By Alejandro A. Tagliavini*

                 Perhaps the first symptom of the war in Ukraine -infamous like every war- was the general collapse of the stock markets, with few exceptions of countries that are far from the conflict -for geographical reasons or neutrality- and, by the way, the Russians suspended after resounding falls showing that «he who does it pays for it» and does not need any other punishment than his own actions.

                 Regarding international trade, this conflict and the sanctions generate complications for the supply of goods in general and commodities in particular, resulting in an escalation of international prices, such as gas and oil, which already exceeds USD 115 per barrel. In general, for developed countries, the rise in agricultural and energy commodities has negative consequences given the sharp increase in costs, particularly energy costs, which are on track to reach the highest levels in history.

                  By the way, many analysts, those who confuse inflation with an increase in the CPI, are concerned that this will generate greater difficulties in «reducing the rate of inflation just at the moment in which world’s central banks were preparing to fight against this phenomenon more decisively” (?). As if the monetary authorities could do anything or had anything to do with the natural accommodation of prices due to variations in the market.

                 Anyway, be that as it may, in the case of Argentina, preliminary calculations published by Invecq would be indicating that, in relation to agro-industrial exports in 2021, and despite the drought, this year’s value could increase by approximately USD 3,000 M. But, simultaneously, the greater demand for energy imports (and for fertilizers that are also derived from gas) and at values ​​significantly higher than those of last year would also imply a jump in imports of USD 3,000 M.

                 In other words, commercial exchange would be balanced, but we must expect that the global economy will surely fall, ironically, not because of the military actions themselves, which, at least for now, are circumscribed to a limited and relatively small geographical area, but because of the sanctions against Russia that destroy, like all violence, in this case the police repression of many goods and activities related to the Russians. The magnitude of these consequences will depend on the duration and evolution of the conflict.

                  Now, the US is using the economic power at its disposal to isolate Russia, which will have a boomerang effect, among other things, accelerating efforts to avoid the dollar (USD) by seeking other options and reducing international reserves in that coin.

                 The G7 and European Union governments blocked certain Russian banks’ access to the SWIFT international payment system and went a step further by crippling around half of the Russian central bank’s gold and foreign currency reserves worth of USD 630,000 M. In doing so, the West has undermined Moscow’s ability to defend the ruble, which lost up to a quarter of its value in a few days, and the ability to recapitalize sanctioned banks when they face bank runs. . With Russia’s loss of access to its foreign exchange reserves, a message has been sent to all countries that they cannot count on these reserves of money actually being theirs in the event of stress, a lesson they learned a few months ago, for example the Taliban in Afghanistan.

                  «Most of the foreign exchange reserves that exist in the world today are forms of internal money, that is, they are someone’s liability,» explains Zoltan Pozsar, an expert at Credit Suisse. «Whether you hold the sovereign debt of a country or hold a deposit with a foreign country’s central bank, or hold deposits with Western financial institutions, these are all forms of domestic money that you don’t control. Someone owes you. And these things can be sanctioned,» continues Pozsar.

                  Anticipating this, since the annexation of Crimea in 2014, Russia’s central bank has steadily shed its reserves of most USD assets:

                 Russia has been feverishly rotating its USD reserves, including eliminating all of its US Treasuries and amassing a record gold reserve in the process. Today the Bank of Russia has more gold than deposits in foreign central banks:

Although the dollar, the euro and the British pound still represent more than 50% of its holdings, located in France, Germany, Japan, Great Britain, the US, Canada and Australia:

                    As a result and following the dramatic freeze of the Russian central bank’s foreign assets, some have questioned why countries are hoarding foreign exchange reserves and, more generally, whether the unprecedented Western response to Russia has not jeopardize the status of the reserves in USD. By the way, China will make it a priority not to need any dollars before going for Taiwan, which can be a good observatory to anticipate Chinese intentions.

                   It’s a potentially huge problem for global markets given that central bank foreign exchange (FX) reserves totaled a record $12.83 trillion by the end of 2021, an increase of 11 trillion over the last 20 years. This money is held primarily in US and European government bills and bonds; the USD still accounts for nearly 60% of that and the euro about 20%:

                 In any case, this could lead central banks to decide to have fewer reserves, making the price of money more expensive, which would have an impact, in the first instance, especially on the poorest, on the emerging countries.

                  Obviously, gold is the classic candidate to escape the uncertainty for both central banks and individuals, although, as Bloomberg points out, in principle there is a limited amount available, but all that would have to happen is that the precious metal revalues to be worth much more.

                   Now, some analysts remind that, at that point, the US government can simply confiscate all existing physical gold and devalue the dollar against it. This seems to some to be an enormity, however, in 1933 Roosevelt signed Executive Order 6102 that prohibited the private accumulation of gold in coins, in rough, or in certificates and forced citizens to deliver to the Federal Reserve (Fed) all the gold that they had; in return they would receive USD 20.67 per troy ounce.

                   Thus, the government -which was still using the gold standard- seized large amounts of the metal and raised the exchange value to USD 35 per troy ounce, a price that remained in force until 1971 when Nixon declared the end of convertibility, thus definitively abandoning the gold standard. Limitations on the possession of this metal in the US were repealed in 1974.

                   Moreover, some analysts are very drastic and, since they see it as very unlikely that the Fed will start buying gold on the open market, they estimate that, just as attention is now being focused on «regulating» (read prohibiting) cryptocurrencies with the excuse of “prevent Russian oligarchs from using them to circumvent sanctions”, it stands to reason that the next step, as the fiat system continues its path to terminal disintegration – given the astronomical record issuance – will be a confiscation of all precious metals.

                   The case of Moscow can serve for China to finish forming a world alternative to the dollar. The exclusion of some Russian banks from the SWIFT interbank payment system may end up being proof of this. The Russians are asserting their system, the SPFS (Financial Message Transfer System) but its scope is quite local. That is why the hypothesis that the country turns to the Chinese system, the CIPS (Chinese International Payments System), gains strength.

                  But if 40% of international payments are in USD, CIPS – whose share is 3% – cannot be a global alternative. This is where the digital yuan comes into the picture. Although it is currently designed primarily for domestic retail payments, the token is ready for cross-border use, which gives it great potential.

                   If a Chinese business or individual was threatened with being unable to send money abroad because SWIFT did not pass on its instructions, an intermediary in a friendly country could always be persuaded to accept the digital yuan and forward a USD stablecoin payment to the counterpart of the Chinese buyer abroad. The middleman does not face any risk because he is dealing with sovereign money, backed by the taxpayers of China, now the second largest economy in the world.

                   In other words, cryptocurrencies -with all the instability typical of a new and still incipient world- are increasingly presented as an alternative to peace, that is, to evade sanctions and violent actions by governments that can do little to control them. , they can eventually control the people who use them, but not the cryptocurrencies themselves.

                   And within the digital world, of course, the metaverse now powered by 5G is exploiting, which, according to Bloomberg Intelligence, will reach USD 800,000 M in 2024. In this virtual world, first Facebook and then Microsoft, Google, Apple or Nvidia have decided to bet heavily. In the case of Facebook, it is a digital universe that aims to serve to work, have fun and interact. To do this, it has customizable virtual and augmented reality avatars. And instead of fiat money, cryptocurrencies will be used to make payments.

                  Fidelity International found out that «allusions to the metaverse, in companies board meetings, have increased at a much faster rate than previous technological trends»:

                So, when betting on the future, it is convenient to see the companies that are part of the metaverse, a very broad ecosystem with many companies from different fields:

                 Companies like Nvidia will fuel the metaverse thanks to their graphics processing power. Amazon will have a lot to contribute from its cloud service, Amazon Web Services. While Disney is another company that has announced that will invest in developing its own virtual reality with a focus on «theme parks». Roblox has created its own metaverse and Nike is using this technology as a lever to develop Nikeland, a virtual world to exercise through a personalized avatar.

                  Investment funds in technology and mega trends are a good way to enter this ever-growing world of the metaverse, blockchain and big data. Among others, financial products from international managers such as BNY Mellon Blockchain Innovation Fund, Echiquier Artificial Intelligence or EdR Fund Big Data stand out.

* Senior Advisor at The Cedar Portfolio  and Member of the Advisory Council of the Center on Global Prosperity, de Oakland, California