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Stagflation: What Will the End of Fiat Look Like?

Now we’re going through a crisis caused by political reasons that eclipsed the economic values. The massive gerontocracy led to inevitable results: in certain countries and globally, politicians are taking decisions out of touch with reality. The reason is purely social: older politicians are not taking up new trends and keep using their old government models.

We can compare the whole picture to Scandinavian countries which completely changed their government models. People taking up high positions in these countries are regularly on the news for their untypical (for politicians) behaviour. They use public transport, go to cafes and clubs, and lead a normal white-collar lifestyle, they’re around 40 on average. As a result, we can see these regions are developing rapidly, they have higher living standards, good-working democratic institutions and other odd things

Cryptocurrencies are an important part of this new world that is actively forming and pushing the old and outdated out of our lives. This is why the Reserveum Group project is studying hard to investigate the potential of digital money; we’re trying to develop such a currency that would replace fiat money in the new modern economy.

So, how do conservative politicians harm the economy, exactly? They take populist measures that are absolutely irresponsible economically, like giving out money and subsidies, they blow up the money supply, and, after all, they start geopolitical conflicts to revive the military part of the economy. All these palliatives result in even bigger problems that go down like a snowball.

Speaking of short-term solutions, inflation can, in fact, renew the economy by stimulating purchasing activity; but when it lasts for decades, it turns into stagflation. Stagflation is the state where prices grow but the economy is going through a downfall and depression. So, producers raise prices not because of higher demand but to just maintain their income safe and keep the businesses afloat.

Reasons of the Current Stagflation

The core of the problem is in the structure of the money system. Fiat currencies are not backed by anything, that’s why their emission is not limited by the reserves of some real asset. This gives governments an opportunity to start their printing machines whenever things get harder for them. Of course, they abuse this opportunity pretty often, and the whole inflationary burden ends up on the shoulders of average citizens.

The economy should evolve in cycles, with ups and downs following each other, but the constant inflow of extra money spoiled the natural state of events. The ever-growing prices make the population poorer, reduce production, raise unemployment, and at some point, the economy is harmed beyond repair.

We have written an article on that – How Economic Cycles Affect the Currency Market. We highly recommend you to read it, especially if you don’t know what are those cycles.

This is exactly what is happening now – the economy has drained its “extra lives”, and it’s impossible to revive it with traditional methods.

What can we do?

Well, we have stated that the reason for the economy’s distress is its imperfect centralised money system: this is where we should start working.

First: decentralising all the finances. While money emission and distribution are managed by the government elite, they will remain non-transparent, corrupted, and therefore uncontrollable. The only solution is to make this system decentralised. Luckily, there is such technology as blockchain which can allow every user to control the money emission.

Second: money reserves. For money to have real value, it should be tied to a stable asset. Traditionally, those are precious metals, but since the economy is shifting to the digital realm more and more nowadays, we can view cryptocurrencies with the highest capitalisation as valid reserves. To reduce the risks of high volatility, we can use several currencies at once.

Third: protecting from inflation. Is it even possible? Not with fiat money, but with crypto – yes, it is possible. The fiat money system is quite chaotic, it is managed indirectly by extra emissions, interest rate changes, and sending inflationary money away to underdeveloped countries. Meanwhile, cryptocurrencies are just a code, they can have any qualities written down in that code, like a tendency to inflation or deflation.

This is exactly what the Reserveum Group is working on at the moment. It is an algorithmic stablecoin – decentralised, deflationary, and backed by other cryptocurrencies. The crypto will be managed partly by the Reserveum MAX smart contract, and partly – by its users’ votes. We are striving to make a money system that will create a transparent environment for its users, and will be effective both for making payments and for storing value.

If you are interested in our project and would like to contribute, we’ll be happy to see your ideas and suggestions. Send them to our address at Info@reserveum.org. The best ideas will be published and used in developing the RESERVEUM protocol.

According to the analysis group findings: reserveum.org

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