The closing phrases of a current Credit score Suisse report reads: “After this conflict is over, ‘cash’ won’t ever be the identical once more…and Bitcoin (if it nonetheless exists then) will most likely profit from all this.”
If this was simply one other cringe submit on Twitter, we may have very nicely ignored it. However these are the phrases of at least Zoltan Pozsar.
Pozsar is a widely known funding strategist with the aforementioned Switzerland-based funding banking firm and was previously related to the Federal Reserve, the US Treasury Division, and the IMF. Certainly his phrases should rely for one thing?
In addition to, the report’s timing makes it all of the extra related—geopolitical tensions in Jap Europe, a commodity disaster brewing within the West, and governments racing in the direction of cryptocurrency rules.
The Prediction: Bretton Woods III
Within the report titled “Bretton Woods III”, Pozsar predicts the emergence of recent financial world order. In line with him, if such an order comes into existence, it’s going to do two issues:
- Weaken the present Eurodollar financial system, and
- Stroke larger inflation (already fairly excessive!) within the West.
Now let’s attempt to break that down with the assistance of some historical past.
Bretton Woods I
In July 1944, when World Battle II was in its closing levels, a bunch of 44 nations met at Bretton Woods, New Hampshire. They aimed to create a brand new worldwide financial system, transferring away from the prevailing gold customary.
The system that emerged got here to be often called the Bretton Woods System.
Earlier than Bretton Woods, folks used the basic gold customary. That could be a financial system wherein a rustic’s foreign money needed to be backed by the worth of bodily gold.
The Bretton Woods system in contrast established the dominance of the US greenback, instituting it as a outstanding reserve foreign money as a substitute of gold. Basically, it did this by pegging the greenback’s worth to that of gold, and that of all different currencies to the worth of the greenback.
The currencies have been nonetheless backed by some type of a bodily commodity, although (that’s why they’re often called “commodity-backed currencies”).
However not for lengthy.
President Nixon; goodbye gold backing
The Bretton Woods settlement collapsed in 1973 when US President Richard Nixon did away with the “backing of gold” fully.
Nations have been now free to hyperlink the worth of their foreign money to every other nation’s foreign money, or a basket of currencies, and the market forces decided its worth. Such a system that exists as we speak is called the Fiat System.
The present system offers central banks a free hand to print the cash wanted to spice up their economies as they don’t have to be backed by an equal worth of gold or different commodities. That is the place the issue lies. As a result of printing cash indiscriminately results in inflation—as witnessed within the US.
Pozsar calls this the Bretton Woods II, a financial customary backed by “inside cash” (that’s, primarily based on the central financial institution’s assurance).
Bretton Woods III: The Fall of the Eurodollar System?
The brand new financial world order predicted is called Bretton Woods III. Pozsar believes it’s prone to emerge quickly, ushering in an period backed by what he calls exterior cash. This “exterior cash” is actually backed by the standard commodities like gold. And the doubtless beneficiary? Bitcoin. (Extra on that within the final part.)
An excerpt from the report sums it up as follows:
A disaster is unfolding. A disaster of commodities. Commodities are collateral, and collateral is cash, and this disaster is in regards to the rising attract of out of doors cash over inside cash. Bretton Woods II was constructed on inside cash, and its foundations crumbled every week in the past when the G7 seized Russia’s F.X. reserves.
The ominous indicators of a possible recession within the US are getting clearer and fewer ignorable every day. A dicey state of affairs is rising—rates of interest are being elevated to manage inflation, however the dangers are accelerating a recession or permitting inflation to ravage hundreds of thousands’ atypical lives.
Zoltan Pozsar’s Credit score Suisse report is all about answering “what subsequent” on this context. To sum it up in his phrases:
Do you see what I see? Do you see inflation within the West written throughout this like I do?
This disaster shouldn’t be like something we have now seen since President Nixon took the US greenback off gold in 1971—the tip of the period of commodity-based cash.
When this disaster (and conflict) is over, the US greenback ought to be a lot weaker and, on the flip facet, the renminbi a lot stronger, backed by a basket of commodities. […]
…and Bitcoin (if it nonetheless exists then) will most likely profit from all this.
Do All Roads Result in Bitcoin?
It stays to be seen whether or not Zoltan Pozsar’s evaluation comes true. And if it does, to what extent it’s going to influence cryptocurrencies.
However we do know this a lot: Bitcoin is believed to be the “digital gold” by its backers. As a impartial foreign money with no single nation or entity controlling it, Bitcoin competes with conventional fiat for world funds. And the weakening of as we speak’s dominant foreign money, the US greenback, as predicted by Pozsar, may assist contribute to a surge in Bitcoin utilization.
And if Bitcoin does emerge as a key participant, its provide cap of 21 million will assist the biggest crypto by market cap overcome “inside cash” issues akin to inflation. So not less than that shall be one thing to stay up for.