🔔 About That New Global Monetary System...

Now, he might be right or he might be wrong. The beauty (and utility) of the note is how he's laid out his flow of thoughts.

It's all there. Just like the old school days when teachers would make you "show your working".

In that regard, he's a model student.

But that doesn't mean it's free from bias. Zoltan's view is bound to be shaped by his experience in financial architecture. Is it fair to assume he probably has a money-centric view of the world which could influence his conclusions?

WBW3WW: conclusion

Alongside dramatic world events ‘Bretton Woods 3’ has an appealing market narrative. Indeed, we agree with a lot of its core arguments, depressing as they are.

However, it is not new. It is old. And in not looking back enough, it fails to look forward sufficiently.

To argue that we are going to see shifts to Cold War and global Great Power struggles, and a world in which commodities, logistics, and the military all play key roles alongside finance and currency, and with a geopolitical need to run large trade surpluses, is to argue for an ancient economic philosophy: mercantilism.

Modern economists may have forgotten the true meaning of that term, but it reigned as long as commodity currencies did – and it implies a highly realpolitik global environment. To be fair, BW3 implies the same without naming it directly.

Yet is that backdrop negative for USD and positive for BW3? No.

A mercantilist realpolitik environment is one in which the requisite set of resources and diverse sources of power, after some policy shifts(!), still rest more with the US and its allies and their military, soft power, and financial power, than with a cluster of commodity-producing states (and one commodity importer).

That is especially true if that cluster want to create a parallel economic and financial structure from disparate net exporter polities, who do not trade horizontally together to any great degree, and while also still exporting to the rival West!

As such, BW3 will not work, and USD will retain its leading global role – albeit perhaps with more sticks and fewer carrots.

If we were to see fewer USD circulating internationally via trade, servicing Eurodollar debt will just get harder – and that will keep a structural bid behind USD.

By contrast, borrowing in CNY will still be unattractive for almost every economy given China’s persistent trade surpluses and capital controls.

As such, on BW3 all we will see at best, is a marginal increase in the ‘offsetting’ use of CNY ahead – and more rapid global decoupling, likely to its ultimate detriment.