The Death of Money

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Every 100 years or so, money dies.

Let me explain …

Throughout history, money has evolved in various forms to facilitate trade and economic activity. Initially, barter systems were used, where goods and services were directly exchanged. This evolved into commodity money - such as salt in Roman times, and later gold, silver, and other precious metals - valued for their intrinsic worth. As societies advanced, representative money emerged, where paper notes or certificates represented a claim on a commodity, like gold. The 20th century saw the rise of fiat money, which has no intrinsic value but is accepted by governments as legal tender. Today, digital money and cryptocurrencies, like Bitcoin, are becoming increasingly prevalent, representing the latest evolution in the history of money.

Money was historically linked to gold to ensure its value and stability. Gold has intrinsic value due to its rarity, durability, and universal desirability, making it a reliable and global standard for currency. By linking money to gold, governments could guarantee that their currency had tangible worth, which helped build trust and confidence among the public and international traders. This system, known as the gold standard, also limited inflation, as the money supply was directly tied to the amount of gold reserves a country held. Gold blocks were literally wheeled into bank vaults to support the value of money in circulation.

A global reserve currency evolved and was typically based upon the most desirable currency of the day – customarily supported by a strong military and a robust and developed trade infrastructure. Over time, each global reserve currency has endured for about a century before being superseded, or 'dying'. We can evidence that fact, as follows: the Portuguese real (mid-15th to mid-16th century), Spanish dollar (late 16th to 18th century), Dutch guilder (18th century to early 19th century), French franc (19th century), British pound sterling (19th to mid-20th century), and the US dollar (mid-20th century to date).

A global reserve currency must meet several key requirements to be effective. It should be widely accepted and trusted for international transactions, ensuring stability and confidence among global traders and investors. The issuing country needs a strong and stable economy, with low inflation and sound fiscal policies. Additionally, the currency should be highly liquid, meaning it can be easily bought and sold without significantly affecting its value. Finally, the financial markets of the issuing country should be deep and well developed, providing ample opportunities for investment and hedging.

Empires rise and fall just like currencies and money, their progress can be plotted in a cyclical pattern shown below.

Source: Ray Dalio, 26 January 2022

The Bretton Woods Conference, 1944, made America the global leader by establishing the US dollar as the reserve currency in the new international financial system. With most other currencies pegged to the dollar, and the dollar itself backed by gold, the US gained unmatched influence over global trade and finance. Additionally, the US led the creation of key institutions like the International Monetary Fund (IMF) and the World Bank, where it held the most power. Combined with its strong post-war economy, this system positioned the United States at the centre of global economic leadership. The internationally used SWIFT system (Society for Worldwide Interbank Financial Telecommunication) is a global messaging network used by banks and financial institutions to securely transmit information and instructions through a standardised system of codes. SWIFT does not transfer money itself, but facilitates international money transfers by sending payment orders between institutions using its secure network.

The United States dollar officially dissolved the gold standard in 1971, under President Richard Nixon, in what is often called the "Nixon Shock." This decision was driven by growing economic pressures, including rising inflation, a large trade deficit, and a drain on US gold reserves, as other countries began converting their dollars into gold. The fixed exchange rate system — established under Bretton Woods — was becoming unsustainable, as the US could no longer guarantee the dollar's convertibility into gold at $35 per ounce. By suspending gold convertibility, the US effectively ended the Bretton Woods system and moved toward a system of floating exchange rates, marking a major shift in global economic policy and the creation of what is known as fiat money.

Fiat money is a type of currency that has no intrinsic value and is not backed by a physical commodity like gold or silver. Instead, its value is derived from the trust and confidence that people have in the issuing government. Governments declare fiat money to be legal tender, meaning it must be accepted as a form of payment within the country.

The significance of fiat money lies in its flexibility and control. It allows governments to manage the economy through monetary policy, such as controlling the money supply and interest rates. This can help stabilise the economy, manage inflation, and respond to financial crises. However, the value of fiat money can be affected by factors like inflation and changes in public confidence. Fiat currency offers several advantages, including economic stability and flexibility, as governments can control the money supply, printing or cancelling money at the stroke of a keyboard to manage inflation and respond to crises. It is convenient and easy to carry, unlike commodity money such as gold. Since its value is based on trust in the government rather than intrinsic value, it is less susceptible to fluctuations in commodity prices. Additionally, fiat currency supports complex financial systems and modern economies, facilitating large-scale economic activities and digital transactions.

Just about everyone reading this article will have lived their lives during the period of fiat money and US dollar hegemony. As America’s fortunes ebb and flow, their debt mountain surpasses the mind boggling $36 trillion mark, making the United States the most indebted nation ever. There have been other countries on the rise, or who are prepared to combine economic forces to take on the dominance of the US dollar. The euro, itself a fiat currency created in 1999—with notes and coins entering circulation in 2002—continues to trade as a global currency but has not superseded the mighty dollar.

President Trump’s negotiation style around the world has greatly reduced trust and confidence in a “reliable and consistent America”. Consequently, the dollar has fallen in value.

In recent years, the BRICS nations—Brazil, Russia, India, China, and South Africa—have been working on creating a new currency to challenge the dominance of the US dollar in global trade. This initiative, often referred to as the BRICS currency project, gained momentum during the 2024 BRICS Summit in Kazan, Russia. The proposed currency, sometimes called the "Unit," is envisioned as a gold-backed or blockchain-based medium of exchange, designed to facilitate trade among BRICS countries and reduce reliance on the dollar-dominated financial system. The move is part of a broader strategy of de-dollarisation, driven by geopolitical tensions, sanctions, and a desire for greater economic sovereignty. While still in development, this currency could reshape global finance by offering an alternative infrastructure to systems like SWIFT and promoting the use of local currencies in international transactions.

Gold as the ultimate store of value has rarely lost its lustre. In times of change and uncertainty the precious metal shines bright. Likewise, the rise of digital money, or if you prefer “digital gold” has made a bold move in terms of its credibility and desirability. See the periodic table of asset class returns below from 1984 to the present day.

Source: Fidelity, 11 May 2025

Bitcoin, launched in January 2009, has risen in value due to a combination of factors, including growing institutional adoption, concerns over inflation and currency devaluation, and its appeal as a decentralised, limited-supply digital asset. Investors often view it as "digital gold"—a hedge against traditional financial instability. However, Bitcoin is perhaps unlikely to become a global reserve currency due to several limitations: its price volatility, limited transaction capacity, lack of centralised central bank governance, and regulatory uncertainty. Central banks require stability, control, and liquidity in a reserve asset—qualities that Bitcoin, in its current form, does not consistently offer.

As the digital age expands and matures it is logical the next evolution of money should be created in digital form. Logically this should support other forms of digital investment infrastructure and product enhancement. Mr Scott Bessent, the Chief Secretary to the US Treasury, is known to favour a form of digital stablecoin which will be supported by the US Treasury and could also be used to supplement Treasury Bonds for government funding. Meanwhile, larger American banks led by the very largest, JP Morgan Chase, continue to explore collaboration to create a joint Stablecoin.

A stablecoin is a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, such as a fiat currency like the US dollar or a commodity like gold. Unlike volatile cryptocurrencies like Bitcoin, stablecoins aim to offer the benefits of digital assets—such as fast, borderless transactions—while minimising price fluctuations. They are commonly used for trading, remittances, and as a bridge between traditional finance and the crypto world. Popular examples include USDT (Tether) and USDC (USD Coin), both of which are pegged 1:1 to the US dollar.

The hegemony of the US dollar and it supporting infrastructure has been hugely successful for America’s economic and geopolitical fortunes. The extension into fiat currency in the 1970s has, if anything, accelerated dominance through the securitisation of wealth. But it has critically led to the accumulation of colossal debt and a lack of fiscal discipline, which could trigger its downfall. Will the dollar be replaced, or more likely, see its dominance wane—making way for the rise of an alternative currency to serve traders and mercantilist nations? We suspect it might, over time. Will this lead ultimately to the demise of the current form of money and the next evolution into a digital future for money itself and the essential trading infrastructure wrapped around it? Again, we suspect it might.