Credit Suisse – a Switzerland-based global investment bank – released a report yesterday predicting radical change to the global monetary system. Given western inflation dynamics and eastern geopolitical tensions, the firm expects a “new monetary world order” based on commodity-backed currencies to emerge – in which Bitcoin will likely benefit.
Breton Woods III
The analysis by investment strategist Zoltan Pozsar was titled “Bretton Woods III,” harkening back to the Bretton Woods agreement of 1944.
The agreement – established between 144 delegates of 44 countries – pegged the US dollar’s value to that of gold, and all other currencies to the value of the dollar. When the agreement collapsed in the early 1970s, the world moved on to a standard backed by “inside money” (treasuries) which Pozsar calls “Bretton Woods II”.
The so-called “Bretton Woods III” will supposedly usher in another era backed by “outside money” like gold bullions and other commodities.
The Commodities Crisis
“A crisis is unfolding. A crisis of commodities,” reads the analysis. “Commodities are collateral, and collateral is money, and this crisis is about the rising allure of outside money over inside money.”
Pozsar explains that non-Russian commodities are growing far more expensive due to Russia – the world’s largest commodity producer – having been sanctioned by the West in recent weeks. Furthermore, the commodities market is “far more leveraged” now than it was during the 1973 OPEC supply crisis. Thus, traders that are long on non-Russian commodities and shorting their related futures are likely receiving margin calls right now.
The reverse can be said for Russian commodities which, like Russia’s currency, are collapsing from lack of demand. Therefore, those that are short Russian commodities and long on their futures are also receiving margin calls.
The bank’s primary concern is that worldwide commodities are no longer trading at par – similar to how mortgages stopped trading at par leading up to the 2008 global financial crisis.
PBOC as the Backstop
The bank also argues that unlike 2008, western central banks cannot backstop the “commodities spread” since they are the ones imposing the sanctions in the first place. As such, the ones that will be incentivized to arbitrage the spread are Russian allies: namely, the People’s Bank of China (PBOC).
This will theoretically give the PBOC control over inflation in China while sparking a recession and commodities shortage in the US. As such, the renminbi will leave this crisis and war as a far stronger currency backed by commodities, while US dollar inflation leaves it far weaker, and less reliable as the world reserve currency.
At the moment, US dollar inflation is already trending at its highest in 40 years, with January’s CPI showing a 7.5% price increase year over year.
The letter concludes that “money” will never be the same again by the time the Russia- Ukrainian war ends. It also makes the curious claim that Bitcoin will probably benefit from the chaos if it still exists by that time.
Bitcoin has a supply cap of 21 million coins, can be transferred globally and is not controlled by any single party or nation-state. This has led some to believe that it will operate like “digital gold”, or other safe-haven assets in times of crisis as it matures.
Some have expected this paradigm shift for a long time, including Jack Dorsey, who claimed last year that Bitcoin will replace the dollar.
The bullish case is interesting coming from Credit Suisse, which has previously criticized Bitcoin for being “anonymous”.
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