Deutsche Bank released a long report called ‘Imagine 2030’ that covers many different topics, and the very first article in this report is titled ‘The end of fiat money?’, which presents an intriguing theory as to how the fiat system has remained stable the past 40 years, and how it may become unstable this decade.
Essentially, in the early 1970s there was high inflation due to the fiat system becoming de-pegged from precious metals like gold and silver. However, inflation actually began to fall by the late 1970s, and has been falling for the 40 years since then.
Deutsche Bank theorizes that the entrance of China into the global labor market has been the primary cause of deflationary pressure, via reducing global labor and manufacturing costs. In-fact, Deutsche Bank says that this deflationary pressure from Chinese labor is what has been offsetting the inflation caused by trillions of dollars of Central Bank stimulus.
However, Deutsche Bank shows that the global supply of labor is now declining, and theorizes that over the next decade labor costs and manufacturing costs will rise, and therefore there will be nothing to offset inflation caused by Central Bank stimulus.
If this is true, then governments and Central Banks will be faced with the dilemma of either stopping their money printing fueled stimulus, or they will have to let inflation rise, which would cause interest rates to rise.
Considering the tremendous level of global debt, if interest rates begin to rise then Central Banks will have no choice but to conduct fiscal stimulus, i.e. money printing, to meet debt obligations, locking in a cycle of increasing inflation.
Ultimately, this could lead to an inflationary spiral for fiat currency, at which point alternatives like Bitcoin would become much more competitive. In fact, Deutsche Bank questions whether the fiat currency system will survive until 2030.