Arming the banking system could lead to a gold and crypto rush, ex-Fed trader warns
Using financial systems as a weapon against enemies can backfire on advanced economies, costing them their “risk-free” status, says former Federal Reserve trader Joseph Wang.
In a Tweeter and March 7 article, he said he doesn’t think that’s enough to break the world currency order just yet, but:
“This regime change may force a wild rush into stores of value outside the banking system, including gold, real estate, and even crypto.”
As the Russian invasion of Ukraine intensifies, many Western governments and financial institutions have imposed financial sanctions on the invading country in an effort to end the war and the suffering of the Ukrainian people. One of the sanctions was the confiscation of Central Bank of Russia (CBR) deposits in major central banks.
Following the invasion and resulting sanctions, Russia’s currency – the ruble – fell sharply to record lows, while ruble-to-Bitcoin (RUB/BTC) trading volume ) jumped.
The increase in trading volume has sparked rumors that Russia may resort to cryptocurrencies in an effort to evade sanctions. However, the market lacks the liquidity and anonymity to achieve this on the scale required, and exchanges are unwilling to risk breaching anti-money laundering rules in the face of heightened regulatory scrutiny.
As risk-free assets cease to be risk-free, the gold rush begins
In particular, Wang explained, the banking industry is built on trust, and the use of financial sanctions to pressure individuals and governments to act (or fail to act) in specific ways, without due process of law, weakens that confidence and makes risk-free assets riskier. free.
As the banks make this revelation, members of the public will perceive it as the existential risk of holding dissenting opinions and will begin to rush to alternatives they consider safe, such as gold and gold. other tangible assets.
According to Wang, the tendency to use the banking system as a weapon is noticeable against both domestic and foreign enemies, organizations and individuals – as evidenced by the invocation of the emergency law by the Canadian Prime Minister in response to trucker protests against Covid-19 restrictions.
“Trudeau’s actions confirmed their worst suspicions – ‘unbenching’ as a tool to suppress dissent. Potential public alternatives are broader than reserve managers and include gold, but also assets like real estate, crypto, and paper money. The dollar currency in particular has long been a favorite of those outside the government,” Wang explained.
To offset the existential risks posed by financial sanctions, Wang argues, a much larger allocation of gold is needed, especially by countries like China and India, both of which hold very small amounts of their gold reserves. changes to gold.
Incidentally, both countries abstained from voting on the UN resolution condemning the Russian invasion.