Will Facebook-Tencent, Ali-Baba-Amazon, Google-Baidu be the new central banks?
International trade is regulated in dollars, particularly because the hydrocarbons on which it is based are traded in that currency. But, let us follow for a moment the path of the energy transition. If in 2050, the hydrocarbon root is cut off, without oil or petrol, diesel, gas or coal, the economy will operate with electricity that is deconcentrated, decarbonized, produced and paid for in local currencies, and therefore de-dollarized.
In 2050, the one-second scale for a central bank, which new currency will prevail? Will it be an expression of different sovereignties, representative of new economic flows, or of geopolitical issues inherited from what historians of the time will call the “Trump syndrome”: “make inside America great again, do not care about outside”.
This future monetary disruption will be parallel to that brought by new technologies. These are disturbing as always. The growth it creates goes with or without moral or social ideals. The idea of block-chain is designed to consolidate the morality of responsible investment and sustainable development in the meanders of industrial supply chains; for example, those of electric or hydrogen mobility. Artificial intelligence is needed to improve productivity and growth with social impacts: some jobs are disappearing, others are emerging. Cocktail of block-chain, artificial intelligence and Internet is a promise of inflation massive destruction for all, via online purchases, but for the exclusive benefit of a few owners. Those of the FAMANG (Facebook, Amazon, Microsoft, Apple, Netflix, Google) in the West and in the East those of the BATXHJD (Baidu, Ali-Baba, Tencent, Xiaomi, Huawei, JD.com, Didi).
Let’s combine these two movements, less dollars and more Tech, and the 5 usual hypotheses of the currency of the next world appear: the financial Babel, no monetary imperialism, but cohabitation (Euro, Dollar, Yuan, Rupee, a pan-African currency…); the quantitative demographic option (the most numerous have the dominant currency); a qualitative choice (the flows of producers or dominant consumers impose their currency); neutral preference (gold, a spandrel supporting a common currency or a pool of powerful currencies); technology (a cryptocurrency not to be confused with electronic payment would drive one of the above choices, it would be disseminated via FAMANG and BATXHJD, avoiding disorders à la Quadrige CX).
Needless to say, these visions, although they still lack the reason for compromises, will discourage technophobes and break our habits as well as geomonetary or geostrategic alliances.
But there are the facts.
Recently, the World Gold Council reminded us of one. Last year, central banks’ gold purchases were at their highest level in 50 years. The buyers included Russia, China, Kazakhstan, India, Mongolia, Iraq, Azerbaijan, Turkey, Hungary, Poland.
Why are these central banks still buying gold?
The first three reasons given by central bankers are: safehaven value (the heads of state stress the dangerousness of the world), diversification of the dollar (haunting of Mr Trump’s tweets?) and gold is an asset of trusted third parties (it is nobody’s debt, and the role of a central bank is not to seek a profit). In addition, last year, some central bank bought gold from miners working the underground of its country, paying them in its own currency, not in dollars. Their costs are in national currency and their machines are increasingly powered by electric motors that consume local electricity that is less and less carbon-intensive.
But, much more exciting still, the selling central banks, particularly in Europe, were the counterparties of the buyers for only a tiny amount of gold. These sales represented only 2.3% of the volumes purchased by the “opposite shore”. Why didn’t they sell more? Probably for the same reasons as the buying banks.
Reviewing of our previous monetary assumptions, last year the post-dollar strategy of the central banks’ balance sheet was based on the neutral preference of gold.
Far from the usual and sometimes comical gold bug conspiracy, would more gold dare to anticipate a future sharp increase in real interest rates? Could it be the weak signal of a colossal and future retreat of the dollar that calls into question the decision of 15 August 1971? Moreover, although it is well- known that gold is still traded in dollars on international markets, if hydrocarbons were to disappear, the size of the precious metals (and other metals) market alone would not justify the US dollar remaining the reference currency for world trade. In any case, claiming less hydrocarbons, if the energy transition had the collateral effect of having more gold in banks (or other metals), our metal reserves would probably be insufficient to regulate planet’s finance. The need for a global monetary creation backed by precious metals would not escape a gold cryptocurrency in charge of consolidating the confidence of the whole. Driven by central bankers and distributed by FAMANG and BATXHJD, this currency remains a baroque fiction in our eyes today. It would, however, become celestial if a New Monetary World, gathered by the anguish of climate change, placed the neutrality of gold at its center, i. e. the center of the quantum.
Published in Les Echos on 11 02 2019