The IMF decided to use some very interesting language earlier this week. Mentioning a “new Bretton Woods agreement” has attracted a lot of attention. Unfortunately, this will not result in what some gold bugs would like to see happening.
A new Bretton Woods Moment
The wording by the IMF is certainly interesting, for many different reasons. People familiar with the terminology will recall the original Bretton Woods agreement. It introduces rules for commercial and financial relations among the world’s countries. Every region involved had to adopt a monetary policy to maintain external exchange range by tying its national currency to gold.
This agreement was terminated by the US in 1971. The end of the gold standard remains one of the worst financial decisions in history. Returning to a gold standard has been mulled over the years. However, it will prove incredibly difficult to do so. As such, the recent phrasing by the IMF needs to be put in its right perspective.
Due to the COVID-19 pandemic, financial solutions need to be found. It is not a matter of simply fighting the crisis today. There is also the challenge of building a sustainable future. This latter part will be the biggest hurdle to overcome. A lot of financial and economic damage has been done or will be done in the coming years.
As central banks continue to leverage helicopter money as a solution, the situation becomes unsustainable. So far,it is estimated a total of $7.5 trillion is added to balance sheets this year alone. It needs to be addressed, thus creating a new Bretton Woods moment seems warranted.
What Will Actually Happen?
Truth be told, there is no indication of returning to a gold standard now, or in the future. Most countries still have ample gold reserves to warrant such a move. However, it is not in their best interest to explore this option. Ditching the reliance on the US Dollar, however, is something that would make a lot of sense.
Sadly, that will not be the case either. Introduced enhanced creditor coordination will not make any real dent in the current mountain of debt. Introducing a sound economic policy is a very serious matter. Policies for all the people in the world cannot be created out of thin air.
Despite the use of a key term – Bretton Woods – it remains a bit unclear what the IMF plans to do exactly. While there are some new measures, they all serve the current financial system. Bretton Woods has a meaning of disrupting a non-functional system, such as the one the world uses today.
It seems unlikely that will be disrupted by the powers-that-be. Individuals, however, are free to make up their own mind. The best way to do that is by lowering one’s exposure to fiat currency. Diversifying wealth through precious metals and Bitcoin is, based on the current financial system, the only viable option to explore.