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  • Writer's pictureRachael Twumasi-Corson

From Silver Coins to $BTC (7 Major Stages in the Story of Money) Part 3

There was absolutely no reason for this to take as long as it did to publish. Sure I've had a car accident, twin babies and several life stopping events since hitting publish on part 2... but that wasn't why I'm just sharing this.


In reality, I wrote the rest of this blog post back in early 2022, after a conversation with my father-in-law about Bitcoin. He thought it was value devoid and pointless. I said that people said the same about paper money, and digital fiat for that matter. I then finished covering stages 6&7 but thought I needed to do more research before publishing. However, y'all know I am no economic historian. I am but a humble writer of things.


There will be more typos than usual, and I'm learning to be okay with that! Here's part 3, I hope you enjoy it.


Stage 6: The Great Depression and the fall of the Gold Standard


Pushed by The Bank of America (see stage 5), the gold standard grew in popularity. It centred a fixed quantity of gold as the standard unit of account for currency. Seemingly sensible? Yes. National banks were no longer restricted by the need to hold large amounts of physical gold.


This shift set the scene for an economic boom in the early 1900s. The roaring 20s kicked off to a great start for much of the western world, but it didn’t last long.


In Britain WW1 had led to Treasury notes replacing gold sovereigns. The gold specie standard wasn’t being used, but it wasn’t repealed officially until the 1925 Act when Britain officially returned to the gold standard after WW1 and ended the circulation of gold specie coins in favour of gold bullion at a fixed price. A move Keynes was against, warning of the risks if the gold standard was adopted and gold fixed at the pre-war rate. But Churchill went ahead and Britain saw a depression and the 1926 general strike.

Over in the US, the Gold Standard was also returned to after WW1, but many economists blamed the gold standard for prolonging the great depression as it prevented the bank from printing more money to stimulate the economy and fund the banks.

By the early 30s the dollar had attracted international investors (buying with gold) after the Federal Reserve raised interest rates and Congress passed the 1934 Gold Reserve Act to nationalise all gold and issue certificates to local banks. This also allowed the president to set the value of the gold dollar (which he did... devaluing it by over 40% in the year the act passed.) Gold was supposed to be a way to hold certainty of value. The Gold Reserve Act changed this.


The Wall Street Crash and the subsequent Great Depression were awful for American citizens and had wider global affects as international trade was impacted too. After the overconfidence of the roaring 20s and the collective suffering of the depression through the 1930s, the Keynesian Revolution was a time of realism and common sense. Keynes noted that high demand leads to a lack of supply, and thus a lack of labour. The need for labour leads to rising wages and this raises costs of production as well as wages meaning industrial growth and expanding markets tends to create inflation.


People were angry that the system hadn’t worked, so the crash in the 1920s led to regulation in the 1930s. Nations recognised that having a partially-back gold standard was unstable. Gold flows became erratic and a bank run in Austria caused the largest Austrian bank to fail, leading to contamination in the UK where the Bank of England lost reserves and in Germany where the central bank collapsed. The economic instability in Germany was fuel to Hitler’s rise to power and the growth of the Nazi party.

By WW2 most nations had dropped the Gold Standard, having long lost confidence in it.


An aside: The reduction in the importance of gold may have had an odd positive impact. Dropping the Gold Standard helped create a world where colonial rulers were more prepared to accept declarations of sovereignty from colonies associated with gold. My family are mostly from Ghana, named after an ancient empire when we gained independence in 1958. The name Ghana replaced the British name of ‘The Gold Coast.’ I do wonder if such a lucrative land (literally named for the resources extracted from it) would have gained freedom without bloodshed without the fall of the Gold Standard...

In any case, the post war rebuilding of European nations coupled with the rapid movement towards independence for so many former colonies from the 1950s onwards created more of a need for international economic law to regulate the global economy.


The recognition that political and economic interdependence of countries was a reality led leaders to think about the ways they could work together to stop the national economic policies of one nation from negatively impacting other nation states.


This created a need to develop systems where the rights and obligations of states were defined and regulated so that nation states could agree to reduce their absolute sovereignty over their economic activity for benefits to all nations subscribing to the system. Global collective actions were taken to promote international economic stability.


Enter Bretton Woods

So all in all, the pressures of the Great Depression and the strange economic situation in the inter-war and immediate postwar period set the scene for international economic law framework. The world saw huge economic pressures: volatile capital flows, wars and debt led to “begger thy neighbour” policies. Protective policies meant borders closed to international trade, as struggling nations wanted no competition for goods and services produced in their own countries. This, along with restrictive monetary policies created a domino effect. Protectionist policies began to worsen the global economy, leading to what some saw as a slow disintegration of the global economy (if such a thing exists.) Building on work that started after the Great Depression of the 1930s, the Allied leaders agreed that economic disasters could only be avoided by working together rather than each nation pushing protectionist policies which harm the global economy.


In 1944, the Allied leaders organised a conference in Bretton Woods, New Hampshire. At the Bretton Woods conference, new institutions were suggested and we eventually wound up with The International Monetary Fund (IMF) to systemise exchange rates and multilateral payments; The International Bank for Reconstruction and Development (IBRD) (now part of the World Bank) to fund the development and rebuilding of Europe and Japan after WW2; and the General Agreement on Tariff and Trade (GATT) (an interim measure after the US rejected the ITO, this was later replaced by the WTO in 1994.)


The Bretton Woods institutions were formed to regulate the colonial powers and other industrialised countries as they rebuilt following two devastating wars. They were not developed to deal with the issues of newly independent countries and there was no consideration that the colonised nations could become competitors to the colonising nations. Predictably, the Bretton Woods institutions became forces of neo-colonialism, serving the interests of those who designed the system. Developing countries without robust economies were encouraged to take out loans, even when these loans were actively hindering growth. There were even cases where the wrong country was named on documents that were supposedly tailored for the unique economic situation of each nation.


Stage 7: The 2008 Crash, Fintech & Bitcoin


I went to Law School in 2008, and I remember going to the highstreet to open a student account and seeing hundreds of panicked people queueing up outside of a Northern Rock branch. I hadn’t heard of the Lehman brothers and didn’t know their collapse had led to a bank run, or that Northern Rock was about to be nationalised by the British government, or that any of this was caused by self-cert loans and the subprime mortgage crisis. But I didn’t need to know about these economic issues for them to impact my life, just like everyone else. I graduated into a system where having any grad job at all felt like a miracle. Why? Well, the top topic of conversation seemed to be the credit crunch and the double dip recession. But as my brother used to say, “credit doesn’t crunch, it folds.” I had no idea what he meant, but it sounded fun and it stuck with me so much that I read Joseph Stiglitz, “Freefall” to better understand. 


Stiglitz had left the World Bank years before the crisis, arguing that the US treasury and the IMF had caused the Asian financial crisis of the 90s and it would happen again. He was right. Between the fall of the Berlin Wall in 1989 and the collapse of Lehman Brothers in 2008, the US had a solid run of growth and governments of economic powers took a hands-off approach as they benefited from the risky behaviours of their financial institutions. With the gold standard having been replaced by trust in the US dollar, risky banking practices, the housing bubble and quantitative easing in the states had a global impact.


Stiglitz warned that the global financial crisis would happen again unless governments learnt that a systemic imbalance between debtor and creditor nations and individuals meant powerful countries and institutions would be locked into boom and bust cycles as they pumped up bubbles then watched them burst. 


It’s not lost on me that I write this after HSBC purchased Silicon Valley Bank UK and UBS had to buy Credit Suisse as both the UK startup sector and the Swiss Banking sector were hit hard by the pressures of the cost of living crisis and post covid recession. In 2010 Stiglitz had reflected on the 2008 financial crisis and asked:


“​​Will we seize the opportunity to restore our sense of balance between the market and the state, between individualism and the community, between man and nature, between means and ends?”


Gauging by the state of the global economy in 2023, the answer sadly seems to be anything but affirmative.


The Fintech revolution

Though the 2008 financial crisis began with the collapse of US Banking system, it uncovered sub-prime lending and other risky activities that were not properly regulated. Banks lost the money of normal people who could not afford to lose cash that should have been safe in banks. People defaulted on their mortgages and other large loans which they couldn’t afford to begin with, banks lost money, the financial markets slowed, jobs were lost, and people spent less. This means that good produced in countries like India and China, suddenly had far fewer customers as Americans and Europeans saw their spending power plummet. The global economy was hurt by the US and UK housing bubbles and a new wave of young people saw their families lose everything.

Then in in 2010, Metro Bank became the first high-street bank to be granted a licence by the FSA for over 150 years, promising a better deal for customers. A wave of new banks without followed. First Starling, then Monzo, Revolut and others joined. They took on the large banks which made people jump through hoops to do basic banking, and allowed people to bank from their phones in the comfort of their own homes and even to message with a human if they were stuck.


Satoshi, Blockchain and crypto

The same economic forces that inspired the fintech revolution inspired a mystery character (or group) to do away with fiat currency altogether.


Despite their very different histories (see part 1 and part 2), our modern banking system holds digital currency to be interchangeable with paper money and coinage. Metal, paper and digital money are all considered fiat currency; government issued currency that is backed by the government (and the acceptance of the majority) rather than gold or another physical commodity. 


The 2008 crash, like The Great Depression and Wall Street Crash, had devastated many families. But the responses were different. As with the previous major crashes, there were calls for more centralisation and regulation… but this time there were also calls for decentralisation from individuals that could now organise and spread ideas online. 


Much in the way that the invention of the printing press sparked a series of revolutions that lead to the modern stock market and banking system, and later the quick communication of ideas in books provided an ecosystem into which the birth of America and the financial plans of Wall Street and Alexander Hamilton could flourish, the internet was a game changer. 


In 1995 when Internet Explorer was first released, ordinary people could share ideas with people around the world with the click of a button. The creation of the world wide web allowed people to share their disillusionment with centralised fiat currency and with dangerous financial tools and banking approaches. The internet allowed Satatoshi to consider these complaints and take action…


In 2008, an individual, or group by the name Satoshi Nakamoto released a project, claiming to be the start of a decentralised payment system. The project, Bitcoin or $BTC, relied on a network of computers rather than a single central bank owned computer: the first decentralised crypto currency. 


As the global economy crumbled, many people hoped that $BTC, and the innovative new Blockchain technology which fuelled it, could improve the international economic system and stabilise global currency. Blockchain allowed a new type of financial infrastructure to be created, without the explicit backing and control of nation states and thus without the international politics inherent in the fiat system.


With blockchain, the integrity of the nation doesn’t need to be written about on the money it prints, instead everyone can trust the blockchain ledger.


Just like there were during the emergence of fiat currency, stock markets and futures contracts, there were ideological divides in the cryptocurrency community. Some people believed that $BTC should be practical and thus it needed to have low mining fees and be super fast; faster than banking or PayPal. Others believed $BTC should be stable, a new gold standard that’s slow and difficult to move, with high mining fees. So the fast and cheap group split off from $BTC and formed Bitcoin cash. 


Self-governing trading systems, and collateral backed loans have exploded on blockchain networks and the potential to earn interest, on interest, on interest through the use of tokens led to the bitcoin boom in 2017. Since then things have remained volatile in some ways, but have stabilised in others. Institutional support for $BTC has been slow. JP Morgan seemed to back it, but then the CEO called $BTC 'hyped-up fraud' and said cryptocurrencies were a 'waste of time' but signalled support for blockchain technology. Elon Musk added $BTC to the Tesla balance sheet and Twitter stated $BTC would play a big part in their future. At the same time, Nigeria banned $BTC trade as more and more Nigerians placed their trust in the safety and potential for growth that bitcoin offers, rather than their national economy.


Nobody knows where Bitcoin and other blockchain based cryptocurrencies will go. Some people hope coins like $BTC will be the new global currency, others see $BTC as the new gold standard. I find it interesting to speculate, and I’m vaguely working on a novel to explore the possibilities... just have to finish editing my Afrofuturism meets Fantasy debut first!

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