Moveable Multipolarity in Moscow: Ridin’ the ‘Newcoin’ Train
The new currency should be able to become an “external money” storage of capital and reserves down the road, not just a settlement unit.
Ah, the joys of the Big Circle Line (BKL, in Cyrillic): circumnavigating the whole of Moscow for 71 km and 31 stations: from Tekstilshchiki – in the old textile quarter – to Sokolniki – a suprematist/constructivist gallery (Malevich lives!); from Rizhskaya – with its gorgeous steel arches – to Maryina Roscha – with its 130 meter-long escalator.
The BKL is like a living, breathin’, runnin’ metaphor of the capital of the multipolar world: a crash course in art, architecture, history, urban design, tech transportation, and of course “people to people’s exchanges”, to quote our Chinese New Silk Road friends.
President Xi Jinping, by the way, will be ridin’ the BKL with President Putin when he comes to Moscow on March 21.
So it’s no wonder that when a savvy investor at the top of global financial markets, with decades of experience, agreed to share some of his key insights on the global financial system, I proposed a ride on the BKL – and he immediately accepted it. Let’s call him Mr. S. Tzu. This is the minimally edited transcript of our moveable conversation.
Thank you for finding the time to meet – in such a gorgeous setting. With the current market volatility, it must be hard for you to step away from the screens.
S. Tzu: Yes, markets are currently very challenging. The last few months remind me of 2007-8, except instead of money-market funds and subprime mortgages, these days it is pipelines and government bond markets that blow up. We live in interesting times.
The reason I reached out to you is to hear your insights on the “Bretton Woods 3” concept introduced by Zoltan Poszar. You’re definitely on top of it.
S. Tzu: Thank you for getting straight to the point. There are very few opportunities to witness the emergence of a new global financial order, and we are living through one of those episodes. Since the 1970s, perhaps only the arrival of bitcoin just over fourteen years ago came close in terms of impact to what we are about to see in the next few years. And just as the timing of bitcoin was not a coincidence, the conditions for the current tectonic shifts in the world financial system have been brewing for decades. Zoltan’s insight that “after this war is over, ‘money’ will never be the same again…” was perfectly timed.
Understanding “external money”
You mentioned bitcoin. What was so revolutionary about it at the time?
S. Tzu: If we leave aside the crypto side of things, the promise and the reason for bitcoin’s initial success was that bitcoin was an attempt to create “external” money (using Mr. Zoltan’s excellent terminology) that was not a liability of a Central Bank. One of the key features of this new unit was the limit of 21 million coins that could be mined, which resonated well with those who could see the problems of the current system. It sounds trivial today, but the idea that a modern monetary unit can exist without backing of any centralized authority, effectively becoming “external” money in digital form, was revolutionary in 2008. Needless to say, Euro government bond crisis, quantitative easing, and the recent global inflationary spiral only amplified the dissonance that many felt for decades. The credibility of the current “internal money” system (again, using Mr. Poszar’s elegant terminology) has been destroyed long before we got to the Central Bank reserve freezes and disruptive economic sanctions that are playing out currently. Unfortunately, there is no better way to destroy credibility of the system based on trust than to freeze and confiscate foreign currency reserves held in Central Bank custody accounts. The cognitive dissonance behind the creation of bitcoin was validated — the “internal money” system was fully weaponized in 2022. The implications are profound.
Now we are getting to the nitty-gritty. As you know, Zoltan argues that a new “Bretton Woods 3” system will emerge at the next stage. What exactly does he mean by that?
S. Tzu: I am also not clear on whether Mr. Poszar refers to the transformation of the current Western “internal money” system into something else, or whet
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