On Christmas Eve 1913, the U.S. Federal Reserve was born. Since that day, the purchasing power of the U.S. dollar has plummeted—by more than 96%, according to the American Enterprise Institute. One dollar from 1913 now buys what $30.07 could have bought back then, representing a cumulative inflation rate of 2,907.18%. As the Fed celebrates its 109th anniversary, the erosion of fiat currency value is fueling renewed interest in Bitcoin as a store of value.
A Century of Dollar Decline
The Federal Reserve Act passed the House on December 22, 1913, the Senate the next day, and President Woodrow Wilson signed it into law on December 24. This was America's third attempt at a central bank, following the First Bank of the United States (1791-1811) and the Second Bank (1816-1836). The Panic of 1907 convinced political and financial elites that a new central bank was necessary. Secret meetings on Jekyll Island in November 1910, involving Senator Nelson Aldrich and representatives of the "Money Trust" (including J.P. Morgan), laid the groundwork for the Fed. The American public was kept in the dark about these deliberations.
Since the Fed's creation, the money supply (M2) has exploded. From $4.6 trillion in 2000, it reached $19.5 trillion by 2021. In 2020 alone, roughly $3.4 trillion—about 20% of all U.S. dollars ever created—were printed for pandemic relief. This massive monetary expansion has been the primary driver of dollar devaluation.
Data from Visual Capitalist illustrates the impact: in 1933, a single dollar could buy ten bottles of beer. Today, that same dollar barely covers a small coffee. The financial crisis of 2008 and the COVID-19 pandemic amplified the effects of money supply growth.
Multiple Forces Behind Inflation
Beyond monetary expansion, other factors have accelerated price increases. The Ukraine-Russia war sent energy prices soaring, and Western sanctions on Russia—one of the world's largest fossil fuel suppliers—exacerbated the spike. Additionally, U.S. climate-change regulations have imposed costs on businesses, contributing to higher consumer prices. Military spending and regulatory red tape have further fueled inflation.
As a result, the purchasing power of the dollar continues to erode. In 2022, the inflation rate hit multi-decade highs, though it has since moderated. Nonetheless, the cumulative loss of value since 1913 is staggering: more than 96% of the greenback's purchasing power has vanished.
Bitcoin and Gold: The Rise of Scarcity
Free-market advocates have long championed alternatives to fiat money. Precious metals like gold and silver offer intrinsic value and scarcity, but they are cumbersome to store and transport. Bitcoin, on the other hand, combines digital portability with a capped supply of 21 million coins. Neither gold nor Bitcoin can be printed at will by central banks.
Economist Friedrich Hayek famously said, "I don't believe we shall ever have a good money again before we take the thing out of the hands of government." He advocated introducing something governments cannot stop "by some sly roundabout way." Bitcoin, created in 2009, embodies this vision. Its decentralized, permissionless nature makes it resistant to monetary debasement.
Data shows that since its inception, Bitcoin has significantly outperformed the dollar in terms of purchasing power appreciation. Institutional adoption has accelerated, with companies like MicroStrategy and Tesla adding Bitcoin to their treasuries. Even as the Fed raises interest rates to combat inflation, many investors view Bitcoin as a hedge against long-term fiat depreciation.
Critics remain, pointing to Bitcoin's volatility and regulatory uncertainty. However, the fundamental thesis remains strong: in a world where central banks have destroyed 96% of a major currency's value over a century, an asset with mathematically enforced scarcity offers a compelling alternative. The Fed may be 109 years old, but the debate over sound money is far from over.