The former CEO of BitMEX, Arthur Hayes, invites readers to set their personal views about Russia and Ukraine aside and consider the business effects of current sanctions. Last week, Credit Suisse, a worldwide investment firm, issued a bold prediction: the dollar’s tenure as the world reserve currency is coming to an end, and commodity money, such as gold, will emerge to take its place. BitMEX co-founder Arthur Hayes expands on those predictions this week. He, too, believes that over the next decade, hundreds of billions of dollars will pour into gold and Bitcoin. In the meantime, he is “100% positive” that a financial catastrophe and hyperinflation of the US dollar will occur.
The freezing of nearly $600 billion in Russian foreign reserves, as outlined in his recent BitMEX blog piece “Energy Cancelled,” will shock other international governments’ belief in holding their value in US treasuries. China, for example, will no longer use this to grow its fiat currency position, despite having the world’s highest budget surplus of nearly $273 billion each year. As a result, according to Hayes’ calculations, China and other trade surplus countries will resort to gold and other storable commodities to store $967 billion in value that was previously held in fiat currencies.
The strength of the US dollar, on the other hand, will be significantly weakened as the country already faces the greatest inflation in 40 years. The Federal Reserve recently discontinued its programme of buying U.S. Treasury bonds to assist in keeping prices from rising across the country. However, as other countries’ wealth shifts away from bonds and toward commodities, the Fed will be forced to repurchase US bonds in order to meet its debt obligations. Of course, money printing will be used to fund these purchases, resulting in “hyperinflation.”
For comparison, the United States has a $600 billion annual account deficit and had to sell $2.8 trillion in bonds in 2021 alone to cover it. The Fed won’t be able to do much, either: slight interest rate hikes will do nothing to reintroduce foreign interest in US assets. Significant rate hikes, on the other hand, would trigger a recession, which politicians will not allow.