Is there really cover for fiat money?

Today, on 11 December dollar is turning 203 years old. On this day in 1815 the Senate of the USA created a special committee on finances and accepted the USA dollar as the national currency.

Sometimes in conversation about cryptocurrencies we can hear about the cover for “real” money as opposed to “virtual” money. So we have decided that today is the perfect day for a quick explanation and dispelling the myth.

In 1944 the representatives of the majority of developed countries indeed reached an agreement on gold-and-dollar standard, known as “Bretton Woods system”. At that time the USA committed themselves to converting dollars into gold to the governments of the other countries at a fixed rate. In those days the USA had more than a half of the world’s gold stock and nobody doubted the principles of this system.

After a chain of events in the world and specifically in the USA, by the beginning of 1971 several countries left the agreement, having had preliminary exchanged dollars into gold, and other countries saved up considerable stock. The stability of the financial system of the USA as well its economy were endangered.

On 13 August 1971 the President of the USA Richard Nixon held a secret meeting with the advisors, the result of which was a plan that included unilateral exit of the USA from of the Bretton Woods system. Two days after the meeting Nixon announced the reforms over the national television.

In the long run the reforms led to economic recession, depressive state of economics and inflation in the USA which decreased the dollar’s purchasing power and worsened the American recession of 1970-ies.

But what’s most important, the refusal to tie up the world’s chief reserve currency to gold has made the USA turn to the emission of so called fiat money, the value of which is based on the faith of people that they can exchange it for something valuable, and decrease of the government’s authority leads to decrease of its purchasing ability.

So, today no currency in the world is supported by anything other that faith in it. How do you think, what would happen if we start believing in bitcoin more than in the US dollar?

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