Credit Suisse’s Pozsar Gives Broad Brushstrokes Of His Overarching View

Credit Suisse’s Zoltan Pozsar notes that “wars upend the dominance of currencies and serve as a doula to the birth of new monetary systems. What Deutsche Bank’s Bretton Woods II framework was to the first decade of the new century, and what QE and Basel III then were to the second (post-GFC) decade of the new century, we believe that our Bretton Woods III framework will be to the third decade of the new century and potentially beyond. If we are right, our framework will be the right framework to think about how to trade interest rates in coming years: inflation will be higher; the level of rates will be higher too; demand for commodity reserves will be higher, which will naturally replace demand for FX reserves (Treasuries and other G7 claims); demand for dollars will be lower too as more trade will be done in other currencies; and structurally then, the negative cross-currency basis (the dollar premium) will naturally fade away and potentially become a positive cross-currency basis.”