The Fragile Hierarchy of Money: Why the System is Breaking and What Might Replace It
The biggest risk in life—and in markets—is to remain static when the world signals profound change.
Money is simple in theory but endlessly complex in practice. It’s supposed to be a tool—a unit of account, a medium of exchange, a store of value. But in reality, money is a story. And like any story, its power depends on how much people believe in it.
For decades, the global monetary system has been a story told through a hierarchy. At the top is the U.S. dollar, the world’s reserve currency, with layers of other currencies and credit forms beneath it. This hierarchy has enabled a stunning expansion of trade, innovation, and prosperity. But it’s also built on a foundation that’s showing cracks: trust. And when trust wavers, the story starts to fall apart.
Today, we’re living through one of those moments. The hierarchy of money is still standing, but it’s wobbling. And as the world shifts beneath it, a new story is beginning to take shape—not one of pure decentralization, but one where power changes hands to foster technological innovation and reimagine production.
Graph 1. Hierarchy of the international Monetary System
A Crisis of Confidence in Bonds
Trust is a funny thing. It’s hard to build, easy to lose, and nearly impossible to quantify. For decades, the global monetary system relied on trust in one thing above all else: U.S. Treasuries. These bonds were seen as the ultimate safe asset, the foundation of global financial stability.
But today, even Treasuries are showing cracks. Rising interest rates have hammered long-term bonds, causing historic drawdowns. Investors are beginning to question the sustainability of a system that leans so heavily on liabilities without tangible assets to back them. During the Cold War, U.S. Treasuries were backed by the gold standard, a tangible anchor that gave people confidence. Today, they’re backed by the promise of future taxes—a much harder sell.
Persistent drawdowns in long-term bonds highlight a deeper truth: trust in the fiat system is eroding. Bonds, which represent the promise of future stability, are increasingly seen as speculative bets rather than safe havens. This erosion of trust doesn’t just affect the U.S.—it ripples across the global monetary hierarchy, destabilizing everything beneath it.
Graph 2. G10 Bonds persistent drawdown.
Currency Crises at the Periphery
When systems break, they don’t crack at the center. They fracture at the edges. This is where the crisis of fiat money begins: in the periphery. Emerging markets, deeply dependent on the offshore dollar system for liquidity, are the first to feel the strain.
These economies rely on dollar-denominated credit to fuel growth, but as global interest rates rise and liquidity tightens, a deficit of offshore dollars emerges. This creates a vicious cycle: currencies weaken, making it harder to service dollar debts, which further erodes confidence and accelerates capital flight.
Emerging market currencies like the Brazilian real, Indian rupee, and Russian ruble are increasingly volatile, reflecting the strain of a system where liabilities outpace assets. As U.S. interest rates remain elevated, the cost of servicing dollar-denominated debt grows unsustainable for these economies, leaving them vulnerable to crises.
The periphery feels the pain first because it is most reliant on trust in the system. As that trust evaporates, emerging market currency crises will intensify, setting off a chain reaction that eventually ripples back to the core.
Graph 3. Brazilian Real, Indian Rupee, and Russian Ruble: Early Warnings of an Emerging Market Crisis.
The Eurozone’s Dilemma:
If the U.S. dollar is the world’s apex currency, the euro is its most ambitious experiment. The Eurozone tried to create a shared currency without a shared fiscal policy—a feat akin to building a skyscraper on shifting sand. It worked for a while, but cracks are becoming impossible to ignore.
One of the Eurozone’s core vulnerabilities lies in its approach to technological change, particularly its stance on cryptocurrencies and digital assets. While the world pivots toward decentralized financial systems, the Eurozone has doubled down on regulatory measures that stifle innovation in the crypto space. Policies aimed at curbing the adoption of crypto assets are designed to protect the euro’s integrity, but they risk driving innovation—and capital—elsewhere.
These anti-crypto measures include strict requirements for licensing, taxation, and compliance that make it difficult for digital asset businesses to operate within the Eurozone. By focusing on control rather than adaptation, the Eurozone risks falling behind in the global transition to digital finance.
Bitcoin: A Shift in Oligopolies, Driving New Production Models
Bitcoin is often described as “digital gold,” a decentralized system built on cryptographic trust. But in reality, the shift to Bitcoin represents not the end of centralized control, but a change in hands—from one oligopoly to another.
The current fiat system is dominated by financial institutions and central banks that prioritize debt and control but stifle innovation. The emerging Bitcoin and blockchain ecosystems, by contrast, are controlled by a new set of stakeholders—miners, developers, and tech companies—who are building the foundation for a decentralized internet and new models of production.
This shift in oligopolistic control is not perfect, but it holds the potential to foster technological innovation in ways the fiat system cannot. Blockchain technology underpins Web 3.0, a decentralized internet that promises to transform how we think about money, trust, and value. Smart contracts, decentralized finance, and digital assets are building a new financial ecosystem that doesn’t rely on the old hierarchy but is still shaped by powerful new players.
What Comes Next
The current monetary system isn’t going to disappear overnight. It’s too entrenched, too interconnected, and too central to global trade. But it is changing. The cracks are widening, and the story that underpins it is losing its power.
The crisis of fiat money will begin at the edges—in the periphery, where trust is weakest, where deficits of offshore dollars are most acute, and where long-term bonds no longer inspire confidence. From there, it will ripple through the hierarchy, exposing the fragility of a system built on credit and promises.
Bitcoin and Web 3.0 represent not a utopian decentralization, but a shift in power. The transition from one oligopoly to another is not the end of centralized control but a redefinition of its purpose—fostering innovation and driving a new model of production. The question is not whether the system will evolve, but how quickly the new players will rewrite the rules of global finance.
The biggest risk in life—and in markets—is to remain static when the world signals profound change. To cling to a mindset that avoids volatility and ignores transformation is to miss the very forces that drive growth, innovation, and opportunity. Embracing uncertainty and adapting to change are essential to thrive in the face of seismic shifts.
As we step into 2025, I hope this reading inspires you to connect the dots, rethink the foundations of the monetary system, and navigate the markets with clarity and resilience. Here’s to embracing the challenges and opportunities of the new year. Happy New Year! Wonderful 2025!
Thanks for reading,
Guillermo Valencia A
Cofounder of Macrowise
30th December 2024
Thanks for your thoughts Guillermo