Is a currency crisis brewing in #eurozone ? Most economists maintain a currency crisis is only possible in countries whose debt is denominated in a currency they cannot print, e.g. emerging economies borrowing in USD. As the Eurozone’s debt is almost entirely issued in euros a currency crisis is technically impossible. Or is it?

The weaponization of the #usdollar brought about by the Ukraine sanctions was a turning point for the financial global order (https://bit.ly/3T0RGz1). #Russia‘s sanctions made clear to a variety of participants, China and oil producing countries for example, that their access to the global financial markets and reserves is conditional to the US. The response has been a declining appetite for US treasuries, the fragmentation of energy markets and the acceleration of alternative trade arrangements such as “oil for yuan” or “gas for rubles”.

The biggest loser in this new #geopolitical regime has been the Eurozone. The combination of inflation and the new geopolitical regime created a situation whereby the value of the Euro has collapsed relative to the USD at the same time the price and supply of energy are experiencing the most severe dislocation in decades. As net energy importers, these countries carry an “energy debt”, e.g. a running obligation that needs to be settled in USD. As their currencies devalue, provisioning such energy debt becomes more and more difficult leading to a deeply negative balance of payment (see chart). The latter leads to more inflation and further devaluation of the currency. A doom-loop emerging economies are very familiar with but that, for advanced economies, is an unwelcomed novelty.

Should the Euro’s devaluation continue, the ability of these countries to access critical resources may become impaired. Some kind of IMF/US intervention, possibly a new “Plaza Accord”, would become necessary to prevent unsavory geopolitical instability in an ever more deglobalized world. The implications for investors are substantial as the USD would deflate at the benefit of the Euro but also likely consecrate higher US #cpi for longer.

More importantly, such intervention would make #commodity exporters, especially those with large current account surpluses, ever more wary of getting paid in IOUs whose future value is in question, hence accelerating the inevitable transition to a new global economic and financial order. A system where commodities and other real assets become monetized, i.e. serve as both a store of value and mean of exchange, eventually replacing #fiatcurrency . Asset digitalization and tokenization technology will be front and center of this revolution and provide cognizant investors with the next wave of generational opportunity.

Disclosure: Hold all assets mentioned. Not investment advice. Do your own research.