Bitcoin [BTC]: A History Lesson on Keynes’s Vision of a Global Currency

Bitcoin [BTC]: A History Lesson on Keynes’s Vision of a Global Currency

John M. Keynes and Harry Dexter White were the Ali and Frazer of the economic world during the pre-war and world war II era. Keynes was more intimidating than White. Nonetheless, White was an intellectual who had an upper hand because of the U.S.’s strong position back then. In the post-war era, these individuals would frame the world economy which gave birth to the IMF and the World Bank.

Both White and Keynes upheld the importance of the gold standard, Keynes also introduced an international managed currency – ‘bancor’ that would assist the global credit system.

Keynes’s Idea

Keynes was primarily focused on removing deflationary scares from the 1930s. The British economist proposed a plan of an international organization, a credit fund and a managed currency (Bancor).

In Keynes’s clearing union, the central banks would pay subscriptions in gold and then would borrow in bancor which it could use only to settle debits against another central bank. He wanted to limit the use of bancor between the central banks only because was essentially a ‘managed currency’ of the organization for settlement and exchange rates.

However, White argued against the design. According to his publication in 1935, he felt that without gold or another effective anchor, was a dangerous idea.

Btw, Bitcoin does have an anchor – ‘packets of electric energy.’

White in the pursuit of U.S. supremacy saw that it was not the volume of exchange of any currency that made any sizeable difference, it was the number of countries (hence, currencies) being exchanged with the Dollar (or British Sterling) at the time which would actually help in asserting global dominance.

This idea was critical in giving up dominance, and greater sharing in the governance of the IMF and the World Bank. It allowed the addition of more countries, trade (mainly exports) with which would help in the growth of the US Dollar.¬†Bancor’s job was to essentially restrict this dominance.

Today, Bitcoin ATMs are spread across 77 countries (according to data from Trading is far more prevalent.

Global Exchange

In the post-war rebuilding, the Brentwoods agreement, and creation of the IMF and the World Bank were most significant for the international economy. The agreement set the price of gold at $35 redeemable in the U.S. Hence, other countries had to produce or sell $35 dollar worth goods/gold to the U.S. to obtain it.

White was against the multinational currency idea explicitly but support that ‘the Internation Bank’ could issue notes against for its’ gold reserves, and that the notes could be accepted as ‘bearer documents.’ The U.S. lent the maximum amount to the IMF and the congress took decisions on the specifics of the spending. This allowed both economic and political control.

Keynes wanted a regime of easy, flexible credit, while White wanted to limit credit creation by the internal organization. 

But, Inflation!

Later, White began to address the problems with the tremendous increase in the value of the US Dollar against the Federal Reserves. He eventually pushed for an international medium of exchange to supplement the IMF resources for the purpose of increase in trades – Trade Dollar Accounts.

The demand for the dollar increased quite hastily in the following decades and everything was going was fine for the U.S. until the rise of post-war Germany and Japan. This caused a reduction in the gold reserves of the States.

Nevertheless, the low credit lines and the increasing demand for the US Dollar lead to another slow-down in the economy in the late Sixties. With the decrease in the demand for the U.S. Dollar and a fixed exchange rate of $35, there was a flight from the US Dollar. This is because at the back-drop the US Dollar was highly inflated. Notice the high rates during the 1940-1950 period.

US Dollar Inflation Rate (Source: TradingEconomics)

Keynes, although more famous than White, was in a weaker position because when it came to negotiations. The United States was far more powerful during the 1920-1940 period. Hence, while Keynes was looking to uphold Britain’s interest with the U.S. as primary, While was open to a more multinational approach with other countries as well.

In 1971, President Richard Nixon completely abolished a fixed rate regime between Gold and the US Dollar.

Gold shot up by 1800%, from $35 to $665, in the following decade.

The devaluation of FIAT currency!

Now, there is a threat that comes with Bitcoin which Bancor did not have. If it becomes mainstream as cash, the only fight left for the Governments will be to ‘stack sats,’ like a gold rush. Moreover, this will extend to the retail population as well. This will cause tremendous harm to their reserve values.

No government would want to give control and the reserve status of its currency. In the second half of 2019 and early 2020, Trump was hell-bent in the devaluation of the dollar. There are a lot of reasons for it though. First, its’ trade deficit with China. Second, to fight the Chinese move of devaluing its currency for the past decade to expand its exports.

Global Reserve Currency

Given below is a chart of the life span of global reserve currencies in the history of money. The average of the last 600 years, according to the chart below, is 94 years. Even the US Dollar has had a stronghold for more than a century now.

The devaluation of the US Dollar is underway in the last few years. See the chart below.

us dollar futures
US Dollar Futures Price (Source: TradingView)

Hence, fundamentally, no FIAT currency can actually act as an intermediate currency in the long-run. It has always been gold. The Governments need to devalue their currencies from time to time to increase exports, and decrease imports. Hence, regulating the trade in favour of the country. While these can have adverse consequences too, it has worked well with respect to trade dominance in China.

Bitcoin [BTC] as a digital version of gold has the potential to act as Keynes’s Bancor. However, they had planned for a managed system governed by the Central Banks, while Bitcoin engages the public as well. Nevertheless, if the distrust between countries increases and we witness a shift in the from the current regime, gold and Bitcoin are likely to favour in the short-term. Possibly in the long-term as well.


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Hello, I am an Electrical Engineer currently pursuing Actuarial studies. I work as an analyst reporter for CoinGape. Here to share my knowledge and observation of the crypto space. Feel free to contact!

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