Economist and fund manager Daniel Lacalle published an article on Mises Wire discussing the decline of fiat currencies in developed economies.
Lacalle said that governments have historically assumed they can print unlimited currency, but this approach has led to repeated cycles of exceeding credit limits, ignoring warning signs, and eventual currency collapse. He argued that the current global reserve system is shifting away from a pure fiat currency anchor toward a mixed regime where gold plays a dominant role.
According to Lacalle, “IMF COFER data show that, while the US dollar still dominates, its share of reported reserves has drifted down towards the high 50s. Gold has overtaken the US dollar and euro as the main asset in central banks for the first time in 40 years.” He added that public debt is now at about $102 trillion globally, surpassing pre-pandemic levels and nearing peaks seen during aggressive monetary expansion periods. “Sovereign debt has driven this phenomenal rise,” he said.
Lacalle outlined three limits breached by developed economies: economic (where higher debt leads to lower marginal growth), fiscal (where interest expenses crowd out productive investment), and inflationary (where repeated monetary financing erodes confidence in fiat money). He said that central banks have responded with increased gold purchases: “Net official buying exceeded 1,100 tonnes in 2022 and remained above 1,000 tonnes in both 2023 and 2024 (…). By 2024, central banks officially purchased 1,045 tonnes of gold.”
He also noted that many reserve managers view ongoing increases in money supply as making inflation and financial control permanent features rather than temporary measures. According to Lacalle, “Such an outcome does not mean an imminent collapse of the US dollar nor a dedollarization process, but an unquestionable loss of confidence in fiat currencies altogether.” He observed that investors and central banks are moving toward a hybrid reserve order involving both fiat currencies and higher allocations to gold.
Lacalle concluded by stating that advanced economies face persistent deficits and political resistance to spending cuts. He wrote: “We are living through a historical monetary change that will have long-term implications. Global central banks have stopped believing in paper promises and demand real money.” The full article can be read at Mises Wire.
