Since the Ukraine war, the prices of many commodities have been rising rapidly. For Credit Suisse analyst Zoltan Poszar, the commodity bull market is a foretaste of long-term changes in the global monetary system: commodities will replace government bonds as the main components of the world financial order, China's currency will strengthen – and Bitcoin could be a big winner.

The respected analyst Zoltan Poszar, who is currently responsible for Credit Suisse's short-term interest rate strategy after holding advisory positions at the US Treasury and the Federal Reserve Bank, by no means considers the Ukraine war to be a local conflict with little impact on the global economy. On the contrary: according to him, this conflict will bring about fundamental changes in the global monetary system, the first effects of which are already visible. The world financial order will not be the same after 2022 – Poszar expects a new system, which he christens "Bretton Woods III".

Poszar reckons with Bretton Woods III
In classifying the global monetary order since World War II, Poszar follows the common view of economic historians who distinguish between two periods. From 1944 to 1971, the Bretton Woods system provided for the US dollar as the anchor currency: The currencies of the 44 participating countries agreed in Bretton Woods (New Hampshire) on a fixed exchange rate of their currencies to the US dollar, whose value in turn was fixed at 35 US dollars per fine ounce of gold. However, the trade deficits of the USA grew so strongly over time that President Richard Nixon dissolved the gold peg of the dollar in 1971. This was the beginning of the era of freely convertible currencies that are hedged with liabilities in other nations' currencies on banks' balance sheets, which continues to this day. De facto, these are mainly US dollars outside the US; for example, China has dollar reserves worth more than three trillion US dollars. According to Poszar, this second period, which he calls "Bretton Woods II", has come to an end due to the global instability caused by the Ukraine war – now "Bretton Woods III" is following with completely different mechanisms of action.

Ukraine war leads to "regime change" in the world financial order
Poszar sees the global monetary order at a turning point. The Bretton Woods system was supported by gold, the second period (1971-2022) was characterised by "inside money" (especially US government bonds within the international monetary system) and in the third period now beginning "outside money" (gold and other commodities) will play the greatest role. Pozsar bases his expectation on the fact that for the first time in post-war history the foreign exchange reserves of a central bank have been frozen – namely in the context of the Western seizure of Russia's extensive foreign currency. Government bonds and foreign assets that were considered risk-free are now suddenly at risk of confiscation – a drastic change that Poszar sees as the beginning of a turning point in the global financial system: "We are witnessing the birth of Bretton Woods III – a new (monetary) world order based on commodity-based currencies in the East that will presumably weaken the Eurodollar system and also increase inflationary tendencies in the West," says Proszas in a paper he published.

China's position strengthened
Against this backdrop, Poszar emphasises the special role of China, which nowadays has enormous global economic weight thanks to its rapid economic upswing. So far, China has not imposed any sanctions on Russia and continues to buy Russian raw materials – at significantly reduced prices, since Russia can hardly sell its high supply of raw materials in Western countries. According to Poszar, the Chinese central bank could choose between two strategies to finance the mass purchase of Russian commodities: On the one hand, the People's Bank of China could sell US government bonds, which would increase inflationary pressure in the West and cause bond yields to rise. On the other hand, China could practice "quantitative easing", i.e. increase the Chinese money supply. This would in turn strengthen the position of the renminbi in the global world monetary system and especially weaken the role of the US dollar as the world reserve currency.

Bitcoin as a new safe haven?
Poszar also sees bitcoin – along with gold and other commodities – as profiting from the new monetary order he expects. Bitcoin would emerge as a winner from the upheavals; but only if Bitcoin "still exists then". If it does, Bitcoin could rise to become an important asset protection, both from inflation and geopolitical instability. Recent weeks have shown that nation-based financial assets are far from risk-free, which could benefit decentralised financial transactions like cryptocurrencies. Jon Wolfenberger, CEO of Bull and Bear Profits, agrees with Poszar and considers Bitcoin "a great alternative with lower political risks". In recent weeks, however, even Bitcoin and Co. have not been able to escape the downward trend of most assets, with Bitcoin losing 14 per cent since the end of the year and Ethereum even 28 per cent. Gold, on the other hand, gained 3.7 percent (as of mid-March).

Papic thinks Proszar's forecast is exaggerated
Bitcoin's current performance is thus at odds with a supposed safe haven. Likewise, since the beginning of the Russian invasion of Ukraine, Western currencies such as the US dollar and the Swiss franc have appreciated enormously. Marko Papic, chief strategist at Clocktower Group, calls the expectation that the dollar could lose its status as the world's reserve currency "exaggerated". Papic does, however, expect a "multipolar" world financial order to emerge, in which the values of the currency will shift considerably. In this context, the strength of the Chinese renminbi expected by Proszas has been confirmed in the past few trading days, with China's currency appreciating strongly.