A new Bretton Woods moment? It is time for a new paradigm

by Nov 12, 2020Thinking outside the bottle0 comments

Keynes and White, Bretton Woods (Thomas D. McAvoy, Life Collection)

Keynes and White, Bretton Woods (Thomas D. McAvoy, Life Collection)

Paulo Pinto

Alti Wine Exchange founding member

Greetings from a second confinement.

Almost two years ago, a group of people with a long history in finance, puzzled by negative interest rates and central bank printing presses, joined me in the creation of Alti Wine Exchange – a market to trade fine and rare wines. A market of real assets.

The reason: we believe inflation is coming.

Months ago, we started to speak to you about the need to be careful with money because of all this borrowing, spending and money printing that we think will cause inflation.

Some believe deflation, not inflation is the real threat. We don’t.

That is why fine and rare wines, along with other real assets, tend to do very well at times of currency devaluation.

Why we need a new monetary system paradigm

We are not in the business of predictions, but it seems obvious the need for a new monetary system paradigm. Thus, we suggested the idea of a new model: Central Banks of Social Security.

And very recently, IMF president Kristalina Georgieva said “we face a new Bretton Woods moment”.

It is now clear that people in charge at the highest level are aware that the world will need a new financial system with the post-Covid economy, because we will need a new way of financing the global economy.

Creating a new financial system is not as easy as (for example) putting people in confinement, it needs political preparation.

It was because of Bretton Woods that the International Monetary Fund (IMF) was created, along with the World Bank, as a new form of organization to bail out countries in need. These organizations are already preparing to have a say when they suggest a “new Bretton Woods”.

Then there is the issue of the currency into which all other currencies should be exchangeable if the goal is to keep a similar model as today. The role of the dollar as the world’s dominant reserve currency is a matter of strategic importance for the United States.

Meanwhile, struggling countries will require assurances that a more prosperous economic future is in store. Until now, each time a struggling country receives a loan from a developed country that money is manufactured, it’s not savings put aside. And if it was manufactured, why wouldn’t that country be able to do the same?

The restoration of sound money principles for economic growth is paramount, or a new paradigm as suggest, an inspiring vision of future prosperity. For now, the world is running on 265 trillions of debt, and some people still believe it will be paid back, but a growing number can’t imagine how it will ever be paid.

Covid-19 will radically accelerate our world change in terms of money because the rules based of our global trading system cannot ignore the current economic reality.

Maybe the most optimistic believe that governments and central banks will deposit free money in business and people’s accounts with governments, “stimulating” growth. The reality instead, is that it means going into more debt and forcing anyone buying debt to accept a guaranteed loss.

When investors realize the long-term implications of this, people will go into real assets like fine and rare wine. You should, too.

Cheers, and until next time.

Paulo

 

 


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