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In recent weeks we have had the G7, the NATO summit, the BRICS summit, and the G20. All these meetings have had the merit of revealing more clearly a world in even greater fragmentation than just a few weeks ago. These are all the various facets of an increasingly fragmented rubik’s cube with an added dynamic of dislocation. This does not bode well at all.

Several facts are there to illustrate this fragmentation, but it is also a shift, and even a transition of power. We must even speak of a seesaw movement, where the countries of the South are asserting themselves with much more vigor.

The first fact is first of all what happened at the G7. Indeed, for the members of the G7 who therefore met in Germany, the question was whether they can really push back Vladimir Putin in Ukraine. However, after these few weeks, we can’t help but see that Westerners also seem to be lagging behind in the evolution of the planet.

The second highlight is also on the side of NATO, in a major meeting in Madrid, during which the members of the Alliance clearly reaffirmed their unity.

The third highlight is at the G20, the expanded format of the G7, that it must be found. Indonesia, which did not take into account the injunctions made to it not to invite Russia to the G20.

The fourth highlight is the BRICS meeting (Brazil, Russia, India, China, South Africa). Admittedly, it was a virtual meeting for health reasons. This BRICS summit, hosted by Beijing this year, is a major event in this shift in the world that we are witnessing. Because the BRICS group is now about to grow with the desire of Iran, Saudi Arabia, Indonesia, and Argentina to join this group, which in fact constitutes membership in the New Silk Roads project. This is not nothing, because among these four new members, there are no less than 3 members of the G20, including three major oil producers!

What we are experiencing is therefore not insignificant, but should not be a surprise. This turning point that we are living with force today, we have to go back several years to measure its historical significance. We are indeed witnessing a clear desire for emancipation on the part of the countries of the South, and the threats of sanctions no longer scare them.

Already in 2009, and in the years that followed, many countries of the South had expressed their desire to reform the international monetary system, after the financial crisis of 2007-2008. But in the trading rooms of London or New York, the concern was above all to get out of this trap as best they could, thanks to generous liquidity operations to save systemic institutions. “Too big to fail” they said. So that justified all the sacrifices and the public was going to end up benefiting from it, at least that’s what was promised to public opinions. Calls from the South to reform the monetary system were therefore received without too much attention, since what mattered was to save these systemic institutions. And year after year, the illusion set in. “Kick the can down the road…” was the motto on Wall Street and in asset management circles.

In the meantime, no one was listening to these suggestions for monetary reforms. They were very wise.

However, it would seem that we are gradually moving towards these reforms, and the seesaw movement we are witnessing could even contribute to this.

We are heading in that direction and it seems to be unavoidable this time.

First, because within the G7 alone, tensions are going to be untenable. For a reminder, 3 of the 7 members in the G7 are within the Euro area, a Euro area under extreme stress, with Germany, France and Italy facing a debt crisis which is putting them at odds against each other. How long will they be able to maintain a certain unity?  The Euro is already losing ground, and markets are noticing the challenge for the ECB of trying to square the circle of economies that are requiring completely divergent monetary policies. On the one hand Germany’s economy where rates should be hiked a lot more sharply, while for Italy and France, the next rounds of rate hikes could be devastating. The Euro is about to experience moments that could put its own existence at risk in the coming months.

The second reason, and not least important, that should lead us to a monetary shift of paradigm sooner than we think has to do with events in emerging countries. Sri Lanka appears to be the most obvious example. Here is a country brought to the brink of implosion. And it may not be alone in such a dire situation. The strength of the US$ itself is becoming a problem. With the key reserve currency of the world gaining strength, it will become increasingly difficult for countries whose debt is in US$ to continue to pay interest and principal of their debt properly.

We were warning about that a few months ago already. Whenever interest rates in US$ go up, it sends a shock wave to the rest of the world. It’s called the Triffin Dilemma and we talked about it a few weeks ago.

But we also talked about how the US$ is not about to lose that status that fast. It could continue to maintain its global currency reserve mantel regardless of the challenges we just highlighted. In that regard, we fully subscribe to Ray Dalio’s view which states that a reserve currency status lasts a lot longer than what the fundamentals dictate.

In the meantime, countries of the South, through the G20 and BRICS framework, will continue to look for alternatives that will alleviate their challenges.

But it may take a lot longer to settle and for each of us to see through the dust. Once the dust settles, it may have taken several years, if not decades.

That’s what I wanted to share with you for the time being,

Let me know if you have questions and I look forward to hearing your thoughts. Feel free to comment.

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