Deutsche Bank Strategist Discusses End of Fiat Money

Deutsche Bank

OH MY! The nightmares may actually come true? All this time the “doom and gloomers” have been preaching that fiat currencies would collapse and the result would be…………caves? NOW Deutsche Bank (which is NOT a doom or gloom type) is, sort of, jumping on the bandwagon thinking central banks will be out of business. What will replace fiat currencies? Well, gold has always been the answer but now there are digital currencies (think bitcoin) and others that could step up to the lead. OH WAIT! I know. Lets ask the CME Group (bitcoin futures, RMG–digital gold) since they are always in front of what the future brings. Thanks Deutsche Bank…..great read.
(Bill Taylor/CEO)

“LONDON — Deutsche Bank isn’t known for its gold bugs, but that hasn’t stopped its strategist Jim Reid from writing a paper that discusses “the start of the end of fiat money.”

Reid’s basic contention is this: The dominance of the fiat currency system since Richard Nixon decoupled gold from the dollar in 1971 “is inherently unstable and prone to high inflation,” and an offsetting disinflationary shock that kept it afloat since 1980 is now slowly reversing.

If that’s the case, Reid says the fiat currency system — a term which describes any currency whose value is backed by the government that issued it, rather than by a commodity like gold or silver — could be “seriously tested” over the next decade.

Disinflationary forces

The basis of Reid’s argument is that China’s rapid economic emergence in the 1970s, and an explosion in the global working-age population, has allowed inflation to be controlled externally, because a boost in labour supply during a period of globalisation naturally supressed wages.

Externally-controlled inflation means policy-makers and central banks can respond with familiar tools: More leverage, loose policy, and extensive money-printing.

“It’s not usually this easy as inflation would have normally increased with such stimulus and credit creation,” says Reid. In fact, “it could be argued that this external disinflation shock has perhaps ‘saved’ fiat currencies.”

An end to the demographic super-cycle

If this theory is correct, Reid says, then “any reversals in this demographic super cycle could spell problems for the fiat currency system.”

Under that scenario, inflation would pick up externally as the working-age population stopped rising and labour pricing power returned, as demand rose and supply shortened…”

Full Story at BusinessInsider