The Weaponization of Money and Finance

IN THIS PUBLICATION:

• Wealth confiscation risk has increased globally.
• We’re setting a dangerous precedent against the true value of private property.
• Many governments and private agents are now likely to allocate a larger portion of their excess savings to Gold and Bitcoin.

Foreign Reserves

Since the end of the 1990s, there has been a mass accumulation of foreign reserve assets by global Central Banks. These monetary authorities have been exchanging their domestic reserves (cash in national currencies) for less-volatile foreign assets (primarily the US Dollar, Euro, British Pound, Gold and IMF-related deposits). This diversification of cash reserves is meant to, at least partially, shield their economies from internal crisis and trade imbalances (importing and exporting goods via differing currencies), both of which can leave a country in a vulnerable position and lead to multiple negative outcomes, one being the depreciation of the national currency.

This makes total sense (and seems to be an asset allocation strategy straight out of Ray Dalio’s Diversify! Diversify! Diversify! playbook), especially in a more interconnected global economy that is the result of what we commonly refer to as globalization.

These reserves are important because they add economic incentives for countries to cooperate and behave – if a country owns most of its “savings” in US Dollars, it’s incentivized to see the US Dollar perform as a reliable store of value – as well as make trade amongst countries much more fluid, which increases the stability of the world's economy.