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Did Keynes Forecast Bitcoin?

by Andrew White  |  October 13, 2017  |  1 Comment

Well no, he didn’t.  But he did suggest a new currency that could leverage such innovation.

During the planning of the the Bretton Woods conference in 1944, John Maynard Keynes and Harry Dexter White sparred for visions of the future.  Even though Keynes was clearly defending a vision based on sterling, White knew time was on the side of the US and so the dollar.  Much has been written about this historic system, and the planning that led up to the famous conference and agreement, much by Keynes if you ever spend the time reading his collected works (I am part-way through), but the competing visions that were tabled in the fabled hotel in New Hampshire changed the course of financial and global history.

For those that know the difference and focusing on one specific item, Keynes had suggested that a new global currency be created that would sit at the heart of a new IMF organization.  The name offered at the time settled on “Bancor” though other names had been offered before.  This global currency was to be used to settle and cover loans and debts between trading nations that would ordinarily accrue in the course of global trade.  In fact Bancor was to be a very operational currency that would help limit the very global imbalances that have imperiled our economies every since the failure of Bretton Woods, at the hands of Nixon in 1971.  Yes, Keynes foresaw (others did too) that global imbalances would persist as a result of global trade an a means to manage the re-allocation of those imbalances would be needed if financial or economic disaster was to be avoided.


It turns out that the Americans at Bretton Woods knew that the War had left Britain broke, literally and productively , and so by putting the dollar a the heart of the new global exchange rate system, the US could circumvent sterling’s reserve currency status.  The rest, as they say, is history.  Or so it was until 1969.  In that year the IMF, one of the Bretton Woods’ children, introduced the SDR, or strategic drawing rights, as an additional “reserve currency” to help assuage the very imbalances Keynes had forecast.  But the SDR that was introduced was more narrowly focused on debt management, and how the IMF could help individual countries with what were thought to be temporary balance of payments crisis.  It was much less a global currency.  That was until now.

In the WSJ US print edition of October 6th, there is an article titled, “IMF Sees Broad, Digital Future for SDR’s.”  In this article James Mackintosh of the WSJ reports on IMF musing that marrys a broader use of SDR’s coupled with bitcoin technology, and the idea of “IMFcoin” emerges.  This would make Keynes smile wryly for at once, he would be proven correct (the broader use of the SDR).

However, whatever the IMF is thinking about , what sits at the heart of this dialog is the US continuing to seek to maintain its reserve currency status.  China is interested in usurping the dollar’s position and now the IMF is thinking about a more robust, modern, global reserve currency.  Such a reserve currency could be traded more effectively (via bitcoin) to help negate the imbalances that come about from having a globally important net-importer (net debtor) that happens to also print the reserve currency for “exorbitant privilege“.

When the US sneezes, everyone get’s a cold – or so the story goes.  As the US sets or changes interest rates, everyone else has to take note since it changes the exchange rate between the dollar and their local currency.  Thus US domestic monetary policy has tended to set or strongly influence global monetary policy.  Such a move by the IMF would at a stroke threaten the US’s position and also undermine China’s efforts to upset the global apple-cart with its attempts to float the Yuan.  Even though the IMF recently accepted the Yuan into the basket of currencies that make up the SDR, the currency is not really as free as the IMF would have you think.  However, an IMFcoin would prevent the Yuan from becoming the automatic replacement for the dollar as the new global reserve currency, lauded by economists who suggest China’s economic growth will tower of the US in the not too distant future.

The one problem with this whole thing is that the currency has to be fully trade-able for any currency so it has, therefore, to be backed by a central or global bank.  In other words, the SDR has to be unanimously and totally supported by all central banks and there has to be no chance that any one bank could pull its support from the new IMFcoin.  So the bitcoin technology could be a great mechanism to implement the exchange processes of currencies.  But the IMF would need global backing in terms of the value of its IMFcoin.  The promise of a global central bank being able to print fiat money is what makes the world go round today, thanks to Nixon and 1971.  At a stroke, countries no longer needed to live within their trade-able means and living within debt-driven possibilities became possible.  Unless the IMFcoin is accepted by most central banks, the technology won’t mean squat.  As usual, politics trumps technology.


Category: bitcoin  bretton-woods  imf  innovation  

Andrew White
Research VP
8 years at Gartner
22 years IT industry

Andrew White is a research vice president and agenda manager for MDM and Analytics at Gartner. His main research focus is master data management (MDM) and the drill-down topic of creating the "single view of the product" using MDM of product data. He was co-chair… Read Full Bio

Thoughts on Did Keynes Forecast Bitcoin?

  1. Leanne says:

    Thanks Andrew. Great article and Lagarde is clearly interested in the tech. Personally I prefer the peer to peer decentralized model of bitcoin, however the tech is there for interpretation and will be used by large entities which is why many new projects have taken the time and effort to create blockchains where big business can build their own projects at minimal expense. Stratis being one, built from the BTC source code in C# to make it compatible and easy to use. Thanks, really enjoyed your insights.

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