MemberSeptember 22, 2021 at 7:25 am
In 1987 the U.S. military coined the term VUCA, referring to the increasing volatility, uncertainty, complexity and ambiguity of a multipolar world. It was used to describe one particular period of change. But it also perfectly describes the turmoil seen around the world over the last two years. COVID-19 and the reaction to it have thrown the world into chaos. Whole industries have been destroyed, while entirely new ways of working have become the norm. Meanwhile, vast government debt issuance and money printing to pay for the response will saddle the world with debt and inflation for years to come.
Beneath the COVID headlines, other changes are happening that will have similar long-lasting effects. The trade war between China and the U.S. and their ongoing decoupling are already having an enormous impact, with share price collapses, broken supply chains and mutual distrust. The rise of the crypto economy to a value of $1.6 trillion is shaking the global financial system. As we speak, policymakers around the world are grappling with new regulations to control crypto markets, while also working to set up their own crypto systems via central bank digital currencies (CBDC).
In normal times, such a wall of worry would result in a flight for safety, but even that is difficult in the new normal. With travel restrictions, gold is less portable than ever. Government bonds have flipped from offering a risk-free return to offering a return-free risk.
Put this all together and it’s likely we’re at a pivotal moment in financial history, where the current financial system and its attendant architecture have run their course, similar to the ending of the gold standard in 1971. As in 1971, when the financial system changes a whole new set of asset classes and sources of revenue will come into being.