As the US Weaponizes the Dollar, Bitcoin and Gold will prosper
US’s economic war against Russia will cause blowback against the dollar. Be ready.
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After Russia’s invasion of the Ukraine, the US and their allies introduced unprecedented sanctions that cut the value of both the ruble and stock market in half. While this may hurt Russia’s chances in the war, it will also cause consequences for the dollar. China, Russia and other large nations have been trying to rid the world of dollar hegemony for years, and our actions will likely speed up the process. Americans should be aware of the consequences, and prepare for a de-dollarizing world. Below we’ll look at statements and analysis from Nic Carter, Lyn Alden and Zoltan Pozsar to learn how they are viewing this time of great economic turmoil.
When the G7 went after Russia and froze their assets in retaliation for the Ukraine invasion, hundreds of billions of dollars worth of foreign reserves became immobilized and useless in an instant.
“Ahead of its invasion of Ukraine, Russia had stockpiled $500 billion of foreign currency reserve assets to protect itself from potential penalties from the West. But now, most of that has been frozen. Out of the top countries where those assets are stowed, China is the only one not to have announced any sanctions.” — QZ.com
In an attempt to retaliate against Russia, the G7 has shown that they are willing to weaponize the global financial system in ways never seen before. But this will force countries to find alternatives to the status quo.
“I think the reverberations for that are absolutely immense.” said Nic Carter on a recent What Bitcoin Did Podcast.
“Zoltan Pozsar who is the chief interest rate strategist at Credit Suisse, who’s considered one of most elite macro strategists, is saying this is the end of Bretton Woods 2. The US and it’s European allies went to this step of immobilizing and seizing Russia’s reserves in foreign currencies held at foreign central banks, that’s a move that is completely unprecedented and it calls into question the credibility of the US dollar system and of US treasuries and US sovereign debt as a savings device for the rest of the world which it has been. That’s been the number one primary savings device since 1971 for 50 years over the course of Bretton Woods II.”
This will put enormous downward pressure on the dollar. Here is Lyn Alden, interviewed that same week on What Bitcoin Did:
“The WSJ ran a piece called “If the Russian Reserves aren’t really money, then the World is in for a Shock”. In addition to the fact that T Bills pay rates that are far below inflation rates so they’re an undesirable long term store of value, they can now be censored… in theory that increases the desirability of reserves that can’t be canceled.
Not only do our recent actions cut against the dollar as a store of value, but also as a means of international exchange and settlement.
As I mentioned above, China, Russia and India have been long seeking an alternative to the US dollar. Now, US sanctions are forcing India to take action. India, who is much more dependent on foreign oil than the US, will likely start buying oil from Russia in the Ruple at a discount. At the same time, Saudi Arabia is in discussions with China to sell oil in the Yuan.
80% of the oil in the world is sold in US dollars and decreasing demand equals decreasing strength.
But recent sanctions aren’t the only reason that the US dollar is losing competitiveness. As I wrote last week, our inflationist policies also harm it as a store of value.
“Right now US debt is considered to be the safest risk free asset you can hold. [But] it’s not a great asset frankly because it’s yielding at a much lower rate than inflation so it has a negative real yield, so you’re mathematically guaranteed to lose money if you hold it to maturity. ..So if you hold US debt you lose money in real terms.”- Carter
So while the US dollar is hemorrhaging value from the highest inflation in 40 years, and the lowest real returns on T Bill in 70, our leadership decided to take steps to both make the dollar a significantly less desirable way to store wealth because it can be frozen, and a much less useful medium of exchange because it can’t be used to buy products from one of the worlds largest exporters.
According to Zoltan Poszar, a Managing Director at Credit Suisse:
“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.”
Pozsar describes how recent events will trigger a cyclical progression back to money which is more trustworthy:
“From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money (Treasuries with un-hedgeable confiscation risks), to Bretton Woods III backed by outside money (gold bullion and other commodities).”
I don’t want this to be all doom and gloom, though. If you’re in the West and you’re reading this, yes we’re probably in for some hard times. But(!) we at least have very functional economies for the time being so we can prepare ourselves if we choose to.
Back to Carter:
“Bitcoin has been designed expressly with this eventuality in mind. As trust frays within the international system, as IOUs become less useful as a medium of exchange and as a store of value as well, you’re going to want to move back to liability-free money. That’s what we had in antiquity, that’s what we had when we would have ships doing their trade routes across the Atlantic carrying gold as the settlement medium because nothing else was trustworthy. Then for a time we went to this standard where everyone kind of trusted the US, everyone behaved as if the US debt was totally unimpeachable, and now once again we’re moving back to system where we only trust hard money that is no one’s liability. Part of that is gold but part of that will obviously be digital alternatives. Digital commodities. And Bitcoin is the most mature and the best positioned to fill that gap.
Alden:
“The longer you look out in the future the more attractive bitcoin arguably becomes as a reserve asset. So right now at less than $1T and a rather volatile asset it is very challenging for them (central banks) to put that into their treasuries in any large amount.
Sovereign wealth funds are more risk tolerant and likely to lead the way first, she says. “Then the bigger Bitcoin gets the more widely held it is the more liquidity that there is the less volatility that there is, the more central banks could start looking at that as a viable reserve asset. Because it fixes two things for them. One, they have an asset that can’t be frozen by a third party; and two they also can go around sanctions and have permissionless payments, so that is something that you’d think would become more attractive to countries around the world.”
Yes, it’s sad that the dollar our forefathers created, originally gold backed and once trusted by the globe, is likely now at the precipice of significant decline. But all we can do is prepare ourselves for this eventuality. This generation of US leadership, under both parties, can no long manage a currency that other central banks want to hold and use. At least not to the same degree they have in recent decades. When this becomes obvious, there will be a recalibration of how we store and transfer wealth like we haven’t seen in generations. For the US, this is both a loss, and an opportunity to wake up and begin to live sustainably. For individuals, it’s an opportunity.
The emphasis is on being defensive, diversified and resilient against an inflationary decade. — Alden
“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. After this war is over, ‘money’ will never be the same again…and Bitcoin (if it still exists then) will probably benefit from all this.” — Pozsar
Thank you for reading. If you enjoyed this piece, please comment, follow or throw down a few claps on Medium. If you liked this content, I highly encourage you to read Lyn Alden’s free newsletter. She’s extraordinary.
Matt Harder runs the civic engagement firm Civic Trust, where he guides cities in re-building their civic infrastructure by helping residents, civic organizations, and local government collaborate to build public projects. He is a passionate Bitcoiner. Follow him on Twitter.
