Will the World Need a 'Bretton Woods Agreement' for Cryptocurrencies?

Published August 15th, 2021 - 02:00 GMT
US dollar and gold
Richard Nixon had ended the US dollar peg to gold in the early 1970s. (Shutterstock: Bulent camci)

50 years ago today, the US withdrew from the Bretton Woods agreement, which was signed in New Hampshire 27 years earlier, sparking a global controversy in the financial world, one that continues to this very day.

The Bretton Woods agreement was a post-WWII attempt to set a global monetary system aimed at maintaining the value of different global currencies and therefore encouraging free trade across the world using one currency.

The agreement was signed in Bretton Woods, New Hampshire in 1944 by 44 countries, such as the US, the UK, Australia, the former USSR, China, and others, including two Arab states (Iraq and Egypt). 

According to the Bretton Woods agreement, all global currencies were directly pegged to the US dollar, which was in turn pegged to gold reserves on the basis that the US held two-thirds of global reserves of gold at that time.

However, US concerns over its gold reserves over 27 years of the agreement urged Richard Nixon to take a historic decision to unlink the US dollar to gold, causing what has since been known as "the Nixon shock".

50 years later, most international trade is still carried out using the US dollar, which remains one of the strongest in the world, even at times of crisis.

Over the past several months, the US dollar suffered several setbacks caused by fluctuations in markets and an unprecedented rate of "printing dollars", which are all consequences of the COVID19 pandemic and the different measures taken by the federal US government to tackle its crushing economic impact. Yet, it remains in the lead in terms of global trade.

So far, the US dollar has managed to maintain its status amid every global crisis, but questions have been rising in recent years over the possible threat posed by increasingly popular cryptocurrencies and whether or not they will be able to put an actual end to the hegemony of US dollar in the world.

Cryptocurrencies have surged in value, reliability, and therefore popularity, particularly since the COVID19 pandemic, as millions of people have found it to be a safe harbour for their savings. This new financial trend has had a great impact on gold prices for more than a year now, which could eventually inflict great damage to the free-floating US dollar.


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