Ukraine War Raises Questions About the 'End of Monetary Regime' and Role of Bitcoin
Bitcoin (BTC) “will probably benefit” from a new world monetary order where the US dollar no longer reigns supreme and China’s currency strengthens through the backing of Russian commodities, a report from the major investment bank Credit Suisse predicted, triggering intense debates in the crypto community.
“We are witnessing the birth of 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,” the newly published report said.
It further went into detail on the economic fallout of the war in Ukraine, which it said is turning into “a crisis” for the commodity market, given the Western sanctions aimed at “the single-largest commodity producer of the world, which sells virtually everything.”
As a consequence of this, the report – written by Credit Suisse investment strategist Zoltan Pozar – said Russian commodities are “collapsing in price,” while commodity prices outside of Russia “are rallying.” This situation is similar to how certain other markets in the US diverged during the 2008 financial crisis, Pozar argued.
“If we are right, and if this is a “crisis of commodities” – a 2008 of sorts thematically, if not in terms of size or severity – who will provide the backstop,” the report asked.
It went on to answer that the only entity with the ability to do this is the People’s Bank of China (PBoC), since China is among the few countries that can buy cheap Russian commodities and take advantage of the price difference between Russian and non-Russian commodities.
He further explained the current crisis is unlike anything the world has seen since President Richard Nixon took the US off the gold standard in 1971, adding that major changes are in store for the status of the dollar, as well as the Chinese currency – the renminbi (RMB).
“When this crisis (and war) is over, the U.S. dollar should be much weaker and, on the flipside, the renminbi much stronger, backed by a basket of [Russian] commodities,” the investment strategist wrote.
“Money” will never be the same again after this war, the report further said, before concluding:
“…and Bitcoin (if it still exists then) will probably benefit from all this.”
Not surprisingly, such an outlook on the future from a highly respected investment bank triggered a flurry of speculation among members of the crypto community.
Commenting on it, the popular bitcoin proponent and chief strategy officer at the Human Rights Foundation, Alex Gladstein, called it “pretty wild” and said it is “hard to believe it's real.”
However, some commenters also criticized parts of the analysis, saying it is overplaying the role that the Chinese RMB could play.
Michael Pettis, an American finance professor at China’s Peking University, argued that,
“For the RMB to be a major alternative to the dollar, not only must it remain stable during every crisis, but, more importantly, China must completely open its capital account, remove any interference on inflows and outflows, and liberalize its financial system.”
He added that not only is this not the case now, but China “hasn't even been moving in that direction.”
“The dollar will eventually lose its centrality, and US sanctions may certainly speed up that process, but without radical political transformation the RMB cannot become the alternative,” the widely followed professor wrote on Twitter.
Still, others continued to argue that the Chinese currency will ultimately benefit from the war in Ukraine and the related sanctions.
“Even if the war ended tomorrow, it would take years for these economies to recover; and the longer the war continues, the greater the damage, the larger the potential for vicious interactions and adverse cycles, and the deeper the consequences,” wrote Mohamed A. El-Erian, a well-known economist and President of Queen’s College, Cambridge University.
Notably, El-Erian said that although the West has “reasserted its dominance over the international system for now,” a “China-led effort to build an alternative system” will challenge this.
Meanwhile, discussing the implications of higher inflation in the West as a result of rallying commodity prices, combined with a potentially stagnating economy, Ari Paul, founder and chief investment officer at crypto investment firm BlackTower Capital, called fiat currencies “a ticking time bomb.”
With inflation expected to rise further, and the possibility of a weaker US dollar in the long-term, the market is likely to “reward active traders and asset selectors” going forward, Paul said. He went on to suggest the Eastern European stock markets as one contrarian bet that could pay off.
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