Fiat currencies have had nearly a 46 year run of success. But with cryptocurrencies “all the rage,” what Deutsche Bank Strategists Jim Reid and Craig Nicol call “inherently unstable” fiat currency system without any commodity backing might be coming to an end, they assert.

The end of a demographic trend will usher in another inflationary period, Deutsche Bank asserts

The idea of tying the supply of money to a commodity such as gold was that it kept government spending in check because money was in limited supply.

The US abandoned the gold standard in 1971, anchoring the currency’s value not to a commodity but rather the faith in a government. This was followed by a sharp rise in inflation resulting in mortagage rates rising to near 20% annually by 1981.  The resulting debasement of currency value and loss of buying power might have ended the fiat monetary system if it were not for the deflationary period that came along in the 1980s.

This gentle deflationary trend is about to come to an end, Reid and Nicol think.

“The basic premise is that a fiat currency system – the likes of which we’ve had since 1971 – is inherently unstable and prone to high inflation all other things being equal,” they wrote in a November 1 report titled “The Start of the End of Fiat Money?”

The research duo believes that is evidence the deflationary forces are slowly reversing.

“If we’re correct, the fiat currency system may be seriously tested over the coming decade and ultimately we may need to find an alternative,” they wrote, pointing to a longer-term trend that might led to cryptocurrencies.

They think inflation has been tame due to demographics, China and globalization. With younger workers keeping wages competitive along with China and jobs moving overseas, there was a 35 year period of growth that didn’t occur with significant wage inflation. This trend could now be reversing.