The Birth of a New Monetary Order

Signs that the world is changing.

January 02, 2023

Zoltan Pozsar is a Credit Suisse analyst who has written a lot about the shift from an American dominated global order to a multipolar world.

"If you would ask Credit Suisse contributor Zoltan Pozsar, the world is heading into a new monetary order – what he calls the Bretton Woods III. In a nutshell, we are bound to see the rise of commodities as a primary monetary influence that might see the fall of the dollar and the rise of currencies in the East."

“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 commodities,” said Pozsar in his dispatch on March 7."

PDFViewer - Credit Suisse Plus (credit-suisse.com) - This brief is a bit technical, but you should read it anyway. It's startling how fast the world might change given the events that are already underway.

Zoltan explains how the commentary of key global heads of state act as real time leading indicators for how a new monetary order is forming. A monetary regime that will rival the dollar denominated global system.

More importantly, it's not the G7 nations that we need watch for the leading signals of the emerging multipolar world. Instead, it's the policies of emerging BRICS and Gulf Country nations that will impact the shape of things to come. ie: Watch the growing economic relationship between China and Russia, between China and Saudia Arabia and the Gulf States, between India and Russia, between China and African nations, between Russia and Iran, and so on.

Some points to pay attention to:

China is making long term strategic partnerships with large oil producing nations. And they're also partnering with nations that have other strategic commodities (rare earths, metals, chemicals, etc). The goal being to secure supplies of key digital age resources and to price those resources in China's currency as opposed to the Dollar.

It's also a zero-sum nationalist game played on the global stage.

Resources like Oil are finite. So, any resources that are first allocated to the Chinese cannot go to the West without coming from China with increased costs. And if major flows of Oil shift toward China, then the costs of energy in the West will likely remain high.

From my perspective, Zoltan's brief puts a lot of the things covered in this newsletter into an important perspective.

The world is changing at the political level and financial markets led by Central Bank actions are clearly lagging behind these changes. The consequences of these changes will cause a prolonged and higher rate of inflation in the West. And if any of these themes continue to play out there will likely be a lot of economic pain for the West over the next five years.

  • inflation will be higher

  • the level of rates will be higher

  • demand for commodity reserves will be higher, which will naturally replace the demand for foreign currency reserves

  • demand for dollars will be lower as more trade will be done in other currencies; and

  • the negative cross-currency basis (the dollar premium) will naturally fade away and potentially become a positive cross-currency basis.

"Arising from the ashes of the current geopolitical conflict, commodities-driven monetary world order would replace the current one"

From an individual's perspective, this means that resources, goods, and services in the near future will likely be priced in terms of "outside money". ie: not the dollar. So, there is potential value in accumulating a diversified portfolio of assets priced in terms of "outside money" which includes neutral assets like gold and bitcoin.

You can bury your head in the sand and pretend like these trends aren't happening or you can watch these changes take place and begin to make plans in case they continue on their current trajectory. I strongly encourage you to read the brief because it provides concrete details showing how the world is entering a massive paradigm shift.

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