Cryptocurrency: CBDC Digital Fiat WARNING BELLS GOING OFF

grarpamp grarpamp at gmail.com
Sun Mar 12 18:42:51 PDT 2023


BRICS+ "NewCoin" = just another Globalist Fiat CBDC Nightmare Being
Foisted upon Humanity in the latest Turning...


Crypto now up over 16% on the news...


Escobar: Moveable Multipolarity In Moscow - Ridin' The "Newcoin" Train

Authored by Pepe Escobar,

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 whether he hints at the emergence of the “Bretton
Woods 3” as an alternative, outside of the current financial system. I
am convinced that a new iteration of the “external money” is unlikely
to be successful in the West at this stage, due to the lack of
political will and to the excessive government debt that has been
building up for some time and grew exponentially in recent years.

Before the current Western financial order can move to the next
evolutionary stage, some of these outstanding liabilities need to be
reduced in real terms. If history is any guide, it typically happens
via default or inflation, or some combination of the two. What seems
highly likely is that the Western governments will rely on financial
repression in order to keep the boat afloat and to tackle the debt
problem. I expect there will be many initiatives to increase control
over the “internal money” system that will likely be increasingly
unpopular. Introduction of CDBC’s, for example, could be one such
initiative. There is no doubt in my mind that we are in for eventful
times ahead in this respect. At the same time, it also seems
inevitable at this stage that some sort of an alternative “external
money” system will emerge that will compete with the current “internal
money” global financial order.

And why is that?

S. Tzu: The global economy can no longer rely on the “internal money”
system in its current weaponized state for all its trade, reserve, and
investment needs. If sanctions and reserve freezes are the new
instruments of regime change, every government out there must be
thinking about alternatives to using someone else’s currency for trade
and reserves. What is not obvious, however, is what the alternative to
the current flawed global financial order should be. History does not
have many examples of successful “external money” approaches that
could not be reduced to some version of the gold standard. And there
are many reasons why gold alone, or a currency fully convertible into
gold, is too restrictive as a foundation of a modern monetary system.

At the same time, recent increases in trade in local currencies
unfortunately have a limited potential as well, as local currencies
are simply a different instance of “internal money.” There are obvious
reasons why many countries would not want to accept other’s local
currencies (or even their own, for that matter) in exchange for
exports. On that I fully agree with Michael Hudson. Since “internal
money” is a liability of a country’s Central Bank, the lower the
credit standing of the country, the more it needs investable capital,
and the less willing other parties become to hold its liabilities.
That is one of the reasons why a typical set of “structural reforms”
that IMF demands, for example, is aimed at improving credit quality of
the borrower government. “External money” is badly needed precisely by
the countries and the governments that feel they are hostages to the
IMF and to the current “internal money” financial system.
Enter the “newcoin”

A lot of experts seem to be looking into it. Sergey Glazyev, for instance.

S. Tzu: Yes, there were some indications of that in recent
publications. While I am not privy to these discussions, I certainly
have been thinking how this alternative system could work as well. Mr.
Pozsar’s concepts of “internal” and “external” money are a very
important part of this discussion. However, the duality of these terms
is misleading. Neither option is fully adequate for the problems that
the new monetary unit – let’s call it “newcoin” for convenience –
needs to solve.

Please allow me to explain. With the weaponization of the current US
dollar “internal money” system and a simultaneous escalation of
sanctions, the world has effectively split into the “Global South” and
the “Global North,” slightly more precise terms than East and West.
What is important here, and what Mr. Pozsar immediately noticed, is
that the supply chains and commodities are also getting weaponized to
some extent. Friend-shoring is here to stay. The implication is that
the newcoin’s first priority would be facilitating intra-South trade,
without relying on currencies of the Global North.

If this were the only objective, there would have been a choice of
relatively simple solutions, ranging from using renminbi/yuan for
trade, creating a new shared currency (fashioned after euro, ECU, or
even Central African CFA franc), creating a new currency based on the
basket of participating local currencies (similar to the SDR of IMF),
potentially creating a new gold-pegged currency, or even pegging
existing local currencies to gold. Unfortunately, history is full of
examples of how each one of these approaches creates their own host of
new problems.

Of course, there are other parallel objectives for the new currency
unit that neither of these possibilities can fully address. For
example, I expect that all participants would hope that the new
currency strengthens their sovereignty, not dilutes it. Next, the
challenges with the Euro and previously gold standard demonstrated the
broader problem with “fixed” exchange rates, especially if the initial
“fix” was not optimal for some members of the currency zone. The
problems only accumulate over time, until the rate is “re-fixed,”
often through a violent devaluation. There needs to remain flexibility
in adjusting relative competitiveness inside the Global South over
time for participants to remain sovereign in their monetary decisions.
Another requirement would be that the new currency needs to be
“stable,” if it were to become successful unit of pricing for volatile
things like commodities.

Most importantly, the new currency should be able to become an
“external money” storage of capital and reserves down the road, not
just a settlement unit. In fact, my conviction that the new monetary
unit will emerge comes primarily from the current lack of viable
alternatives for reserves and investment outside of the compromised
“internal money” financial system.

So considering all these problems, what do you propose as a solution?

S.  Tzu: First allow me to state the obvious: the technical solution
to this problem is a lot easier to find than to arrive at the
political consensus among the countries which might want to join the
newcoin zone. However, the current need is so acute, in my opinion,
that the required political compromises will be found in due course.

That said, please allow me to introduce one such technical blueprint
for the newcoin. Let me start by saying that it should be partially (I
suggest a share of at least 40% of value) backed by gold, for reasons
that will soon become clear. The remaining 60% of the newcoin would be
composed of the basket of currencies of the participating countries.
Gold would provide the “external money” anchor to the structure and
the basket of currencies element would allow the participants to
retain their sovereignty and monetary flexibility. There would clearly
be a need to create a Central Bank for the newcoin, which would emit
new currency. This Central Bank could become a counterparty to
cross-swaps, as well as provide clearing functions for the system and
enforce the regulations. Any country would be free to join the newcoin
on several conditions.

First, the candidate country needs to demonstrate that it has physical
unencumbered gold in its domestic storage and pledge a certain amount
in exchange for receiving corresponding amount of newcoin (using the
40% ratio mentioned above). Economic equivalent of this initial
transaction would be a sale of the gold to the “gold pool” backing the
newcoin in exchange for proportional amount of the newcoin backed by
the pool. The actual legal form of this transaction is less important,
as it is necessary simply to guarantee that the newcoin that is being
emitted is always backed by at least 40% in gold. There is no need to
even publicly disclose the gold reserves of each country, as long as
all participants can be satisfied that sufficient reserves are always
present. An annual joint audit and monitoring mechanism may be
sufficient.

Second, a candidate country would need to establish a gold price
discovery mechanism in its domestic currency. Most likely, one of the
participating precious metals exchanges would start physical gold
trading in each of the local currencies. This would establish a fair
cross-rate for the local currencies using “external money” mechanism
to set and adjust them over time. The gold price of the local
currencies would drive their value in the basket for the newly-emitted
newcoins. Each country would remain sovereign and be free to emit as
much of local currency as they choose to, but this would eventually
adjust the share of their currency in the newcoin’s value. At the same
time, a country would only be able to obtain additional newcoin from
the central bank in exchange for a pledge of additional gold. The net
result is that the value of each component of newcoin in gold terms
would be transparent and fair, which would translate into the
transparency of newcoin’s value as well.

Finally, emissions or sales of newcoin by the central bank would be
allowed only in exchange for gold for anyone outside the newcoin zone.
In other words, the only two ways external parties can obtain large
amounts of newcoin is either receiving it in exchange for physical
gold or as a payment for goods and services provided. At the same
time, the central bank would not be obliged to purchase newcoin in
exchange for gold, removing the risk of the “run on the bank.”

Correct me if I’m wrong: this proposal seems to anchor all trade
inside the newcoin zone and all external trade to gold. In this case,
what about the stability of newcoin? After all, gold has been volatile
in the past.

S. Tzu: I think what you are asking is what could be the impact if,
for example, the dollar price of gold were to decline dramatically. In
this case, as there would be no direct cross-rate between newcoin and
the dollar, and as the central bank of the Global South would be only
buying, not selling gold in exchange for newcoin, you can immediately
see that arbitrage would be extremely difficult. As a result, the
volatility of the currency basket expressed in newcoin (or gold) would
be quite low. And this is exactly the intended positive impact of the
“external money” anchoring of this new currency unit on trade and
investment. Clearly, some key export commodities would be priced by
the Global South in gold and newcoin only, making the “run on the
bank” or speculative attacks on newcoin even less likely.

Over time, if gold is undervalued in the Global North, it would
gradually, or perhaps rapidly, gravitate to the Global South in
exchange for exports or newcoin, which would not be a bad outcome for
the “external money” system and accelerate the broad acceptance of
newcoin as reserve currency. Importantly, as physical gold reserves
are finite outside of the newcoin zone, the imbalances would
inevitably correct themselves, as the Global South will remain a net
exporter of key commodities.

What you just said is packed with precious info. Perhaps we should
revisit the whole thing in the near future and discuss the feedback to
your ideas. Now we’ve arrived at Maryina Roscha, it’s time to get off!

S. Tzu: It would be my pleasure to continue our dialogue. Looking
forward to another loop!


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