Fiat Currencies Are Failing

Fiat currencies are failing all over the world. And it’s happening right now.

During smooth economic times, currency exchange rates rarely shift more than a couple percentage points in a given year. There are outliers like Venezuela suffering extreme economic hardship, but most of the well-capitalized power nations (think of G20 members) have relatively stable monetary systems.

Until now.

In the last 3 months, people have been exiting the fiat currencies of smaller nations en masse, and opting for the stability of the US dollar and the Euro. Below is a performance chart outlining the US dollar and Euro gains over other currencies since February 9th.

Practically every major currency is losing value, but it’s the scale of the losses that are astonishing.

Brazil is the world’s 9th largest economy, with a GDP larger than Canada, as well as the US states of Texas and New York. With the Real losing over 30% of its value against the US dollar in a matter of months, the savings and purchasing power of over 200 million people has been destroyed.

The same situation is also playing out in Mexico, South Africa, and Russia with what will likely be even larger economic implications. People aren’t going to sit back and watch their wealth be systematically destroyed through inflation.

Instead, they’ll opt for one of a few routes.

  1. The lucky ones with access to US bank accounts can transfer their money into USD to avoid inflation. This is what has been occurring since March, and will probably continue until the economic recovery is well underway.

  2. The ones without access to US dollars may instead opt for gold-backed financial assets to avoid the risk of inflation. Gold ETFs are acceptable instruments for most large funds to use, but the risk is that these ETFs don’t give buyers access to physical gold, and depend on buyers having a bank account.

  3. The last way, and the way that almost anybody in the world can escape inflation is through Bitcoin. P2P Bitcoin exchanges exist in almost every major nation, allowing citizens to buy and sell Bitcoin - even without access to a bank account.

And as it turns out, Option 3 is proving to be widely adopted already, with no signs of slowing. Countries throughout Latin America and Africa are setting all-time high purchases of Bitcoin to avoid the inflationary effects of fiat printing, establishing Bitcoin as a valuable hedge, instead of a purely speculative instrument.