Pozsar's Bretton Woods III: Sometimes Money Can't Solve the Problem
3 days ago
- #global-finance
- #sanctions
- #monetary-system
- Zoltan Pozsar introduced the concept of 'Bretton Woods III' in 2022, predicting a shift in the global monetary system due to sanctions on Russia.
- Pozsar's background includes roles at Credit Suisse, the Federal Reserve, and the U.S. Treasury, focusing on financial market 'plumbing.'
- The Bretton Woods III framework distinguishes between 'inside money' (claims on institutions) and 'outside money' (commodities like gold and oil).
- Bretton Woods I (1944-1971) was gold-backed, while Bretton Woods II (post-1971) relied on U.S. Treasury securities.
- Sanctions on Russia highlighted the confiscation risk of dollar reserves, pushing countries toward commodity-backed reserves (Bretton Woods III).
- Perry Mehrling's 'money view' identifies four prices of money: par, interest, exchange rate, and price level.
- Central banks can manage the first three prices but struggle with commodity-driven price level changes.
- Pozsar extends Mehrling's framework to commodity markets, linking financial and physical infrastructure.
- Disruptions in commodity flows (e.g., Russian oil rerouting) increase financing needs and strain bank liquidity.
- Non-U.S. banks face dollar funding vulnerabilities due to lack of access to Fed liquidity facilities, exacerbating global stress.