The Life Expectancy Of A Currency And The Need For Monetary Reform

There have been almost 800 different currencies since the 18th century. On average, they have a life expectancy of no more than a few decades. The COVID crisis has amplified certain irreversible trends: massive monetary creation, highly structural deficits, a decline of the West, a fall in growth, and the end of disinflation. The current monetary (and budgetary) equilibrium is generating gradually increasing tensions. The necessity for monetary reform ought quite naturally to re-emerge, likely within the next 20 years.

THE LIFE EXPECTANCY OF A CURRENCY

In an article by Mike Hewitt, we learn that 77% of the 786 currencies known to have existed since the 18th century have disappeared. Moreover, 25% of the currencies that are no longer with us disappeared as a result of hyperinflation. The life expectancy of a currency is very fragmented: a large proportion of currencies are maintained over short periods, whereas others last for centuries. The pound sterling is the oldest currency of all, having turned 327 in 2021, followed by the dollar, which is 229 years old.

One can see, however, that currencies’ lifetime has tended to increase since the end of the Second World War, primarily on account of the continuous growth. In 2008, the life expectancy of a currency was approximately 3 decades (27 years).

ECONOMIC CYCLES AND THE DESTINY OF CURRENCIES

The destiny of currencies is dependent on a number of factors:

  • On the one hand, there is economic growth. A stable currency exists if the development of trade is sufficient to ensure its dissemination and its reliability. Economic growth follows cyclical patterns.
  • On the other hand, we have inflation and monetary policies. Monetary policies have often led to the collapse of numerous currencies (massive monetary creation, the end of convertibility, etc.). One should also note the role of inflation, which also responds to cyclical patterns.
  • Finally, there is the international context. The fact that growth is higher in certain regions, or that other countries foster more favorable conditions for trade: these things play a role in both the emergence and the downfall of currencies. In 2020, the dollar accounted for 61% of foreign reserves. The considerable power of Asia, however, and the relative decline of the West, ought to encourage a range of new dynamics.
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