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13.August 2022

El Salvador's Bitcoin Bretton Woods Conference

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A recent financial inclusion conference in El Salvador gave the country an opportunity to share their bitcoin journey with other global financial policymakers.

Kudzai Kutukwa is a passionate financial inclusion advocate and was recognized by Fast Company magazine as one of South Africa’s top 20 young entrepreneurs under 30.

“It was an unprecedented cooperative effort for nations that had been setting up barriers between their economies for more than a decade.

“They sought to create a system that would not only avoid the rigidity of previous international monetary systems, but would also address the lack of cooperation among the countries on those systems. In the interwar period, governments not only undertook competitive devaluations but also set up restrictive trade policies that worsened the Great Depression.”

In summary, this conference sought to incentivize economic cooperation among nations through a new monetary system that would also discourage adversarial economic policies of the Great Depression era. During that time, a financial system was created where all other global currencies were to be backed by U.S. dollars, with the dollar itself being backed by gold. The price of gold was fixed at $35 an ounce and central banks were also able to redeem dollars for gold. This became known as the Bretton Woods system. This system held until August 15, 1971, when President Richard Nixon ended dollar convertibility to gold because the U.S. could no longer honor its commitment to do so. In reality, this was a sovereign default by the U.S. government.

“We are witnessing the birth of Bretton Woods III — a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the eurodollar system and also contribute to inflationary forces in the West … When this crisis (and war) is over, the U.S. dollar should be much weaker and, on the flipside, the renminbi much stronger, backed by a basket of commodities. After this war is over, ‘money’ will never be the same again…and Bitcoin (if it still exists then) will probably benefit from all this.”

It is very likely that as sovereigns seek diversification away from U.S. Treasurys, the scenario of a commodity-based monetary system, i.e., gold standard 2.0, will likely be a temporary stopgap measure on the path to bitcoin adoption as the new global reserve currency. Gold-based monetary systems have failed in the past and they are prone to centralization — especially given the fact that the largest gold reserves on earth are held by just three countries: the U.S., China and Russia. Current events and tensions point to such a system being anything but stable or cooperative.

“History has shown capital flows to where it is treated best and embracing innovation leads to more wealth and prosperity. We also think there is very high stakes game theory at play here, whereby if bitcoin adoption increases, the countries that secure some bitcoin today will be better off competitively than their peers. Therefore, even if other countries do not believe in the investment thesis or adoption of bitcoin, they will be forced to acquire some as a form of insurance. In other words, a small cost can be paid today as a hedge compared to a potentially much larger cost years in the future. We therefore wouldn’t be surprised to see other sovereign nation states acquire bitcoin in 2022 and perhaps even see a central bank make an acquisition.”

Financial inclusion is the trojan horse that will eventually lead to gradual bitcoin adoption by emerging market countries, and during this conference, El Salvador used this opportunity to plant the seeds for more nation-state adoption of Bitcoin. In light of the Bitcoin Beach tour by the central bankers, JAN3 CEO Samson Mow had this to say, “What took place in El Salvador is the spreading of hope and freedom through Bitcoin adoption. We now have nation-states working on orange pilling other nation-states, which is quite amazing if you think about it. Everything is accelerating and it’s bullish for Bitcoin.”

As the cracks begin to appear in the current monetary system, it’s only a matter of time before we begin to see more nation-state adoption. History will look upon this year’s edition of the AFI summit as “the shot heard round the world” for ushering in a bitcoin-based monetary system.

This is a guest post by Kudzai Kutukwa. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

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