Economic Note: 1970’s Rhyming With 2020’s
Modern Economic Equivalents to 1970s Crises (2020-2025)
Executive Summary
The 2020-2025 period has witnessed three major economic disruptions that parallel the transformative events of the 1970s: the erosion of dollar dominance through cryptocurrency emergence and de-dollarization efforts (paralleling the 1971 end of Bretton Woods), the 2021-2023 global energy crisis triggered by pandemic recovery and geopolitical conflict (echoing the 1970s oil shocks), and the post-pandemic inflation surge that challenged modern monetary theory frameworks (mirroring 1970s stagflation). These modern crises have fundamentally reshaped global economic structures, policy frameworks, and theoretical understanding in ways that echo the profound transformations of five decades earlier.
1. Modern Equivalent: The Gradual Erosion of Dollar Dominance and Rise of Alternative Monetary Systems (2020-2025)
Parallel to 1971 End of Bretton Woods System
The US dollar continues to cede ground to nontraditional currencies in global foreign exchange reserves, but it remains the preeminent reserve currency. Recent data from the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) point to an ongoing gradual decline in the dollar's share of allocated foreign reserves of central banks and governments. The reduced role of the US dollar over the last two decades has not been matched by increases in the shares of the other "big four" currencies—the euro, yen, and pound. In 2022, 46 "active diversifiers" were identified as countries with a share of foreign exchange reserves in nontraditional currencies of at least 5 percent, including major advanced economies and emerging markets, including most of the Group of Twenty (G20) economies. Until President Trump took office in January 2025, dollar dominance seemed resilient, but if the international monetary system cannot rely on the dollar's full convertibility, or its availability in a crisis, it is entering unknown territory. The president talked about having Bitcoin as part of the reserve and mentioned having a commission on cryptocurrency or blockchain to explore digital innovation in money and future-proofing the U.S. currency system.
Unlike the sudden 1971 Nixon Shock that immediately ended gold convertibility, the current monetary system transformation is occurring through gradual erosion rather than abrupt collapse. President Donald Trump has taken a keen interest in dollar dominance, threatening tariffs against dedollarization attempts, while in 2025, BRICS members aim to make incremental progress on financial infrastructure to avoid direct confrontation with the United States. The U.S. dollar has reigned as the currency of choice in global trade and finance since at least the 1950s, with its dominant position rarely facing a serious challenge until now, as recent market turbulence raises critical questions about whether trees grow to the sky regarding U.S. debt levels. The world's "love-hate relationship" with the US dollar was explored by leading economists at the World Economic Forum Annual Meeting 2025 in Davos, with questions persisting about whether US borrowing is sustainable and how other currencies might challenge the dollar. The emergence of Central Bank Digital Currencies (CBDCs) and cryptocurrency adoption represents a technological evolution of monetary systems that parallels how the 1970s shift from gold-backed to fiat currencies fundamentally altered global finance, creating new volatilities and dependencies that continue to reshape international economic relationships today.
2. Modern Equivalent: The 2021-2023 Global Energy Crisis and Supply Chain Disruption
Parallel to 1973 Oil Embargo and 1979 Iranian Revolution
Energy markets began to tighten in 2021 because of a variety of factors, including the extraordinarily rapid economic rebound following the pandemic, but the situation escalated dramatically into a full-blown global energy crisis following Russia's invasion of Ukraine in February 2022. The price of natural gas reached record highs, and as a result so did electricity in some markets, while oil prices hit their highest level since 2008. A global energy crisis began in the aftermath of the COVID-19 pandemic in 2021, with much of the globe facing shortages and increased prices in oil, gas and electricity markets, caused by a variety of economic factors including the rapid post-pandemic economic rebound that outpaced energy supply. While today's energy crisis shares some parallels with the oil shocks of the 1970s, there are important differences: today's crisis involves all fossil fuels, while the 1970s price shocks were largely limited to oil at a time when the global economy was much more dependent on oil, and less dependent on gas. The entire world economy is much more interlinked than it was 50 years ago, magnifying the impact, which is why this can be referred to as the first truly global energy crisis. Russia is a leading producer and exporter of oil and gas, traditionally the world's second-largest producer of natural gas behind the United States, with the world's largest gas reserves and largest gas exporter. The Russian invasion of Ukraine constituted a significant breach of the global geopolitical order with profound economic consequences, including marked deterioration of the world macroeconomic outlook, disruptions in trade, and strong shockwaves across financial and commodity markets.
Similar to how the 1970s oil shocks forced nations to confront energy dependencies and sparked discussions about alternative energy sources, the 2021-2023 crisis has accelerated the global energy transition and reshuffled geopolitical alliances. Geopolitical tensions are laying bare fragilities in the global energy system, reinforcing the need for faster expansion of clean energy, with low-emissions sources set to generate more than half of the world's electricity before 2030. In 2024, the crude oil and natural gas market navigated a complex landscape of controlled OPEC+ supply and variable demand, heightened geopolitical tensions, macroeconomic weakness, and a continued focus on energy transition. The crisis has demonstrated how geopolitical events can instantly transform global economic conditions through energy market disruptions, forcing countries to diversify their energy portfolios and accelerate investments in renewable alternatives, fundamentally altering industrial production patterns and consumer behavior in ways that echo the transformative impact of the 1970s oil shocks.
3. Modern Equivalent: Post-Pandemic Inflation and the Challenge to Modern Monetary Theory (2021-2024)
Parallel to 1970s Stagflation and Economic Theory Crisis
The spike in inflation in 2021 and 2022 tested both central banks' commitment to price stability and the effectiveness of their frameworks and tools in a way not experienced since the 1970s. The year 2021 began on an optimistic note with vaccines being rolled out and economic growth recovering rapidly, but no one realized the extent of the test that monetary policy was about to face, as inflation in many countries rose to levels not seen for 40 years. Faced with a tight labor market and elevated inflation, the Federal Open Market Committee (FOMC) began a process of unwinding the very accommodative stance of monetary policy and moving to a restrictive policy stance to address inflation pressures. Most central banks, particularly in advanced economies, waited to adjust policy until they were confident that the downside risks had declined, and the slow response subsequently required hiking interest rates much faster and in larger increments than experienced for decades. After decades of quiescence, inflation is back, and to fight it central banks must change their approach, as the predominant intellectual framework central banks have followed since the global financial crisis neither stresses the most pressing looming issues nor mitigates their potential dire consequences in this new climate. The impenetrability of the continuously expanding Ptolemaic New Keynesian paradigm is maddening, with the conventional vacancy ratio rising strongly not because the economy was overheating but because of massive occupational restructuring resulting from the COVID-19 crisis. After COVID-19, inflation in many countries rose to levels not seen in 40 years, testing central banks around the world and revealing that inflation forecasting must be improved, especially after a series of supply and global shocks.
Just as 1970s stagflation contradicted the Phillips Curve and challenged Keynesian economics, the post-pandemic inflation surge has exposed limitations in modern monetary frameworks that assumed low inflation persistence and well-anchored expectations. Central banks face new challenges in the interaction between monetary and financial stability, operating in an environment where private debt is high, risk premiums on financial assets are depressed, price signals are distorted, and the private sector relies heavily on central bank liquidity. The standard textbook response of simply "looking through" supply shocks must be revisited, and it is necessary to incorporate careful analysis of the current stance of policy, the nature and duration of shocks, and appropriate management of risks in each direction. The global battle against inflation has largely been won, with headline inflation projected to fall to 3.5 percent by the end of next year, slightly below the average during the two decades before the pandemic, and the return of inflation near central bank targets paves the way for a policy triple pivot. The crisis has fundamentally reshaped how policymakers approach inflation control and economic management, forcing a reconsideration of monetary theory frameworks and policy tools in ways that parallel how the 1970s stagflation crisis paved the way for monetarist and supply-side economics, establishing new paradigms that continue to influence central banking practices and economic policy formation decades later.
Conclusion
The 2020-2025 period has demonstrated that major economic disruptions continue to occur in fifty-year cycles, with each era requiring new theoretical frameworks and policy responses to address unprecedented challenges. These modern crises have reshaped global economic structures through gradual monetary system evolution, comprehensive energy security reconceptualization, and fundamental reassessment of inflation control mechanisms. The parallels to the 1970s suggest that periods of economic transformation often follow similar patterns of systemic stress, theoretical challenge, and eventual adaptation, though the specific mechanisms and global interconnectedness of today's economy create both new vulnerabilities and opportunities for more sophisticated policy responses than were available five decades ago.