The monetary system is a major component of the whole economic system. Despite that, today we take it for granted and don’t even ask ourselves how it works and if it is the best solution available or the correct way to manage things.
Even though it appears to be stable, history shows that monetary systems changed periodically in the last century (20–30 years on average).
The main difference between our current monetary system and previous monetary system is that today it is entirely based on FIAT Currency, in contrast to older monetary systems that were backed by gold.
That means that what we call money is a government-issued currency that has zero intrinsic value and is not backed by anything.
From 1971, this kind of system allows central banks to literally control the economy and opened a new chapter in the world monetary system.
In this article, I am going to briefly explain why 1971 changed everythingand what are potential consequences of such a decision.
Since 1971 the world runs on FIAT currencies that are not gold-backed in any way. This changes everything.
Before digging into it, we have to review some history.
The Bretton Woods System and It’s Collapse
Towards the end of the World War II, peace was a real concern and it was clear that the world needed a new monetary system able to support the economy.
In fact, one of the major reason that led to World War II was the failure in dealing with economic problems after World War I.
Why It Was Needed And How It Worked
The Bretton Woods agreement was signed at a conference between allied nations in 1944.
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