Bretton Woods III
Bretton Woods III? China Begins Buying Russian Coal And Oil In Yuan
ZeroHedge By Tyler Durden April 8, 2022
Credit Suisse strategist Zoltan Pozsar’s stunning note last week that said the consequences of the Ukraine war are ushering in “the birth of the Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the west.”
Fast forwarding to the punchline, Poszar wrote that if the framework he has laid out previously (and again, in his latest note) is the right framework to think about how to trade interest rates in coming years, inflation will be higher; the level of rates will be higher too; demand for commodity reserves will be higher, which will naturally replace demand for FX reserves (Treasuries and other G7 claims); Meanwhile, demand for dollars will be lower too as more trade will be done in other currencies; and as a result of this, the perennially negative cross-currency basis (the dollar premium) will naturally fade away and potentially become a positive cross-currency basis.
Translation: the dollar is on its way out as the world’s undisputed reserve currency, a consequences of events that put in motion when Putin invaded Ukraine (with the implicit blessing of China and India) and when the West decided to expel Russia from the entire western financial system.
Pozsar spoke with Bloomberg’s Joe Weisenthal and Tracy Alloway this week and recited his Bretton Woods III thesis, suggesting:
“Instead of a Volcker moment, we got a Putin moment and we basically have war and out of this war, something will also emerge.
“Out of this, I think this ‘Bretton Woods III’ that I started to kind of develop and run with, is a world where we are, again, going to go back to commodity-backed money — where gold, once again, is going to play a big role. And not just gold, but I think all forms of commodities,” Pozsar said.
Moscow is also considering a rupee-ruble payment system for Indian oil traders, while Saudi Arabia could start pricing some of its brent in yuan for Chinese traders.
“The oil market, and by extension the entire global commodities market, is the insurance policy of the status of the dollar as reserve currency,” said economist Gal Luft, co-director of the Washington-based Institute for the Analysis of Global Security who co-wrote a book about de-dollarization.
“If that block is taken out of the wall, the wall will begin to collapse.”
China ranks as the biggest foreign holder of US debt. If it continues to divest itself of dollars, who will pick up the slack? The Federal Reserve has been buying Treasuries hand over fist for the last two years, keeping its big fat thumb on the bond market. But it’s tapering purchases and supposedly planning on shrinking its balance sheet. If global demand for Treasuries drop precipitously — and it would in a world without the petrodollar — the US government would either have to drastically cut spending or the Fed would have to continue printing money to monetize the debt.
Even if this is nothing but talk, it underscores the fact that the dollar is on shaky ground.
A background to Bretton Woods I & II by Forbes / Dan Runkevicius / Mar 10, 2022
Pozsar argues Bretton Woods II crumbled when the G7 countries seized Russia’s foreign exchange reserves. Keeping money inside financial institutions like the IMF was considered risk free. That is clearly no longer the case.
Similarly, Bretton Woods I collapsed when Nixon took the US of the gold standard back in 1971 when dollars were convertible to gold at a fixed exchange rate of $35 an ounce. This led to Bretton Woods II, backed by “inside money” or the dollar, which itself is not linked to gold or any other commodity.
Amos 5:16 Therefore the LORD, the God of hosts, the LORD saith thus: “Wailing shall be in all streets, and they shall say in all the highways, ‘Alas! Alas!’ And they shall call the husbandman to mourning, and such as are skillful in lamentation to wailing.
17 And in all vineyards shall be wailing, for I will pass through thee,” saith the LORD.
18 Woe unto you that desire the day of the LORD! To what end is it for you? The day of the LORD is darkness, and not light:
19 as if a man fled from a lion, and a bear met him; or went into the house and leaned his hand on the wall, and a serpent bit him.
20 Shall not the day of the LORD be darkness, and not light? Even very dark, and no brightness in it? Amos 5:16-20
The Mystery of Ephraim 