Today I’m going to talk about how important the element of trust is in the concept of fiat currencies, and the status of trust in governments worldwide.
For the most part, trust in governments is on a steady decline, which could spell disaster for a lot of monetary systems. Let’s take a look at how this works and what role Bitcoin plays in it all.
In the beginning, almost all national currencies were pegged to the value of precious commodities such as gold or silver, in some shape or form.
This is the main thing that gave it value – the fact that it was redeemable for a fixed amount of real, tangible goods. This resulted in a nice and stable value of many national currencies over several decades.
Over the course of the 20th century, however, currencies became detached from these pegs. Eventually, they completely lost ties to the value of the original underlying commodities.
These days, most national currencies are “fiat” currencies – government-issued currencies that aren’t backed by any commodity but are simply agreed to have value by those who use it.
For the most part, this agreement of value relies on the fact that a particular currency must be used to pay taxes in a country, and we trust governments and central banks to maintain a reasonable supply.
Part of the trust we put in governments and central banks involves their ability to safely steer the economy using small adjustments in the monetary supply. We also trust them to allocate any taxes and printed money to the right places when needed.
When done correctly, this steering has been able to keep economies moving at a safe and steady pace, as well as get things moving again in times of economic stress.
Today, however, we have some clear problems – central banks are printing money rapidly, at such a pace that it’s making every already-existing dollar plunge in value at an unprecedented rate.
Even worse, this printed money isn’t getting into the right hands. Instead of making it into the hands of ordinary citizens, most of it is going directly into bailing-out large corporations. In many cases, these companies only need help due to their own greed, money mismanagement, and participating in irresponsible stock buy-backs.
Further, governments are falling into greater and greater debt, most notably the United States. The US has pushed its reserve-currency privilege to the limit, borrowing so much that it now has unfunded liabilities of around $100 trillion (yes, trillion with a “T”!).
According to survey results taken over several decades, citizen’s trust in the United States government has now reached 60-year lows – a dangerous sentiment considering a trust-based US dollar.
Now, we have seen that coming, but how does that level of trust shape up against the rest of the world? Let’s take a look:
According to further surveys, it appears that a lot of the world isn’t much better off in terms of trusting those who run their country; a very large proportion of countries only have 50% or less of their people trusting their government will do what is right for their country.
Many of these low-trust countries are those that have already been affected by a break-down in their currency and financial system, including:
With levels of trust in the US government (and other western governments) falling year after year, it’s not out of the question that trust is also beginning to falter in their US dollar – the collapse of which would make waves across the entire globe.
As I’ve touched on before, this lack of trust is already starting to show in the form of near-zero interest rates, with negative interest rates just around the corner in US Treasury bonds. Once these negative interest rates hit consistently, it could be one of the catalysts that push faith in the US dollar to the brink of collapse, as bondholders rush to get out of the market.
With trust falling across a majority of governments and fiat currencies across the world, there aren’t many places left for people to go to preserve their wealth.
Gold is great, but hard to obtain. When you throw in the legal abilities of some governments to confiscate it from citizens it’s suddenly not all that attractive anymore.
That leaves Bitcoin, which may be one of the few true safe-haven assets left.
It’s provably scarce, out of reach of governments, and becoming easier to obtain by the day. As fiat currencies continue to fall, I know that I trust Bitcoin to keep my wealth safe.
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