"The new currency should be able to become an “external
money” storage of capital and reserves down the road, not just a
settlement unit...President Xi Jinping, by the way, will be ridin’ the BKL with President Putin when he comes to Moscow on March 21........ If we leave aside the crypto side of things, the promise and the reason
for bitcoin’s initial success was that bitcoin was an attempt to create
“external” money (using Mr. Zoltan’s excellent terminology) that was
not a liability of a Central Bank. One of the key features of this new
unit was the limit of 21 million coins that could be mined, which
resonated well with those who could see the problems of the current
system. It sounds trivial today, but the idea that a modern monetary
unit can exist without backing of any centralized authority, effectively
becoming “external” money in digital form, was revolutionary in 2008. 
Needless to say, Euro government bond crisis, quantitative easing, and
the recent global inflationary spiral only amplified the dissonance that
many felt for decades. The credibility of the current “internal money”
system (again, using Mr. Poszar’s elegant terminology) has been
destroyed long before we got to the Central Bank reserve freezes and
disruptive economic sanctions that are playing out currently.
Unfortunately, there is no better way to destroy credibility of the
system based on trust than to freeze and confiscate foreign currency
reserves held in Central Bank custody accounts. The cognitive dissonance
behind the creation of bitcoin was validated — the “internal money”
system was fully weaponized in 2022. The implications are profound.Before the current Western financial order can move to the next stage, some of these outstanding liabilities need to be
reduced in real terms. If history is any guide, it typically happens via
default or inflation, or some combination of the two.
What seems highly
likely is that the Western governments will rely on financial
repression in order to keep the boat afloat and to tackle the debt
problem. I expect there will be many initiatives to increase control
over the “internal money” system that will likely be increasingly
unpopular. Introduction of CDBC’s, for example, could be one such
initiative." ZH
