Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

The last major hydrocarbon energy shock was because Arab suppliers hit the West. The Gulf states ( note: including Iran, Iraq, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates and Oman ) “practiced their values” in the Israeli political situation at the time. And this time, the West has decided to “live their values” by eliminating the world’s largest energy producer. Don’t let your beliefs about the justice of the military action between Russia and Ukraine overshadow the fact that Western energy consumers have decided to strike this time around.

I am 100% sure that the losses faced by commodity producers and traders involved in all aspects of the globalized financial system will lead to a financial crisis on a grand scale. You cannot remove the world’s largest energy producer — and the collateral these commodity resources represent — from the financial system without serious, unintended consequences.

Just look at the London Metal Exchange (LME) antics with nickel contracts. Jim Bianco articulates this well in this tweet. The LME is a dying exchange, the canary in the commodity derivatives coal mine.

During this new global financial crisis, if you’re serious about the future of currencies across the world’s factions, then reading the letter from Zoltan Pozsar, money markets and rates strategist at Credit Suisse Group , he has an excellent understanding of the intricate plumbing system of the global currency market and expounds it in a clear and concise writing style. I don’t know if he coined the terms “internal currency” and “external currency”.

The so-called “internal currency” refers to a monetary instrument that exists as a liability on the balance sheet of another participant. A government bond is a liability of a sovereign state, but it is an asset in the banking system that is traded like cash, depending on the credit quality of the issuer.

And “external currency” refers to instruments that are not liabilities on the balance sheets of other participants. Gold and Bitcoin are perfect examples.

The current petrodollar/Eurodollar monetary system came to an end last week as the US and EU seized the Russian central bank’s fiat reserves and removed certain Russian banks from the SWIFT network. In the next generation, when this tragic event in human history is expected to come to an end, historians will point to February 26, 2022, as the date when the system ended and a new, currently unknown system sprouted .

Obviously, I’m making predictions about the future, which is the subject of this article. Your moral views on what is right or wrong about the actions of different flags (nations) during this war should not distract you from the enormous impact on your personal finances.

As always, my task is to synthesize the views of a broad range of macroeconomic thinkers who are better informed than I am, and then incorporate their ideas into my own language and relate those ideas to the crypto capital markets. No matter how quickly this war subsides, the warring currency rules will not return to the post-1971 oil/Eurodollar system. A new neutral reserve asset (gold I believe) will be used to facilitate global trade in energy and food. From a philosophical point of view, central banks and sovereign nations appreciate the value of gold, but not Bitcoin. For about 10,000 years of human civilization, gold has always been regarded as a monetary tool. And it’s been less than 20 years since Bitcoin was born, but don’t worry, as gold succeeds, so will Bitcoin . I will explain why.

First, let’s think about the foresight that Zoltan mentioned in his March 7, 2022 note titled Bretton Woods III:

“From the gold-backed Bretton Woods era, to the internal currency-backed Bretton Woods II (national debt with non-hedgeable forfeiture risk) era, to the external currency-backed Bretton Woods III (gold and other commodities) era .

After the war, “money” will no longer be what it used to be…

…and Bitcoin, if it still exists, may benefit from all of this.

all about balance

The global economy is not a magic bean that only produces an abundance of delicious consumer goods, it is a balanced system in which some countries produce more than they consume, while others consume more than they produce. Both parties must be in balance, just like the parts of life and the universe. Everything is relative, nothing is created or destroyed, just changed.

Each country usually has its own national currency, which we call legal tender. Countries import and export different types of products and services in the global market, based on natural endowments of geographic location and other cultural factors. If each country transacts in its own currency, it creates additional friction and costs. Instead, there will be a country whose fiat currency will become the reserve currency, and most trade will take place in this currency.

Owning the world’s reserve currency is a huge privilege and comes with devastating costs. It is a fact that the US dollar is the most used currency in global trade. It is also true that most hydrocarbons are denominated in dollars. As a result, the rest of the world uses the U.S. dollar to price everything traded in global markets.

The post-1971 dollar was not backed by gold, but by US Treasuries. Until recently, energy producers earned more in dollar terms than they spent on world markets. So they save dollars. Before China took the crown, the U.S. consumed the most energy of any country. So it makes sense that the largest consumers (and the largest economies) pay for energy imports in their own fiat currencies. There are other non-monetary incentives, such as access to advanced weapons that peg oil producers to the dollar.

But where does the demand for US Treasuries come from? If you have a bunch of dollars, and what I mean by “bunch” is exponential billions, trillions of dollars, there are very few markets that have enough liquidity to process your trades. As Beyonce puts it: “I don’t think you’re ready to eat this jelly yet.”.

What’s more, most countries are reluctant to bear the cost of being a reserve currency issuer.

The U.S. Treasury market is the largest and deepest market in the world. Hence the inflow of excess global dollar savings. If you want to be a global reserve currency, you have to allow foreigners to invest whatever they want in your capital markets. In economics terms, your capital account must be open.

In some cases, this can be very useful for governments. The U.S. basically prints as many dollars as it can at zero cost because it correctly assumes that a large number of foreign savers will have to buy the debt. While it’s nice to get something for nothing, the price is that your economy becomes financialized.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

America became the factory of the world after World War II, and then it became a financial services nation rather than a factory nation. The chart above shows that U.S. manufacturing is slowly declining to the point of irrelevance. The share of U.S. manufacturing in nominal GDP has more than halved since the U.S. left the gold standard in 1971.

On a macro level, the US exports finances to the world, not commodities. If your secret lies in open, deep and liquid capital markets, then you will put the interests of the financial services industry ahead of manufacturing. Ask any former employee of a rust belt manufacturer whose factory was offshored to China because of Ricardian Equivalence. Here’s a euphemism: “In China, their jobs are cheaper. So to boost corporate profits, we’ve moved your jobs overseas.”

America is full of business schools for a reason. The business of America is corporate financial optimization at the expense of making the real thing. This favors an elite group at the expense of the majority. But it has to happen so that the U.S. can continue to function as the host country of the global reserve currency.

The above is a brief explanation of why U.S. capital markets are accumulating trillions of sovereign savings in dollars. Readers should also ask, why don’t countries that produce goods and earn dollars invest those dollars back into their own country?

Interestingly, the biggest “savers” are saving at the expense of the domestic working class. There are a variety of ways in which countries have lowered overall wage levels. There is no free lunch. These “savings” are essentially the difference between the wage levels of a deficit country like the US and a surplus country like China. If China wants to, it can convert trillions of dollars into yuan. This will push up the price of the yuan, hurting exporters. But this will make consumer goods (imports) cheaper for workers.

This is mercantilism 101. China is not the first country to pursue this strategy, like Germany, Japan, South Korea, etc. are doing the same thing, only on a much smaller scale. Speaking of my favorite volatility hedge fund manager, a big part of his business model is a flip side strategy of trading fixed income derivatives from pension funds in exporting nations. These countries refuse to let wages rise at or above productivity growth, so they must reinvest more and more money (usually dollars) in bonds with lower and lower yields. So when they’re in pursuit of yield, they sell the volatility at a fraction of the price to an investment bank for income, which loops the volatility back into some volatility hedge funds to meet their internal risk limits.

As you can see, very simply, the large imbalances left to global capital markets for financing or investment, often at the expense of domestic middle-income workers. Put aside the “moral” connotations of saving and spending. Unusually large deficits or surpluses always come at the expense of a certain segment of society.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

The above data are from the World Bank.

As you can see, the top 10 countries have to invest about $1 trillion in savings each year.

On the other side are countries that buy goods and manufactured goods from these big exporters.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

As you can see, the ten largest countries have to fund purchases worth about $900 billion a year. The United States is by far the largest deficit country because it is both the world’s largest economy and the issuer of the world’s reserve currency. If the U.S. had to finance its deficits like other countries, the 10-year U.S. Treasury note would certainly not yield a mere 2%.

Remember these tables, we’ll discuss them later.

Analog and Digital Networks

Currency can be divided into two parts. One is the unit of account, and the other is the network through which its tokens flow. And the network is more important than the unit of account, let me explain.

Before the advent of computers and the Internet, all forms of money used physical networks. That is, if I want to “send” you something, such as an ounce of gold, a seashell, etc., I can walk over and hand it to you. But if you live far away, I can ride horses, sail by boat, drive, etc. But movement is physical.

Most importantly, I can always walk when all else fails. So as long as I have enough calories to put one foot in front of the other, I can move some currency tokens around the network at any time.

This physical simulation network is censorship-resistant, anonymous, but very slow and limited in a globalized economy. Mainframe computers, and more recently the Internet, have enabled society to digitize the web. We created digital forms of the most common units of account, paper money, and gold, and began to electronically “send” value through centralized permissioned digital networks, such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

The SWIFT network is a communication layer that allows messages regarding fiat currency credits and debits to be sent between financial intermediaries. SWIFT is jointly owned by many countries but effectively controlled by the US and EU.

Currency is no longer a “thing” that we hold and observe, it becomes electronic data.

This is still how most money flows between network participants. These digital networks are run by government-regulated commercial banks. You may think you have a net worth of $100, but if a bank or government decides to ban you from accessing digital networks for some reason, your net worth will become $0.

Fiat currencies at the sovereign level are also purely digital currencies. No one is going to send out a pallet of physical bills to pay for their import. Physical gold still runs on the carriage network. This is why the government spends its energy storing gold “savings” locally. If governments trust each other very much, smaller countries will store their gold savings in large financial centers. This gets a little tricky when the state asks for the gold to be returned.

All underlying fiat currency derivatives, such as government bonds and corporate stocks, also rely on centralized, permissioned digital networks. These are regulated domestic exchanges that trade such assets. If you hold these assets, you are just renting them from the network, and the network can decide to unilaterally remove you at any time.

If you are a country that “saves” in a global reserve currency and any related assets, you don’t actually own your savings . You can have things at the mercy of the country that operates the network. You believe that the governing flag will not confiscate your “savings”, and therefore you believe that your net worth as a nation is greater than zero in nominal value of the global reserve currency.

As long as savers trust that the ruling flag will respect the property rights of foreigners, there will be no friction in global trade. However, if the ruling state decides to block any participant from accessing the network, it begs the question: should you “keep” your assets on this centralized, permissioned digital currency network ?

Remember this, you own nothing, you just “rent” your net worth as an individual or sovereign from entities operating a centralized, permissioned fiat digital currency network.

twelve trillion dollars

As you can see, this article focuses on sovereign, nation-state finances…there are far fewer entities to analyze, given their outsized impact on various asset prices. Their decisions are more predictable.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

Thanks to Luke Gromen of FFTT for this chart.

Excluding gold, about $12 trillion worth of “savings” are held by the state in a small number of fiat currencies, with the U.S. dollar accounting for the vast majority of it.

As I explained in the previous section, these “assets” reside on multiple centralized, permissioned digital networks. If you’re depositing dollars, the US controls the network. If you save in euros, the EU controls the network. If you deposit RMB, then China controls the network. understand?

Most sovereign savings are denominated in the currencies of the United States, the European Union or their allies. I refer to them collectively as “Western”. For lack of better terms, others are often referred to as part of the “Global South” (read Noam Chomsky’s article to better understand the linguistics behind these terms, and how they affect our behavior). The largest country in the global South is China, which is increasingly using its own fiat currency, the renminbi, for trade due to its importance in the global economy, although it remains poor on a per capita basis.

Since every country trades with China, many central banks hold some of the renminbi as a reserve currency. As such, the renminbi is effectively the only legal tender in developing countries that is held in large numbers by other central banks.

On February 26, 2022, the West decided to confiscate the currency reserves of a sovereign country, and the Central Bank of Russia lost $630 billion in foreign exchange reserves. In addition, several large, systemically important Russian commercial banks were kicked out of the SWIFT network. Then, many private businesses voluntarily decided to stop trading with Russia or Russian businesses of any identity. JP Morgan and Goldman Sachs, for example, are recent examples of U.S. banks shielding Russia.

Russia is the country with the largest land area and exports the largest amount of primary energy globally (mainly in the form of hydrocarbons – oil and gas, and Russia is also one of the largest producers of food). The West (including the richest countries in the world) consumes energy and food and buys these resources with its own fiat currency. Due to the digital nature of fiat currency payments, it has never been possible to avoid such a country before.

Currency is an energy storage medium, and the most commonly used monetary instruments today lack the world’s largest energy producer as a user. Why should other central banks “save” in any Western fiat currency when operators of digital fiat currency networks can arbitrarily and unilaterally seize their savings?

The dissonance is so obvious that even the financial news puppets of the Western establishment fully understand what’s going on, and they predict, like me, that rational nations with capital account surpluses must now save in another currency .

1. If Russia’s currency reserves aren’t real money, the world will take a hit (Wall Street Journal)

2. Russia’s money is gone (Bloomberg)

3. Can foreign exchange reserves be certified by sanctions? (Economist)

The next step is to estimate the size of the flow and what mechanisms the central bank must use to move reserves out of fiat currencies where their governments do not operate value transfer networks.

position size

As many readers know, I started my career as a stock trader in emerging markets. One lesson you’ll soon learn is that there’s always a big entry door and a small door. Therefore, you must position yourself when considering an exit. While there is great liquidity when entering a trade, and you might be fooled into thinking you can scale up, when it comes time to get out, the exit can be small. Unfortunately, in this case, what was a lucrative trade on paper turned into a total disaster, as there was no way to exit a position without incurring significant losses.

To illustrate the dilemma facing sovereigns with large reserves, let’s examine China and its international currency flows in more detail.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

China is the world’s low-cost factory. China’s exports have grown rapidly since the United States allowed China to join the World Trade Organization in 2001. Despite China’s huge appetite for industrial commodities and energy, it still has a net accumulation of foreign exchange reserves internationally. As required, China must reinvest these fiat currency savings in assets such as U.S. Treasuries. China is one of the largest holders of U.S. government debt. This $3-4 trillion in savings could now be seized by the West at any time.

While Beijing is certainly aware of the risks of accumulating Western currency reserves, it also has to assume that it is not in the interests of the Western world to damage its assets and claims. But who would have thought that the current situation with Russia would unfold in the current way? Now, China has noticed that their “savings” are not safe.

Don’t make the problem worse. When you as a trader inherit a poor position and you can’t improve it immediately, just don’t get stuck deeper. In the context of China and other surplus countries, this means not letting your fiat currency position grow with the income you earn internationally.

Instead, one thing China will do is accept fiat currency as its commodity and immediately exchange it for a harder asset. Given that gold is humanity’s hard currency of choice, China and other similar countries will begin to offer sizable offers in the physical gold market. China will buy gold in the spot market and deliver it in the paper gold derivatives market in exchange for Western fiat currencies.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

Source: FRED

Since the beginning of 2009, when the global financial crisis ended in 2008, the holders of the enormous debt issued by the US Treasury Department have changed as follows.

1. Domestic entity holdings decreased by 10%

2. Foreign entity holdings decreased by 23%

3. Fed holdings increased by more than 207%

For Americans and foreigners alike, the Fed is clearly the marginal buyer of debt that no one wants to see. If foreigners feel insecure about their accumulated savings holding U.S. Treasuries, the Fed chair will let Miss Daisy go further.

Let’s forget the $12 trillion existing “savings” stock. On an annualized basis, the global net surplus is $967 billion (I will provide the calculations in the next section). Transactions in Western fiat currencies will be instantly exchanged for gold, or may be exchanged for storable food products (such as wheat and other grains) or storable industrial commodities (such as oil, copper, nickel, etc.).

Essentially, the fiat currency of the largest surplus country will implicitly increase its reserves of gold or commodities. Over time, a country like China will have the “hardest” fiat currency due to the asset composition of its reserves. As gold and commodities flow from the West to the East, the currencies of the world’s deficit countries, especially the West, will be weakest.

Gold prices will be several times higher than they are today. Trade happens on the fringes, and in the face of indiscriminate buyers (all countries earning fiat currency internationally), gold will inevitably move higher. It’s a mid to long term game (over the next decade), and in the short term, it will appreciate slowly.

Rapidly higher gold prices are not in anyone’s interest. If you’re a sovereign nation that runs a current account deficit and wants to continue financing itself at low interest rates, high gold prices prevent investors from putting money into your negative real-yielding government bonds. If you are a sovereign country with an account surplus, you want to buy gold at the cheapest price because you want to sell your fiat at a better price.

Regarding the stock of existing Western fiat currency reserves, I do not know whether any large “owners” of these reserves would be able to substantially exit their positions without disrupting Western global debt and financial markets. Instead, I’d take a more modest approach, let my debt mature like any other, and invest the principal in gold or storable commodities.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

As I explained, surplus countries now have safety issues with their international fiat currency savings.

The table below is from the International Monetary Fund, which details the breakdown of reserves in fiat currencies.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

Using these weights as proxies, let’s assume that countries that have a surplus each year also gain in these currency weights. This enables us to remove any net goods or services paid for in domestic fiat currency that we have full control over. Do the math, and have to find a place to save the $967 billion in decline each year.

As I said in this article, countries that want to stop accumulating forfeitable fiat currency will buy gold or storable commodities.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

The table above estimates the impact of surplus countries stopping saving in fiat currencies that they do not control. Does this mean that if 100% of the annual surplus is stored in gold, the price of gold will only increase by 4x? Absolutely not, there are many other players around the world consuming gold mined from the ground. We just added another indiscriminate buyer to the physical market.

Note that this is an annual inflow analysis. The global economy did not stop on January 1, 2023, but will continue to grow rapidly. And the price of gold will continue to rise.

It also assumes that large gold producing countries will allow the gold they mine to be exported so that other countries can reduce their exposure to fiat savings. In a new era with globalized supply chains docked, countries will restrict the export of key commodities in order to achieve self-sufficiency at home first, so in a global free market environment, all gold produced is considered a fair game for all countries, This is a stupid idea.

Countries that have cleverly stopped accumulating foreign fiat reserves will compete to buy gold from mines by delivering on paper gold futures markets. This competition will push the final marginal price above $10,000, and we will see an amazing price for gold. Keep an eye out for more dysfunction in the gold futures market as entities actually start making physical deliveries. We may finally find out if the gold that was traded actually existed. The London Metal Exchange (LME) is just the preamble, and the financial system will be filled with zombies of commodity exchanges that fail to deliver on their promises to participants .

Gold prices above $10,000 will psychologically impact global asset markets. With global asset allocators now looking primarily at inflation and real yields, any hard money asset considered to protect portfolios from this plague will be astronomical. This is the psychological shift that breaks Bitcoin’s correlation with traditional risk assets such as U.S. stocks and nominal interest rates.

Arthur Hayes: The End of the Old Monetary System Gold and the New Life of Bitcoin

Above is a graph of the 10-day correlation between Bitcoin and the Nasdaq 100 (+1 for perfectly correlated assets and -1 for perfectly negatively correlated assets). As you can see, Bitcoin is currently closely correlated with large tech risk assets. If we believe that nominal interest rates will go higher and lead to a bear market in the stock market and recession, then Bitcoin will follow the big tech companies into the toilet. The only way to break this correlation is to shift the narrative of Bitcoin’s value. In the face of rising nominal interest rates and global stagflation, a bull run in gold will break this relationship.

Bitcoin’s price will rise to $1 million as the price of gold crosses $10,000. A bear market for fiat currencies will trigger the largest transfer of wealth the world has ever seen.

Reduced demand

The West has put itself in a bind.

Energy costs have become higher, food costs have become higher, and increased military spending will further crowd out the national economy. Citizens will protest the high and rising cost of living to elected representatives. Politicians will use their simple buttons to impose energy subsidies for consumers, and at worst, price controls. The sum of these popular quick fixes to inflation will increase government spending. Someone has to lend to the government at an interest rate the government can afford…

Previously, when surplus countries believed in the sanctity of their reserves, the United States could count on foreigners to finance those deficits by buying debt. The U.S. both issues a reserve currency and has the largest current account deficit, so it is the only sign that matters in this analysis.

But now surplus countries will store gold and storable commodities. Even countries that consider themselves Western allies are not immune to confiscation if they do not directly control the fiat currency transfer network in which they accumulate reserves.

With foreign buyers on strike, the government must allow interest rates to rise to levels that will attract domestic demand for bonds. But higher interest rates crowd out private business funds. This leads to a recession as all available capital goes to high-yielding government risk-free bonds.

This is not a good thing.

As such, central banks will again be required to explicitly or implicitly finance the government through bond purchases funded by the “printer”. Government interest payments are contained on a nominal basis, private companies do not face higher nominal borrowing costs, and economic activity as measured by GDP can continue to grow on a nominal basis.

The top priority for politicians is to win re-election. People will vote with their wallets. Interest rates on government debt will rise to cover the increased spending, but this will lead to a recession. If that happens, most politicians won’t be able to keep their seats. This is especially true because their adversaries will tell people that they have a solution (i.e. increase government spending, but pay for it through central bank printing). Currently this is called “Modern Monetary Theory”, although it used to be called money printing. Same sauce, different packaging.

As I explained in my last article, Annihilation, even if central banks raise interest rates slightly on a nominal basis, real interest rates are still negative. They will remain that way for a long time, as Western economies are structurally set up to point directly to a prolonged period of high inflation.

America’s $616 billion annual current account deficit will become increasingly expensive. In 2021, the U.S. government will spend 168% more than tax revenue. In 2021, the U.S. will have to sell about $2.8 trillion worth of bonds to cover that year’s deficit. Don’t forget that debt due each year must be rolled over or repaid in full, which also adds to the total annual issuance by the U.S. Treasury.

If we assume that foreign countries refuse to increase their exposure to U.S. dollar fiat currencies, and domestic entities do not increase or decrease their purchases, who will fill the void?

You all know the answer to this question.

Now is the time for the Fed to cross monetary boundaries again and indirectly finance its domestic government. Once crossed, the road is sure to lead to destruction and hyperinflation. As any classically trained economist knows, this is a big no-no. But neither the Fed nor any central bank dictates, always bowing to the wishes of the powerful politicians at home.

But shouldn’t the Fed stop buying government bonds? Yes, that was the plan until the biggest energy producer was sanctioned. Unless the U.S. government wants to significantly increase interest payments, the Fed must buy bond balances that cannot attract buyers.

There are all sorts of entities that might secretly increase their balance sheet to buy U.S. bonds with negative real yields, so on paper the Fed is not going to increase its balance sheet. I’m not a currency market expert, but I do hope strategists like Zoltan can expose these machinations. The math suggests that interest rates remain negative so that the U.S. government can deleverage its balance sheet. As I write in this article, to cover the costs of World War II, the Federal Reserve merged with the Treasury and created severely negative real interest rates for nearly a decade.

Whether or not the U.S. is involved in the conflict, the U.S. government can use the fire as an argument for why such financial and fiscal coordination is needed. Bills must be paid, and citizens always pay explicitly (through higher taxes) or implicitly (through financial repression). I hope these big numbers clearly illustrate the problem and the solution.

Again, as I said in my last article, Annihilation, everything going on right now is about the drama of raising nominal interest rates. Don’t get distracted, it’s all about real interest rates. Mathematically speaking, they must remain deeply negative for many years.

Gold vs Bitcoin

Gold: “If you don’t own it, then you don’t own it.”

Bitcoin: “If you don’t hold the private key, the coin doesn’t belong to you.”

For external currency to truly exist externally, it has to be in your hands. Even a legal guarantee that you will receive your assets upon request is not enough if you can’t physically walk into a vault or insert a USB stick to access your savings at any time. There should be no agency, person or process preventing you from using your funds immediately. Any other arrangement will make your external currency into internal currency. As I hope you understand after reading this article, the value of the internal currency has dropped dramatically over the past few weeks.

Now back to the general part.

The reason central banks are buying gold, not bitcoin, is purely because of historical precedent. I’m not a maximalist, both gold and bitcoin are hard currencies, one is an analog currency (gold) and the other is a digital currency (bitcoin). If a central bank starts saving gold exclusively, and global trade imbalances are also settled in gold, I fully believe that over time some central banks may get tired of shipping gold around the world to pay for it. They would rather conduct a small but growing number of transactions in digital currency, which naturally is Bitcoin.

As I will point out in a subsequent article, southern countries that lack the ability and access to efficiently trade and store gold will be attracted to Bitcoin. El Salvador has opened the door to this possibility, and many are watching how their Bitcoin reserves can help or hurt their economies.

Gold is great, but on a personal level, storing it can be a big problem. Gold becomes very troublesome if you only accept holding physical gold to ensure you actually own it. Most readers do not have a storeroom in Freeport to store their gold. Instead, what you want is a more portable medium for storing hard wealth.

Whether you want to store 1 satoshi or 1000 BTC, all you need is a string containing the public and private keys. This is basically weightless and you can access it anywhere you have internet. This is Bitcoin and Gold from a storage and transfer perspective.

Again, I fully believe that on a personal level, if you think you should spend fiat and store gold, the mental leap to spend fiat and store bitcoin is trivial.

For one bitcoin, my prediction is millions of dollars.

For an ounce of gold, my forecast is thousands of dollars.

This is the range of fiat-denominated prices that will emerge over the next few years as global trade is settled through neutral hard currency instruments rather than Western debt-backed fiat currencies.

One counter-argument is why China cannot step forward and try to use the yuan as a global reserve currency. Many analysts do not understand that China simply wants to trade in renminbi with trading partners mainly located in Eurasia. China does not want to open its capital account and grant strong property rights to foreigners. Therefore, Beijing does not want to replace the United States as the issuer of the reserve currency. If trading partners are unwilling to settle trade in yuan, they will use gold. The Shanghai Gold Futures Exchange is one of the most liquid exchanges in the world. China has established a perfect gold trading and saving mechanism in both theory and practice.

In the medium term, it’s time to support the John Deere digger and collect as much gold and bitcoin as possible. That’s it, this is the beginning of the change in the monetary system. Nothing lasts forever, the days of oil/Eurodollar supremacy are over. The phase shift will be chaotic, it will be unstable, it will deform, but it will be 100% huge inflation in the form of fiat money.

No government has ever resisted the temptation to print money to pay its bills and appease its citizens. Governments will never go bankrupt voluntarily. This goes without saying. I want you to counter me with evidence.

So if your time horizon is years, now is the time. If you anger the bull, you will be turned over by the horns. Remember: it’s not the price of gold or bitcoin that is going up, it’s the value of the fiat currencies that price them going down.

If you want to be a savvy trader, then I still believe that the direct hit to the global economy from this war will lead to a Correlation 1 moment where all assets will be sold and we will determine who will bear Losses from commodity derivatives exchanges. Spoiler alert, it’s always ordinary citizens who suffer, because printing money to nominally ensure repayments is always the solution, and that leads to inflation.

However, before the losses were identified, and before the central bank once again believed in aggressive money printing, financial asset prices were already affected. Be prepared for extreme conditions as the rules of the global financial system are re-written. If you are not willing to look after your bitcoins, then close your eyes, press the buy button, and focus on the safety of your family, both physically and financially. A few years after the fog of war has dissipated, when people wake up, there will be a situation where the instruments of hard currency rule all areas of global trade.

You cannot remove the largest energy producer from the monetary system without massive impact. If even the most critical, authoritative, and flattering media can reach the same conclusion as this article, then only those who refuse to open their eyes and ears will be left in the dust of history, what will they believe? Neither happened.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/arthur-hayes-the-end-of-the-old-monetary-system-gold-and-the-new-life-of-bitcoin/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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