The Dollar Standard and the Bitcoin
By Carlos Alberto Montaner
It was the best possible example of serendipity, that word that means doing something weird, but with very positive consequences.
It all started half a century ago. In 1971, facing harassment by speculators, Richard Nixon put an end to the gold standard by creating the “dollar standard,” without knowing exactly what he was doing, or the positive scope of the measure for the United States. At that time, it was even feared that the nation would lose its status as the head of the West as a result of the economic disaster. I remember, as if it were today, the nervousness of John Connally, Nixon’s Secretary of the Treasury and former Governor of Texas, when breaking one of the sacred “Bretton Woods” agreements. It seemed like the world was falling apart.
But nothing happened. At the beginning, it was not known what would happen, but, little by little, nations compared their currencies with the dollar and most of the transactions made around the world were denominated in the American currency, even the non-sanctified trade of the drug dealers. This freed the debt capacity of the United States to limits then unsuspected, without diminishing the faith in the American currency. It wasn’t strictly an issue of objective data, but of the trust, always subjective, that American society generated.
What was really being considered was the quality of the Armed Forces, the best 20 universities on the planet, research centers, inventiveness, imagination, comfort, superhighways, the great American movie industry, and, above all, the legal security of one of the largest countries in the world.
Against that powerful image, the other alternatives could do nothing: the Chinese yuan, the Russian ruble, the Japanese yen, the British pound sterling. Even the euro, adopted by 19 nations, among them Germany and France, the engines of continental Europe, plus five smuggled in (Montenegro, Vatican, San Marino, Andorra and Monte Carlo), has not managed to get close to His Majesty, the US dollar.
I tell this story because some nations, such as El Salvador, intend to open a false door to Bitcoin and other cryptocurrencies as an alternative to dollarization and that is not possible today, in the first place, because of the amount of annual remittances. Almost 150 billion dollars leave the United States every year for Latin America (of which about six thousand go to El Salvador, representing 16% of the national GDP). Second, because of the speculative nature of Bitcoin, that makes it vulnerable to scam. Right now, there are some 32,000 people who feel ripped off and have collectively sued one of the operators.
The operator managed a “Ponzi pyramid.” He had thousands of clients to whom he paid a hefty interest, as long as fresh money came in. When his income failed, due to the volatility of the cryptocurrency, the scam was discovered. Carlo Ponzi was the Italian who perfected this type of fraud. He learned it from Baldomera Larra, the youngest daughter of Mariano José de Larra, the columnist who wrote “Come back tomorrow,” the best-known chronicle in Spanish journalism about a cruel trait of the national bureaucracy.
It is true that today we are going through a period of inflation, but we don’t need to panic. It is exactly 5.37% yearly. It is less than half the inflation that existed in the Carter and Reagan times, despite the fact that they didn’t have to face a pandemic. In any case, what exceeds 2% for a prolonged period is negative, but without going beyond that line. Japan has crossed it and its economy has not grown for many years, although the percentage of unemployed is low, less than 4% of the workforce. In short, until Donald Trump’s presidency, with his lies about the “fraudulent elections,” it did not seem that anything or anyone endangered the US leadership. It is no longer known for sure.
