The Birth of Bretton Woods V3

Contents

1 A financial analysis by Credit Suisse warns that a new world economic order has begun, and bitcoin could play a significant role.

A financial analysis by Credit Suisse warns that a new world economic order has begun, and bitcoin could play a significant role.

In Short

Credit Suisse analyst believes a world economic order is falling with Russia’s war.
He estimates that if Bitcoin survives the crisis, it could benefit from the new world order.

The Birth of Bretton Woods V3. Bitcoin On Board. Analyst Zoltan Pozsar of the renowned Swiss financial Credit Suisse published a paper on March 7, anticipating that the war launched by Russia against Ukraine will bring down the monetary system as we know it. In this context, he noted that bitcoin (BTC), the cryptocurrency with the largest market capitalization, could play an essential role in this new money era.

“After this war is over, “money” will never be the same again, and Bitcoin (if it still exists by then) will probably benefit from all this,” the financial analyst stated. He said this after mentioning that he believes the U.S. dollar will be much weaker than it already is.

Pozsar argues that the war and the economic crisis could strengthen Bitcoin if it manages to survive everything happening. Something that would not be strange for cryptocurrency, considering that it emerged after the 2008 financial crisis and got even stronger during the 2020 crisis caused by the pandemic.

In addition, the analyst believes that the renminbi, China’s currency with the yuan as its unit, could be strengthened in this context because they get backed by commodities, which would be positive for Russia, given that it has its reserves in the Asian country.

National currencies are in danger when war happens

In an appearance a week ago on the Bloomberg podcast, Zoltan Pozsar said, “Wars tend to become momentous junctures for global currencies.” And with Russia losing access to its foreign exchange reserves, a message has been sent to all countries not to count on that money.

As a result, he believes that global reserve managers will lose interest in holding dollars for safety since they could pull them out when they need them most. He argued that this would encourage central banks to diversify away from the dollar and anchor their currencies in assets less susceptible to the U.S. or European governments.

This way, the situation would create a new world monetary order, where countries would be less interconnected through international bank accounts and reserves. These are not regular times, warned Zoltan Pozsar, so he recommends thinking non-linearly to recognize and survive the changes in the system. The dollar and the euro could weaken with the war and the financial crisis, but bitcoin would benefit, warns the Credit Suisse analyst.

Welcome to Bretton Woods V3, the new world economic model

Against this global economic backdrop, Pozsar warns:

“We are witnessing the birth of Bretton Woods III, a new world (monetary) order centered on commodity-based currencies that will likely weaken the eurodollar system and also contribute to inflationary forces in the West.”

“Bretton Woods” is a term by which the agreements were signed in 1944 between different countries to establish a new post-war world economic model. They set trade and financial rules among the most industrialized countries. Something similar happened in 2008 at the Washington Summit during political and economic instability after the global financial crisis, with banking and stock market collapses that gave birth to Bitcoin.

The financier argues that we have moved from the Bretton Woods era, backed by gold bullion, to Bretton Woods II, backed by fiat money (Treasury Bonds with uncovered risks of confiscation). And now he sees the world moving to Bretton Woods III, a stage backed by outside money (gold bullion, other commodities, and perhaps bitcoin).

“This crisis is unlike anything we’ve seen since President Nixon removed the U.S. dollar from gold in 1971, the end of the era of commodity-based money,” he notes. Individuals see commodities as safe-haven assets. People put Bitcoin into this category due to its limited supply, so it makes sense that the cryptocurrency would also benefit from this new way of value.

The commodities crisis affects fiat money and benefits bitcoin

The financier’s paper warns that a commodity crisis involves money and the monetary system. It argues that the price level of commodities will condition the entire market. For example, gold and oil have risen in value, so commodities have come into investors’ sights as safe-haven assets against inflation and market swings.

“Commodities are collateral, and collateral is money, and this crisis has to do with the growing attractiveness of outside money over inside money. Leaders built Bretton Woods II upon fiat money, and its foundations collapsed a week ago when the G7 seized Russia’s foreign exchange reserves,” Zoltan Pozsar

He means that, as authorities confiscate money in bank accounts and domestic money is useless with international sanctions, investing in commodities held in other countries is a safer bet for safeguarding value. One could also turn to private and anti-censorship money, such as Bitcoin and cryptocurrencies.