The problem with the monetary system

THE PROBLEM

Today's system is inherently unstable

Unprecedented public debt levels, rampant money supply expansion and the enormous financial imbalances render our current financial system extremely unstable.

As politicians and central banks worldwide are running out of realistic and effective solutions, we are left to deal with rising inflationary pressures and continuous debt creation at the expense of the next generation. The unprecedented creation of money out of thin air and the politically motivated interest rate manipulations by central banks have a direct impact on the value of our money.

Since the end of the gold standard in the U.S. in 1971, all links between money and any real asset were severed, allowing for excessive debt accumulation to run rampant and leading to inflation.

"The real value of money has declined sharply since the end of the gold standard in 1971, and the gap between rich and poor is widening. Savers are the biggest losers!

I want to leave the next generation a store of value for long-term wealth preservation.

Karl Reichmuth, Founder RealUnit & Private Banker

The three basic functions of money

Store of value

Today, money fulfills this function exceptionally poorly. Due to the constant increase of the money supply, our money steadily loses value instead of retaining it. We are convinced that the remedy for this is the return to a currency backed by real assets.

Unit of account

Sovereign currencies, such as the Swiss franc, the euro or the U.S. dollar, can serve as units of account only in the short term. In the medium to long term, they do not fulfill this task, as the future real value of these currencies cannot be forecast and is always influenced by political interests.

Medium of exchange

Today's money works well as a medium of exchange. With cash and electronic means of payment, transactions can be made (almost) anywhere, and banks facilitate transfers across the globe. However, developments in blockchain technology clearly show that all this can be done a lot more efficiently.

Loss of the store of value function

On July 15, 1971, then U.S. President Richard Nixon severed the American currency’s historical link to real assets: he closed the so-called gold window. After this, the U.S. dollar was no longer pegged to gold and the central banks of other countries have no longer been able to exchange their dollars for gold at the U.S. central bank, the Fed. On May 27, 1987, Switzerland also decided to stop backing the Swiss franc with gold. Until that point, Switzerland was the last jurisdiction that still held on to a gold peg for its currency.

No significant currency has been tethered to the real world since. The consequences have been dramatic. What followed was an unprecedented expansion of the money supply in the form of a debt explosion, accompanied by a steady loss of purchasing power of paper money. In essence, this means that our money today can no longer fulfill one of its basic functions – that of maintaining value.

Consumer price inflation in the US since 1971

Source: Federal Reserve Bank of St. Louis

For ordinary investors, this means that almost all nominal savings investments, such as savings accounts, call deposits or even government bonds, will suffer losses in the medium and long term. This is exacerbated by central bank policies pushing interest rates to or even below zero and by quantitative easing programs of the Fed or the ECB, adopted due to the barely sustainable debt levels of many countries.

Source: Federal Reserve Bank of St. Louis

Unreliable unit of account

Our money today has lost its store of value function and this also affects the other basic functions too: The Swiss franc, the euro or the U.S. dollar can only serve as a unit of account for a short time.

By its very nature, any benchmark should be a consistent standard, but due to the permanent loss of purchasing power, this function can no longer be reliably served. Over a longer period of time, it is difficult to tell at first glance whether a good has risen in price primarily because it has itself become more expensive – for example, due to greater demand, while supply has remained unchanged – or whether the corresponding price increase primarily reflects the loss of purchasing power of the respective currency. In an environment where the real value of an expected payment can no longer be clearly determined when a contract is concluded, it is difficult to enter into long-term contracts.

Limited medium of exchange function

As long as state currencies are designated as legal tender and citizens must use them to pay their taxes, fiat money will retain its function as a medium of exchange. However, even in this role, our currencies are becoming increasingly irrelevant. For example, in the canton of Zug, the “Crypto-Valley,” certain taxes can be paid in cryptocurrencies. In the US, some states have returned to the roots of the US dollar: Utah and Oklahoma officially recognized gold and silver as legal tender. Recently, El Salvador became the first country in the world to recognize Bitcoin as an official means of payment.

We are convinced that in the near future the demand for real-backed currencies on the blockchain will increase strongly. The RealUnit share token serves as a digital store of value.

Use our Inflation calculator to find out how much you are affected by inflation and how the money in your account will lose purchasing power over time.

"The RealUnit is an alternative to a financial system that is coming apart at the seams."