“Happy Birthday Fake US Dollar,” wrote personal finance author Robert Kiyosaki hours ago. He did so in reference to a new anniversary of August 15, 1971, when former US President Richard Nixon decided that his country’s currency would no longer be backed by gold.
The author of “Rich dad, poor dad” explains that, for that reason, he hasn’t saved dollars for 50 years. As he says, fiat money is “fake money with the one who cheats the workers. “Smart people save gold, silver and bitcoin,” he adds.
Hundreds of tweeting bitcoiners are added to the writer’s words who express themselves on the subject under the hashtag # wtfhappenedin1971 (in Spanish, «what the hell happened in 1971»). Twitter CEO Jack Dorsey and Bitcoin Magazine are among those who tweeted the question.
What the hell happened in 1971?
A day like today, but 50 years ago, then President Nixon took the decision to suspend the convertibility between gold and the dollar on a “temporary” basis.
In recent weeks, speculators have waged an all-out war against the dollar. The strength of a currency is based on the strength of a country’s economy and the United States economy is by far the strongest economy in the world. That is why I have instructed the Secretary of the Treasury to take the necessary actions to defend the dollar against speculators. I instructed him to temporarily suspend the convertibility of the dollar against gold and other reserve assets except for amounts and conditions that give us monetary stability in the best interest of the United States.
Richard Nixon, former President of the United States, August 15, 1971.
Although, according to the United States Government, the responsibility for these measures fell on “speculators”, the historical context must be understood: the economy of that country was in a trade deficit for the first time in the twentieth century and the expenditures of the Vietnam War were “evaporating” the monetary reserves. In such a situation, the possibility of issuing money without endorsement in an unlimited way was the chosen solution.
Since then, the purchasing power of the US dollar entered an accelerating negative slope. With numerous graphics and visual resources, the website “WTF happened in 1971”, produced by the River Financial company, highlights the consequences of what is known as the Nixon Shock.
For example, the graph below shows the evolution of the price of a can of Campbell’s condensed tomato soup over the years. It is precisely in 1971 when a turning point occurs and the upward trend increases considerably. The same applies to most everyday consumer products and also to the annual inflation index in the United States.
Strikingly, another great Increase in the price of this product occurs during 2020 and early 2021, as can be seen in the same graph. CriptoNoticias has reported how the inorganic issuance of dollars to alleviate the consequences of the COVID-19 crisis brought unwanted consequences on the cost of living in the United States.
As explained by the analyst Ismael de la Cruz, other consequences of the abandonment of the gold standard by the world’s largest economy were imbalances in the international monetary system; strong inflation due to excessive credit expansion; and greater room for maneuver for central banks to print money as they see fit.
A Nixon Shock is not possible on Bitcoin
It is in this context that, in 2009 Bitcoin was conceived. Unlike the coins issued by the states, a characteristic of Satoshi Nakamoto’s cryptocurrency is that his monetary policy is indelibly etched in the code.
The issuance of coins in Bitcoin it is finite: there will never be more than 21 million units . Unlike fiat money, inorganic issuance of bitcoins (BTC) is not a possibility. And, if the demand for bitcoins continues to grow, as has happened until now, the law of supply and demand indicates that its price should increase.
On the other hand, with In this system, the rules of the game cannot be changed in the middle of the game for the convenience of either participant. A Nixon Shock does not it is possible in Bitcoin. Those who wanted to change something of the pioneering cryptocurrency protocol had to give up the idea and develop their own projects, from scratch (for example, Ethereum), or starting from Bitcoin (for example, Bitcoin Cash).
