Fiat money will give way to gold and commodity backed money

Nixon brought in the era of Fiat Money in 1971. Not that fiat money was not there earlier. In fact, China had that way back in the 11th Century. However, the world had moved to money being backed by gold. From 1944 to 1971, the Bretton Woods agreement set a value of US Dollar 35 to one troy ounce of gold.

In 1971, Nixon changed all that. By then, the US Dollar was the global intervention currency, was well established and most commodities and world trade happened in the US Dollar. Thanks to this move USA kept printing money and the cost of such indiscriminate printing was borne by the world. Just imagine, earlier this year, the US inflation was higher than the Indian inflation rate. However, the Indian Rupee depreciated against the US Dollar as the US Fed Reserve decided to increase interest rates.

Russia has always wanted an alternate basket of currencies to the US Dollar. However, it lost the battle to the US. But, that did not deter them from accumulating gold for over a decade now. Slowly, many countries have started discussing and conducting international trade in oil, gas and commodities in their mutual currencies instead of the US Dollar. Though this shift is not huge now given that most global financial technology systems are out of the USA, it is happening even as this article is being written. It will take a few years but it will happen eventually unless the US does something drastic like getting in to play a Digital Dollar that is backed by gold, commodities and also makes it a basket rather than fiat money.

The US economy is heavily dependent on the US Dollar being the global currency. So, it will not give up that status without a fight…even few wars!!!

I request thoughts from all of you as this will impact the global economies and lives in a large way.