Currently, the world is facing a humanitarian crisis with the outbreak of COVID-19 shutting down entire countries. However, its greater impact appears to be sparking a potential recession with markets across the globe shutting down. Everything from the stock markets, oil and gold — and of course Bitcoin — have all been hit hard and global financial architecture has ground to a halt.
This has many people wondering what the future will hold for the markets, especially in the short-term. There are suggestions though that the U.S. dollar may well be the powerhouse during this upcoming financial crisis.
However, if the dollar does become the ‘wrecking ball’ that global macro investor Raoul Pal envisages in this time, it will likely not be positioned for long-term success. For Pal, there have been warnings of a need for a new financial order, and perhaps, the COVID-19 outbreak could be the catalyst for a decentralized cryptocurrency financial system to finally emerge.
The Dollar in Demand
Despite the Federal Reserve pumping billions of new dollars into the U.S. economy, there is a suggestion that a shortfall resulting from the impending financial crisis is imminent. Usually, when the markets are flourishing there is strength in stocks and other markets, but these have instead been stopped dead in their tracks.
Pal believes this collapsing of the global financial architecture will lead to a scramble for dollars and an expected devaluation of gold. The idea of gold dropping in this scenario is not that far fetched — and has already started happening — as when the dollar is on the up, gold usually falls back.
However, Pal sees the dollar being at risk, but from dollar strength — not dollar weakness. This is because there are not enough dollars being produced despite huge stimulus injections from the Federal Reserve. The dollar still remains the global reserve currency, and in a time of crisis that will bolster its strength around the world.
shuts down.
There is no funding mechanism to alleviate it.
I don't think swap lines are going to work. There is no way to create the $15trn needed offshore and also provide for the dollar shortage onshore in the US.
— Raoul Pal (@RaoulGMI) March 18, 2020
A New Financial Order
However, the growing strength of the dollar in this financial crisis, and in the short-term preceding it, will not likely be long-lived. In fact, this financial crisis will probably swing the need for a change in how things are done, something that central banks have been promoting for some time now.
At the end of all of this, we will need to create a new system from scratch. The global central banks have been telling us this for a long time now.
It will take time to play out and central bank balance sheets are going to explode to levels never imagined.
— Raoul Pal (@RaoulGMI) March 18, 2020
Many feel that Bitcoin, or some sort of decentralized digital monetary system, could be the answer in this situation.
In the long term, having such a decentralized system could help alleviate problems with recession and depressions going forward.