Gone are the days where low interest rates could foster dreams of a harmonious world built on renewable energy, equality and independent central banks. In 2023, world economies will shift into War Economy mode, where sovereign economic gains and self-reliance trump globalisation. New Outrageous Predictions revolve around how countries’ focus on asserting themselves will affect the global economy and political agenda.
Billionaire coalition creates trillion-dollar Manhattan Project for energy. The constantly growing global need for energy drives the world’s richest to huddle up and launch a R&D project in a size the world hasn’t seen since the Manhattan Project gave the US the first atomic bomb. Already rising electricity demand is set to explode, not just from the current and planned electrification via EV’s of our transportation fleets, but also due to the ongoing digitalisation of human activity and the exponential growth in data storage and transmission this creates. The data centre infrastructure needed to service the digital economy continues to grow apace and these centres may consume some 20 percent of global energy in coming decades. At the same time, the growth potential for energy looks highly constrained on the one hand by the unacceptably dirty climate-altering legacy fossil fuels and the frustratingly diffuse and intermittent alternatives like wind and solar.
In 2023, owners of major technology companies and other technophile billionaires grow impatient with the lack of progress in developing the necessary energy infrastructure that would allow them to both pursue their dreams as well as address the needed energy transition. Teaming up, they create a consortium code-named Third Stone, with the goal of raising over a trillion dollars to invest in energy solutions. It’s the largest research and development effort since the original Manhattan Project that developed the first atomic bomb. In addition to pure research and development efforts aimed at realising the potential of current and groundbreaking new technologies, the fund will focus extensively on integration as well, or how to combine new generation sources with the power transmission and energy storage infrastructure that delivers baseload, the Achilles’ heel of current alternative energy solutions.
The fund also dedicates a significant chunk of its investment budget to artificial intelligence (AI), which has shown promise beyond prior expectations of what was possible in some areas of scientific research. A recent example is AlphaFold, an AI programme that made transformational progress in predicting the structures of proteins, a devilishly difficult computational task. The fund aims some initial AI efforts at solving the last wrinkles in solid state battery science, which will drive a leapfrog advance in EV adoption, due to far superior power density and faster charging times.
Market impact: the companies that partner with the Third Stone consortium and can help realise its vision soar in value in an otherwise weak investment environment.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve asset. Sanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don’t consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
Summary: Recognising the ongoing weaponisation of the USD by the US government, non-US allied countries move to leave the USD and the IMF to create an international clearing union (ICU) and a new reserve asset, the Bancor (currency code KEY), using Keynes’ original idea from the pre-Bretton Woods days to thumb its nose at the practices of the US in leveraging its power over the international monetary system.
While less than a fifth of international trade is destined for the US, over a third of international trade is invoiced in USD and nearly 60 percent of global foreign exchange reserves are USD. The ban on transactions with Russian sovereign entities in February 2022 sent shockwaves across countries not allied militarily with the US as the magnitude of the ban far exceeded sanctions on Iran, Venezuela and other countries in recent decades. These countries wonder whether their US assets — and even EUR, JPY and GBP assets — could be subjected to freeze orders imposed by the US Treasury and other US allies overnight.
Many have speculated that the Chinese renminbi might become the new reserve currency, but China has shown no interest in abandoning cross-border capital controls. Another important aspect hampering the use of CNH in trade is that many non-US allies are wary of China’s rise in influence and power.
Rather, a natural solution for China and its many trading partners, particularly energy and other commodities exporters, would be to find a new non-national currency reserve asset upon which to trade. They find inspiration in British economist John Maynard Keynes’ playbook for reconstructing a post-World War II international monetary system without a hegemon. In an epochal conference convened in Astana, Kazakhstan, leaders from OPEC+ countries, mainland China, Hong Kong, India, Brazil, Pakistan, Central Asia countries, and tens of African Union countries gather to establish an ICU based on a new accounting unit and reserve asset: the Bancor (currency code KEY). The KEY can only be held by member central banks and is used as an accounting unit to settle international trades and as a reserve asset. The new KEY is indexed to a basket of traded commodities with crude oil having the largest weight. The currencies of member countries are backed by the KEY at fixed exchange rates and are adjusted according to relative current account shifts among member countries. All the ICU member countries of the newly created monetary union withdraw from the IMF. Saudi Arabia and Hong Kong end their currency pegs to the USD.
Market impact: Non-aligned central banks vastly cut their USD reserves, US Treasury yields soar and the USD falls 25 percent versus a basket of currencies trading with the new KEY asset.
/Saxo Bank/