After World War I Great Depression and inflation in Germany brought the world economy into a crisis. Rise of Fascism and the war that followed, allowed a new system to come in order.

Bretton Woods Agreement created a “gold standard”. With the new system, many countries fixed their exchange rates relative to the U.S. dollar, and central banks could exchange their funds into gold at the official exchange rate of $35 per ounce; this option was not available to firms or individuals. All currencies pegged to the dollar had a fixed value in terms of gold.

Although a sound idea, system was far from perfect: it required cooperation among the countries involved. If a country were trying to take advantage, the system would have collapsed, what actually happened when France tried to limit the influence of the USA by buying up all the gold available.

Crisis in Vietnam as well as several other factors contributed to President Nixon’s decision to abandon international convertibility of the dollar to gold in 1971. Fiat money was introduced instead of the gold standard. Unlike gold pegged currencies, fiat currency derives its value from government regulation or law. There is no convertibility to a rare good. Money itself is rare and precious, although it is only a paper. Central Banks gained prominence and became important political and economic players. Via market manipulation or lending money to banks, they could manage the money supply, but the problems with inflation and stability were still there.

Global trade was affected by abandonment of the Breton Woods system. Free floating money meant regular oscillations of the exchange rate and increased uncertainty. End of 20th century led to a significant increase in global trade. Outsourcing became a common thing, and countries such as China attracted investments. Instead of centralized production that required many different industries located in one country, companies staked on cost reduction and placed their factories in different countries, which led to an increase in trade and volatility of the financial markets became even greater problem.
The crisis of 2008 brought to light old ideas, and some new concepts appeared. Bitcoin was one of them.


Introduction of Bitcoin might help alleviate some of the issues mentioned. Problems with money transfer and transaction cost are easily visible when one tries to send money abroad. Remittance market is the primary target of cryptocurrencies at the moment. Sending money for a fraction of a penny instead of paying the huge fixed fees should be easily doable. We might see a global financial system in the nearest future, where competition is still fierce, but the costs are low.

When talking about issues in the global trade, transaction costs come are the most evident. Every national economy is diverse. Cooperation requires broad expertise and gives birth to many specialized companies, aimed to deal with it. Bitcoin technology is a new and most efficient system compared to the old one. It simplifies finance mechanisms and creates opportunities to further progress. Number of players in the market is reduced, and accountability is higher. How and in what way it will develop is yet to be seen.