The Affairs of State

(March 30th 2023 - Toronto, Canada)

Earlier this month (March 11th) we noted that a run had hit a U.S. Regional Bank with a potential domino-effect, as Peter Thiel alerted risk, in Silicon Valley Bank (SVB).

In the following week, Crypto-friendly Signature Bank and other regional banks were exposed. The FDIC acted with an unprecedented move to contain concern by promising to expand the traditional insured coverage for $250,000 per account and moved it up to cover holder’s full balances, just to prevent a spread of bank runs.

Still risk exposure spread to large banks, first Credit Suisse hit as Saudi National Bank rose concern, then later Deutsche Bank in their Credit Default Swaps business.

With the U.S. National Debt at 31T, and the World Bank calling for a decade of no-growth, many in the West are concerned about growing deficits, hyperinflation and excessive global volatility.

In other news, China has been brokering major deals with the largest Oil-based economies this month. Saudi Arabia and Iran have agreed to an open forum of communication with Beijing’s influence, President Xi visited Moscow where they announced a strengthened Sino-Russian partnership and the entire BRICS community (see Edition 27) have taken on new applicants in droves.

This news is a direct attack on the U.S. Petrodollar (see Edition 24) as a global reserve currency, which looks to be challenged by the Yuan, as Shanghai Exchange Markets open to trade Oil in RMB.

Let’s look back at how we got here.

In 1971, President Nixon moved the U.S. off a gold backed reserve currency onto a fiat currency. In 1973, Vice President Kissinger drew up plans with King Faisal of Saudi Arabia to complete all Oil exchanges in U.S. dollars creating a new commodity-based currency– the Petrodollar.

Basically, if you wanted to buy Oil, post 1975, then you had to have U.S. currency on reserve.

In 2009, the illusive Satoshi Nakamoto released their white paper and issued the first Bitcoin (see Edition 7), and immediately Cryptocurrency garnered our attention, as a challenge to a commodity-based system. Since then, retail-investors and institutions (large-and-small) had the chance to test the Blockchain technology and exchanges to validate its value and ability to track individual transactions.

Now let’s look forward to what’s next.

The Blockchain model now poses a threat to the commodity-based markets, as a new ‘digital commodity’ that addresses all the concerns of ‘Fiat Currency’, while ungluing value based on a physical exchange of goods (particularly those with an exhaustive Climate Change Footprint – like Gold or Oil).

With test cases completed in the ‘Free Market’ in FTX and Binance (see Edition 27) and regulatory reviews of Ripple via SEC legal suits, we have a fully-fledged market-ready product for large banking institutions (e.g. Goldman-Sachs) or as a regulated government apparatus.

Coming this July, the Federal Reserve introduces a Blockchain version called ‘FedNow’.

                 With FedNow, or customer-to-government loan vehicles, commonly referred to a CBDC (Central Bank Digital Currency), there is a new government managed cryptocurrency ready for future currency exchanges.

• From a governing body perspective, it is an efficient way to securely managed 24/7 currency supply, limit physical production of minted coins and cash, strangle black market exchanges, and collect taxes.

• From a citizen’s perspective, rights regulations are needed to prevent overreach to freeze accounts, limit freedoms on personal spending, but does ease subsidies and universal basic income distribution. 

• If not monitored correctly, it can create a government overreach with dystopian results. 

So how does this play out?

          As the U.S. has weaponized the existing financial system through sanctions, restricting their described enemies from SWIFT exchanges, this has created a reaction from the global community. Now global national powers and corporate institutions are drawing a line in the sand for the next set of global currency exchange models, and either this ends with varying systems, or a face-to-face battle occurs, and everyone must choose a side.