21 sats \ 1 reply \ @scottathan 12 Nov 2023 \ parent \ on: Bitcoin Solves Triffin's Dilemma bitcoin
The price of gold couldn't float in terms of dollars because the dollar was tied to gold. A $35/oz peg meant that if a nation gave $35 to the US, they would always get back 1 oz of gold. So the price of gold in terms of dollars wasn't even really a concept, as it was a fixed conversion ratio that the US was bound by treaty to honor
Think of it like one-to-one pegs often proposed for Bitcoin drivechains. It would be hard for the price of the token on a drivechain to float, as it is always redeemable one-to-one for sats. Same thing with gold and dollars on the gold standard.
Unfortunately, this wasn't how it typically played out, as the only thing holding governments to this one-to-one ratio was their word, and the money printer has always been too tempting. This happened several times throughout US history where they printed too many dollars and had to lower the conversion ratio to devalue the dollar in relation to gold. In the case @peruvian_bull describes, they didn't adjust the conversion ratio in time, had a run on US gold reserves, and eventually abandoned the standard
yes I agree- i was merely pointing out that the argument typically used by macroeconomists (i.e. there isn't enough gold reserves for global trade) is a red herring. It is a matter of price. This is only a hypothetical, not actually what occurred (or could occur) under the constraints of bretton woods.
the system was flawed from the beginning, as more issuance of layer 2 money meant that the money pyramid became more and more top-heavy and thus a run towards base money (gold) would be inevitable.
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