Coinbase went public through a direct listing in April, which saw its valuation rise to as high as $112 billion on the first day of trading.
On the markets, trading was light on Saturday as bitcoin rose 1 percent to $46,811 and Ethereum by 2 percent to $3,265.
