According to Zoltan Pozsar, the war between Russia and Ukraine may lead to a “regime change in the financial markets”. At Credit Suisse, he is responsible for the global management of short-term interest rate strategy. In his report of Monday March 7, 2022 he writes:
We are witnessing the birth of Bretton Woods III, a new world (monetary) order based on commodity-based currencies in the East, which is likely to weaken the Eurodollar system and also contribute to inflationary forces in the West.
Zoltan Pozsar, March 07, 2022
He concludes that “money” will not be the same at the end of the war, and Bitcoin, if it still exists, should benefit from this change.
Credit Suisse on “regime change in financial markets”
For international trade, currencies must be interchangeable in some way. For this, it is necessary to decide how much the respective national currencies are really worth. After World War II, the eponymous Bretton Woods, New Hampshire, USA decided to use fixed exchange rates. The United States promised to exchange the currency for gold at any time. Therefore, gold was chosen as “the anchor” for the world market. After this “gold standard” collapsed in 1971, “Bretton Woods II” was developed. In this system, what we have seen so far is that currencies are protected with so-called “internal money”: liabilities denominated in currencies of other nations on banks’ balance sheets. The fact is that this domestic money mainly represents US dollars outside the US. This makes the US currency the guide money and the main reserve currency for the world market. But this has now gotten a crack.
In Zotar’s eyes, this system has now come to an end with the confiscation of Russian currency by the G7. Because Russia, as a “surplus actor”, has accumulated a large amount of national reserves through the sale of its raw materials during the last decades. Due to the freeze, these are no longer accessible to the Russian state. As a result, the country no longer has the option to use this lever to save its own currency and support its own economy. That was the idea of the G7 countries to force Russia to give in to the war in Ukraine. But that also has its price for the West. Then:
If you think the West can create sanctions that maximize pain for Russia and minimize risks to price and financial stability in the West, you might as well believe in unicorns.
Zoltan Pozsar, March 7, 2022
What happens now?
What you can see now after Zoltan Pozsar is that there is a big difference between Russian and non-Russian commodity prices. Because now two dynamics are becoming apparent: on the one hand, buyer nations and private companies are on strike, which means that Russian raw materials can no longer be exported, which is causing Russian prices to fall. On the other hand, the same nations have to buy oil, wheat, and co. from others at higher prices, leading to higher prices in the rest of the world market. On the one hand, this has the consequence that the inflationary dynamics in the West (ie also in Germany) intensify. On the other hand, Russian players have to try to sell their products to partners who are still cooperating to make money for their own economy.
According to Poszar, the only player that can do just that and is benefiting from it is the People’s Bank of China. The Chinese central bank can take advantage of this differential “because it is betting on a state that will dance to its own rhythm.” By buying cheap Russian commodities against US dollars, the Chinese currency will be able to rely more on the commodity than on the competitor’s currency. Regarding Poszar:
When this crisis (and war) is over, the US dollar should be much weaker and the renminbi much stronger, backed by a basket of commodities… [und] when this war is over, ‘money’ will never be the same… and bitcoin (if it still exists) is likely to benefit from all of this.
Zoltan Pozsar, March 7, 2022
In Pozar’s eyes, this ends the era of “inside money” and the beginning of a financial world focused on “outside money.” For central banks, this means in the future not (only) hedging their balance sheets with the US dollar as reserves, but equally with independent liabilities of the nation (ie raw materials). This weakens the hegemonic position of the United States with the US dollar and strengthens the Chinese position. American politicians have already recognized these circumstances.
The role of Bitcoin in this scenario
When Zoltan Pozsar was asked by BTC-ECHO why he concluded that Bitcoin will gain influence as a result of these developments, the strategist has yet to comment. However, one property in particular stands out, which could make the oldest cryptocurrency attractive for the “Age of Foreign Money”. Because Bitcoin is as independent of the nation as gold. As currently shown, there is no state that can determine the use and price of Bitcoin. Freezing accounts or blocking transactions is unthinkable due to decentralization, at least on-chain. Therefore, it could be equally attractive for states to list Bitcoin on their own balance sheets as a hedge of their own currency and economy.
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