Absorption

“Crimson light through pine shadows

Setting sun settling into the ocean

Night follows the setting sun

Day follows the fleeting moon”

The Future of Money: The Weakening of Fiat and the Rise of Hard Assets

Throughout history, the nature of money has evolved alongside societies, economies, and political structures. From barter systems to gold and silver coins, from paper money backed by commodities to today’s fiat currencies, each transition has reflected deeper shifts in global power and economic stability. In Principles for Dealing with the Changing World Order, Ray Dalio traces these transitions, illustrating how monetary shifts often parallel the rise and fall of empires. Today, as the U.S. dollar faces increasing challenges, a transition toward decentralized assets like gold and cryptocurrency seems not only logical but necessary.

A Brief History of Money

1. Precious Metals and Hard Money

For much of history, gold and silver served as the foundation of economic systems. The Byzantine solidus, the Venetian ducat, and later the British pound (once defined as a pound of sterling silver) all established their value through intrinsic worth. These metals provided stability but had limitations—transport was cumbersome, and supply was constrained by mining output.

2. The Shift to Paper Money

China was the first to introduce paper money around the Tang and Song dynasties (7th-11th century), but widespread adoption came later. The Gold Standard, formally established in the 19th century, allowed paper currencies to represent fixed amounts of gold, balancing convenience with intrinsic value. This system dominated until World War I, when the costs of war forced many countries to print money beyond their gold reserves, causing inflation.

3. Fiat Currencies and the U.S. Dollar’s Dominance

The Bretton Woods Agreement (1944) established the U.S. dollar as the world’s reserve currency, pegged to gold at $35 per ounce. However, as the U.S. printed more money to fund war efforts and social programs, confidence in dollar-gold convertibility waned. In 1971, President Nixon abandoned the gold standard, making the U.S. dollar a pure fiat currency. Since then, all major global currencies have been backed not by tangible assets but by government decree.

4. The Consequences of Fiat Systems

Dalio highlights how fiat currency systems inevitably lead to excessive money printing, debt accumulation, and inflation, contributing to the decline of dominant economic powers. Historical examples include the Dutch Guilder in the 17th century, the British pound in the early 20th century, and now the U.S. dollar, which faces record-high debt, declining purchasing power, and geopolitical challenges from emerging economic blocs like BRICS.

Gold and Crypto

1. Gold: The Ultimate Hedge Against Inflation

Gold has preserved wealth for thousands of years. Unlike fiat money, it cannot be printed at will, making it a hedge against inflation and currency devaluation. As trust in the dollar erodes, central banks are accumulating gold at record levels—China, Russia, and India have all increased their gold reserves significantly, signaling a shift away from the dollar-based system.

2. Cryptocurrency: The Digital Alternative to Fiat

While gold is an effective store of value, it lacks portability and divisibility in modern finance. This is where Bitcoin and other cryptocurrencies come in. Bitcoin, often referred to as “digital gold,” provides a decentralized, finite monetary system free from government manipulation. Unlike fiat currency, Bitcoin has a fixed supply (21 million coins), ensuring scarcity and resisting inflation.

3. Historical Parallels: Moving Away from Failing Currencies

Dalio details how, in times of crisis, nations transition to alternative monetary systems. For example:

• In the 1500s, Spain’s empire declined due to excessive silver imports and debt, causing currency devaluation.

• In the 1700s, France’s excessive money printing (the assignats) led to hyperinflation and collapse.

• In the early 20th century, Britain’s abandonment of the gold standard marked the decline of the British pound as the world’s reserve currency.

Each transition was preceded by rising debt, devaluation, and loss of confidence—similar to what we see today with the U.S. dollar.

The Transition Away from Fiat

We are already witnessing the early stages of a transition:

• Central banks are reducing their dollar reserves in favor of gold.

• Countries are developing alternative financial systems (e.g., China’s digital yuan and BRICS’ attempts at a non-dollar trade settlement system).

• Institutional investors are increasingly allocating funds to Bitcoin, signaling growing mainstream adoption.

Governments may resist this shift, but history suggests that once confidence in a fiat system erodes, an alternative inevitably takes its place. As Dalio emphasizes, those who recognize these patterns early can protect and grow their wealth while others suffer the consequences of monetary decline.

Government Control, Privacy Risks, and the Centralization of Money

Increasing Surveillance: Digital transactions and potential central bank digital currencies (CBDCs) introduce risks of financial surveillance and government control over personal wealth.

Bank Failures & Institutional Fragility: Recent collapses, such as Silicon Valley Bank (2023), highlight vulnerabilities in traditional banking, reinforcing skepticism toward fiat-based financial systems.

Comparing Fiat, Gold, and Crypto as Stores of Value

A direct comparison of fiat currency, gold, and cryptocurrencies highlights their respective strengths and weaknesses:

Fiat vs Gold vs Crypto

This raises the question: If fiat money continues to weaken, what alternatives will individuals and institutions turn to for stability and security?

U.S. Governmental Restructuring: The Musk-Trump Influence

As economic conditions evolve, political shifts in the U.S. have further shaped financial policies and regulations.

Centralization of Executive Power

President Donald Trump has consolidated greater control over regulatory agencies, implementing executive orders requiring SEC and FTC oversight by the White House. These measures aim to streamline economic policy but have sparked concerns over the erosion of institutional independence.

Elon Musk’s Role in Government Efficiency

Elon Musk, appointed head of the Department of Government Efficiency (DOGE), has introduced sweeping federal restructuring efforts, including:

Budget Cuts and Bureaucratic Overhauls: Significant downsizing of agencies like USAID and the Office of Personnel Management.

Tech-Driven Economic Reforms: Leveraging technology to modernize government spending, though critics argue this increases executive influence over financial policy.

These shifts in government structure, combined with existing economic trends, further destabilize public confidence in centralized financial systems.

Implications for Monetary Value and Wealth Distribution

The convergence of economic uncertainty, inflation, and regulatory shifts is reshaping public and institutional approaches to wealth preservation:

Erosion of Fiat Currency Confidence: Persistent inflation and policy uncertainty have led investors to reassess their reliance on traditional currencies.

Turn Toward Alternative Assets:

A growing number of individuals and institutions are considering gold, cryptocurrencies, and other decentralized assets as hedges against monetary instability.

Widening Wealth Gap: 

Economic trends have disproportionately benefited those with diversified asset holdings, while wage earners experience stagnation and declining purchasing power.

Conclusion: Navigating a Transforming Economic Landscape

Ray Dalio’s analysis of economic cycles suggests that currencies tied to unsustainable debt and monetary expansion ultimately decline. With inflation and counterfeiting accelerating fiat devaluation, the need for stable, scarce, and globally accepted alternatives is more pressing than ever.

As financial institutions, governments, and individuals navigate this shift, history suggests that the pursuit of stable, non-inflationary assets will shape the future of global finance. Whether through technological innovation or a return to historically trusted assets, the world is witnessing a transition in monetary value that could redefine the financial system for decades to come.

“All too often, we tend to think of absorption as a static thing: Water is absorbed into a sponge, and there it stays. But true absorption is a total involvement in the evolution of life without hesitation or contradiction.”