Nov 16, 2023

How Bitcoin Fixes The Global Monetary System

They say that money is the root of all evil. In a world with a broken monetary system, you can understand the sentiment.

How Bitcoin Fixes The Global Monetary System

They say that money is the root of all evil. In a world with a broken monetary system, you can understand the sentiment.

Bitcoiners are always saying, “fix the money, fix the world.” Bitcoin offers us the opportunity to replace this broken system with one that realigns the incentives toward a more productive, harmonious global monetary system.

The Problems With The Current System

Reliance On Central Authorities

In our current system, we rely heavily on centralized authorities to facilitate financial dealings. These entities include commercial and central banks, as well as international institutions such as the International Monetary Fund.

They have the power to expand the money supply, control interest rates, set economic policies, approve loans, or even freeze assets and close accounts. This concentration of power in the hands of just a few powerful people incentivizes mismanagement, favoritism, and even financial crises such as the 2008 financial crisis.

Inflation

Inflation is the easiest indicator of monetary mismanagement to spot. However, most people don’t understand what it is or how it’s caused.

Most people think of inflation as when prices increase, which is sometimes true. But in most cases, prices are not actually going up; the products are not becoming more valuable. Instead, the value of our money is going down, making the value of the product higher relative to the value of the money.

This happens when the money supply is increased. Both commercial and central banks can expand the money supply by “printing” more currency. This erosion of purchasing power reduces the value of savings and investments over time. This exacerbates wealth inequality as those with assets that can appreciate in value, like stocks or real estate, often benefit at the expense of those with fixed incomes and limited assets.

Financial Exclusion

A substantial portion of the global population lacks access to basic financial services. Inadequate documentation, lack of banking infrastructure, and stringent regulations prevent many from participating in the formal financial system.

This exclusion reinforces poverty and restricts economic growth, as those without access to banks or credit often resort to high-cost, informal financial services that perpetuate a cycle of financial vulnerability. 

Currency Wars

Currency wars, or competitive devaluations, are economic conflicts where countries intentionally devalue their currencies to gain an advantage in international trade. A cheaper currency increases exports and reduces imports, leading to economic growth and a better trade balance.

These conflicts destabilize the global monetary system, leading to trade imbalances, protectionist policies, and damaged international relations.

How Bitcoin Fixes These Problems

No Central Authority

Bitcoin operates without a central authority. It runs on a decentralized network with peer-to-peer transactions that require no approval from central entities. With power distributed to each user, rather than being concentrated in the hands of a few, there is far less incentive (and possibility) for corruption and mismanagement.

Users are also free from the possibility of having their accounts closed, assets freed, transactions censored, or participation restricted, as there are no centralized institutions to wield this power over them.

Also, in the case of a financial crisis like that of 2008, it would be impossible for people to lose their savings and pensions if they were stored in bitcoin. People lost their savings because the banks never really had them due to fractional reserve banking. In a Bitcoinized system, people would store their own wealth, protecting it from loss as long as they retain their private keys.

Absolute Scarcity

Bitcoin addresses the issue of inflation through its fixed supply cap. Unlike traditional currencies that can be expanded at the discretion of central authorities, Bitcoin’s protocol limits the total supply to 21 million.

This predetermined scarcity prevents the erosion of purchasing power over time. In essence, Bitcoin’s value is not subject to the whims of inflation but serves as a deflationary asset. It ensures that the value of savings and investments remains resilient, benefiting all users, including those with fixed incomes and limited assets.

Global Accessibility

Bitcoin offers a solution to financial exclusion by providing a decentralized and borderless financial system accessible to anyone with an internet connection. Individuals can participate in the Bitcoin network without facing the barriers present in the formal financial system.

This inclusivity empowers those previously excluded, reducing poverty and fostering economic growth by providing access to a global digital economy.

Geopolitical Neutrality

Bitcoin offers a neutral and apolitical alternative to the currency wars that disrupt the global monetary system. As a decentralized digital currency, Bitcoin is not subject to competitive devaluations or the manipulation of exchange rates. It provides a stable store of value that isn’t influenced by political or economic tactics.

This neutrality can mitigate the destabilizing effects of currency wars, encouraging cooperation and harmony in international relations. Bitcoin’s fixed supply and inherent resistance to currency manipulation contribute to a more equitable and balanced global economic landscape.

In Conclusion

The current global monetary system is rife with corruption, mismanagement, and misaligned incentives that promote adversarial economic policies.

People are forced to entrust their wealth to centralized institutions that have proven themselves untrustworthy, both by excessively lending other people’s money and by inflating away the value of their currencies.

People all over the world are excluded from the traditional financial system, which leads to economic inequality and is exacerbated by currency wars between nations.

Bitcoin solves these problems by decentralizing power and responsibility, using a truly scarce currency to prevent inflation, and offering access to this monetary system to anyone with an internet connection.

About the author.