Goldman Sachs executives discuss macro and encryption: stablecoin applications support the dollar

Organized by: Golden Finance

The TOKEN 2049 Singapore event was held today. Goldman Sachs partner Timothy Moe and renowned analyst and Ex Uno Plures CEO Zoltan Pozsar delivered a keynote speech titled “Macroeconomics and Cryptocurrency” at the event. The speech pointed out that the global economic system is accelerating towards decentralization. U.S. policies are causing a reversal in its economic role, shifting from a traditional “consumer center” to a “production center,” a process that shakes the old economic order dominated by the U.S. dollar. When discussing the main economic risks at the moment, they stated that Europe is facing short-term difficulties due to insufficient investment in infrastructure and defense, influenced by U.S. interest rate policies; Japan and South Korea are struggling due to the impact of U.S. high interest rates and trade bundling strategies, leading to increased pressure on their monetary and asset markets; emerging markets are long-term troubled by high inflation and currency devaluation, while also facing the risk of capital outflows. In this context, although the U.S. dollar is temporarily supported by allies sharing costs and the expansion of stablecoin usage scenarios, its long-term position may be shaken. In terms of investment advice, Pozsar emphasized that gold remains the preferred safe-haven asset, as the market's trust crisis in fiat currency intensifies, driving up gold prices. He also pointed out that Bitcoin has certain savings alternative attributes, but its price is highly volatile and significantly affected by regulation; U.S. Treasuries are stable in short-term demand due to policy support, but long-term risks may arise from declining willingness of allies to purchase.

The following is the full text of the speech.

Good afternoon, everyone. We are all very excited to be here. This conference focuses on the field of cryptocurrency, which is actually part of a larger context. We will try to delve deeper into it and clarify the intrinsic connections within. We hope that through this discussion, we can gain insights to better understand this field comprehensively and in-depth, and provide references for your research and thoughts in the cryptocurrency domain. Now, let's officially get into the topic.

Today, people are also discussing the American exceptionalism and the US dollar. Of course, we will delve into this issue in more detail later. But perhaps we can examine how the United States, particularly its monetary and fiscal policies, influence the narrative of this “American exceptionalism.”

I believe the fundamentals of the U.S. economy are improving. First, let's talk about an initiative of the Trump administration. The Trump administration has opened up new sources of fiscal revenue - tariffs. This involves matters related to a sovereign wealth fund, which is expected to generate a considerable amount of revenue. Notably, the funds for this sovereign wealth fund are primarily provided by Japan. Other countries, such as South Korea, are also involved. In other words, the funding sources for this fund involve contributions from other countries.

From a technical perspective, we need to change the nature of capital flows so that they are not merely passive capital used to compensate for deficits, but rather a form of capital return that can genuinely strengthen the U.S. industrial base and has the potential to change its economic growth trajectory. In summary, compared to the growth output driven by artificial intelligence, this mode of capital flow exhibits more prominent performance and broader prospects, warranting our in-depth attention and research.

So, in terms of the fundamentals of the government bond market, has the current situation significantly improved compared to January of this year? I believe that astute investors have gradually realized that the current focus of discussion is no longer limited to “who will fund the fiscal deficit” and “who will buy government bonds”. After all, there was previously a viewpoint that government bond yields would rise to 6%, and the market situation once appeared extremely complex. This reflects the current state of the government bond trading field. Clearly, the government has formulated a well-considered policy plan and is committed to promoting its implementation on a global scale.

There is a point that needs to be highlighted: I tend to view the United States and its allies as a “Western bloc,” in contrast to the Eastern bloc. Within this framework of blocs, the roles are undergoing significant changes. Traditionally, the Western bloc has been characterized by a consumption model centered around the United States, with surrounding countries taking on production functions. However, this situation is currently being reversed.

Therefore, the United States will gradually transform into a production center, while surrounding countries, though not becoming absolute consumption centers in the strictest sense, are clearly developing in that direction. It is worth noting that there are various ways to sort and regulate these economic phenomena. For example, foreign direct investment from allies is undoubtedly an important expenditure in economic activities. Furthermore, if 5% of GDP can be invested in infrastructure and defense, the impact of such a capital allocation will be profound, far beyond what can be covered by a simple one or two analyses. In fact, this trend has developed over many years and will continue for a considerable time in the future. Thus, it is evident that these changes should not be underestimated in their impact on the overall economic landscape.

I would like to elaborate on this point to all the listeners. Currently, there is a viewpoint that, for instance, when mentioning China's capabilities in the manufacturing sector, considers that China's development has impacted relevant industries in the United States, similar statements. Sometimes, the views you express seem, to some extent, to be a response to such viewpoints.

When delving into the root causes of the current predicament, it is necessary to trace back to the 1930s. During that period, the United States undoubtedly held a core position in global production. Some policies implemented by the U.S. at that time essentially had a neo-colonialist tint. Initially, the U.S. made limited tariff retaliations in response to other countries imposing tariffs on it. These measures seemed to have little impact at the outset, but due to the long-standing severe imbalance in the U.S. trade account, it ultimately led to the U.S. being mired in the Great Depression.

In the global industrial production sector, when measured by profit share, the proportion of the United States was extremely high at that time. If we are to explore economies with similar characteristics today, there is no doubt that it is China. It can be seen that when the United States implements a series of unreasonable policy measures, although some Chinese export products will indeed be impacted, from an overall perspective, the negative impact of these shocks on China is far greater than the impact on the United States itself. Indeed, key industries such as rare earths hold a special position in the international trade pattern; however, the United States has not set up trade barriers against these sectors. Nevertheless, from the perspective of the actual economic issues within the United States, could this be rooted in some underlying factors?

We should recognize that, in terms of China, the current export situation is difficult to compare with the past. A series of strategies implemented by the United States aims to put China in a relatively disadvantaged position. At the same time, the United States has also urged its allies to adopt a series of policy measures against China, mainly reflected in three aspects. For example, the so-called “North American Fortress” plan has led Canada and Mexico to impose tariffs on Chinese products. Chinese food companies are clearly feeling the pressure brought by this series of actions from the United States. However, although this move by the United States will have a certain impact on Chinese exports, from another perspective, after the United States builds trade barriers, other countries will inevitably import more from China to meet their own needs.

Therefore, these countries are also facing corresponding situations. As previously discussed, China will take certain measures. The stronger the trade protectionist measures implemented by the United States, the more it involves issues at the level of game theory. What I mean by game theory is that this theory still plays a role in the current trade situation. It is worth noting that the current international economic structure can produce some unique effects.

Next, let us connect this topic with the field you are studying, as this will bring more inspiration to our discussion. After that, we will analyze the monetary factors, such as interest rate changes and the impact of current government policies on them. How do you view the trend of cycles in the current economic environment? We might start with recent economic data; the current curve's end yield has decreased, indicating that there have been some changes in the economic situation. Looking back a year or two, the economic environment was in a state of tension, but now the investment strategies of banks and central banks have also changed, no longer engaging in large-scale repurchase activities as before, reflecting that the current economic environment has undergone significant changes.

It is worth noting that the recent pace of interest rate cuts has exceeded expectations, and the depth and speed of market fluctuations have also exceeded predictions, which fully demonstrates that market expectations are rapidly influencing the economy. Against this backdrop, the Federal Reserve's decision-making direction is receiving much attention. Currently, the Federal Reserve's policy seems to be more inclined to review the past, with insufficient consideration of future economic risks and a lack of forward-looking judgment on future trends. This situation will obviously impact the selection of the Federal Reserve Chair and the policy-making process.

With the widespread application of computer technology in various fields, productivity has improved, but it also faces new challenges and opportunities. This complex economic phenomenon is worth our in-depth study.

Therefore, artificial intelligence is of great significance in this field. It can significantly enhance productivity levels, and in this process, it will have a substitution effect on white-collar jobs, while also affecting related industries. Meanwhile, blue-collar jobs have faced a severe loss issue since the 1990s and the early 21st century. This phenomenon reflects a significant shift in the employment structure, truly marking a reversal of fate.

In light of this, we must focus on future development, as the widespread application of artificial intelligence will bring deflationary pressure to some extent. At the same time, from both the present and future perspectives, one key factor in the deficit problem facing the United States is the level of interest rates. People often overlook the concept of the primary deficit, which refers to the deficit portion after excluding interest expenses. In nominal GDP, it accounts for only 2%. Meanwhile, interest expenses account for as much as half of the deficit. If a series of targeted measures are taken, many related issues are expected to be alleviated.

In addition, if we delve into the details of the investment agreement between the United States and Japan, we will find that the reference interest rate for loans provided by Japan to U.S. shipyards and chip manufacturing is currently set for a 6-month term. Obtaining funding at a lower interest rate is more advantageous for investment. Various factors compel us to respond swiftly to related issues, which also reflects the Federal Reserve's comprehensive consideration from a macroeconomic perspective.

Overall, we need to explore feasible solutions that help economic entities enjoy policy benefits more quickly and achieve effective interest rate reductions. I believe this is a highly specialized and technical discussion topic. Even appointing the most outstanding chair of the Federal Reserve may only lead to slight improvements in the overall economic situation, as the complexity and multiplicity of the economic system determine that change is not achieved overnight.

So I believe that some governments may need to collaborate on a series of related issues, of course, this is another topic that requires in-depth discussion. That being said, the current situation we face is that we either respond proactively or let the global credit system decline. Here, I hope you can combine this situation with the various information we have and conduct research and analysis on a series of related products.

It is evident that if restrictions are sharply reduced, and this situation is not commonly present in other regions, then this impact may spill over to related industries and gradually spread. This is also one of the important factors leading to regional tensions and an increased risk of conflict, while possibly exerting downward pressure on market prices. This does not mean that we expect to see the formation of a certain power structure, and in fact, this is not the situation we hope to occur.

This is indeed a significant issue worth paying attention to. In today's era, it is difficult for various interest parties to come together to discuss and determine reasonable market levels. From a macroeconomic perspective, narrowing the interest rate gap between the United States and other countries may be a feasible solution. It should be noted that the United States has certain advantages in terms of fiscal fundamentals, and its policy direction has an important impact on the trajectory of the interest rate curve.

In terms of Europe, it plans to allocate 5% of its GDP to infrastructure construction and defense spending. However, whether this initiative can effectively enhance industrial production capacity and promote sustainable economic development remains to be seen. To some extent, there are many uncertainties regarding the actual effects of this decision.

Taking the interest rate curve as an example, if the curve is too steep, it may lead to difficulties in interest rate adjustments, thus keeping interest rates at a high level. Currently, the United States is actively promoting Japan to achieve interest rate normalization, encouraging its interest rate curve to return to a reasonable range. China is also facing similar complex economic situations and policy challenges to some extent. If this situation continues, it will undoubtedly bring many adverse effects to the global economy.

Therefore, this is not about the agreement itself, but rather a discussion centered around a viewpoint that the US dollar may continue a certain trend. Next, we will relate this to the macroeconomic situation. Clearly, the gold market has performed quite notably this year. We might as well contemplate fiat currencies, gold, and cryptocurrencies within a broader economic context.

First, it is necessary to clarify some key points. If there are certain established factors, they will continue to play a role and drive related economic indicators upward. This does not mean that there will be dazzling growth, but rather that it will develop in a relatively stable manner with a global impact. For us, the key is that the economic fundamentals are gradually improving. In the future, we hope to build a hybrid system where multiple forms of currency coexist.

Since 2022, the gold market has received considerable attention. At different stages, its price fluctuations are driven by various factors. On one hand, central banks in other countries around the world continue to steadily accumulate gold reserves, as if fulfilling a firm commitment; on the other hand, concerns about terrorism arising from geopolitical tensions can also impact the gold market. Furthermore, the development from physical trading to the cryptocurrency sector has brought new changes to the gold market. Currently, the value trends we observe in the gold market are not solely determined by the information conveyed by the media. In fact, we are striving to explore the deeper logic behind it, attempting to restore market phenomena to their rightful economic logic framework. This perspective has gained relatively wide recognition in academic discussions.

At the same time, the economic development process has gone through stages of higher inequality in history. This phenomenon is reflected in donation behaviors and information dissemination, but it is not the core content of our discussion. Behind many economic phenomena lies the distrust among market participants. In economic activities, the idea that “money equals resources” still exists. Many people encounter shocking opportunities and challenges at specific stages of economic activities, and when analyzing these phenomena, we need to use complex data analysis tools. Some economic factors have such a profound impact on the U.S. economy that they limit the U.S.'s development space in other areas and affect the economic decisions of other countries. All these independent economic phenomena constitute a part of our research.

This can be seen as a report on economic driving factors. In my view, the current global economic landscape presents a unique state, with British companies having a significant impact on the global economy through their decisions and recommendations in certain aspects. This phenomenon is quite special in the economic field, and the related trade dynamics are also very subtle. The United States focuses on maintaining the stability of the dollar in its economic policy formulation and fully utilizes the flexibility of the economic system to gain benefits. Meanwhile, cryptocurrencies occupy a unique position within the entire economic system, akin to being in the core zone. Bitcoin has certain savings substitute attributes, but its price is highly volatile and greatly influenced by regulation. In recent years, there have been some changes in the trend of gold investment, closely related to the developments in the resource market and digital gold. It can be said that these different economic elements are gradually merging. However, how to find the best balance among these complex economic elements remains a question worth in-depth study, which may vary depending on individual research perspectives and analytical methods.

From the perspective of relative GDP, if we want to address some of the existing issues in the current economy, such as economic imbalances, we need to comprehensively consider various factors within the same economic environment and attempt to find solutions. This involves both micro-level aspects like marketing strategies and macro-level aspects such as economic policies. Alternatively, we can try to adjust economic policies according to a specific approach, such as achieving economic fairness through reasonable control of the money supply. This means establishing a stable value anchor and building an open and transparent institutional framework, allowing different currencies to play various roles in the economic system while ensuring sufficient money supply to support infrastructure development in various countries. When we regulate these factors, economic phenomena will change accordingly, and we need to conduct in-depth analysis and explanation.

It can be said that without in-depth research and understanding of these factors, it is difficult for us to comprehensively grasp the laws of economic operation. In this regard, the United States is relatively fortunate to have the current leadership team. The government under President Trump maintains a relatively consistent direction in economic decision-making. Treasury Secretary Mnuchin plays an important role in the government, and he has deep thoughts on how to address the current economic issues. For example, in the face of economic difficulties, there are usually two policy options: cutting welfare or raising taxes. The U.S. government is trying to implement relevant policies at the corporate level. One measure is to impose tariffs on exports, while NATO countries allocate 5% of their GDP for defense spending, which is a priority welfare item before social security in the European economic system. In the international political and economic landscape, countries hope to ensure their own security. If countries try their best to address issues within their capabilities and achieve good results, there is no need to seek external assistance.

By shifting some costs to trade surplus countries, the United States can not only acquire export income and reduce its own expenses but also guide these surplus countries to invest in the service and manufacturing sectors in the U.S. rather than developing their own net export sectors. Although this strategy is complex and has a certain degree of uncertainty, it could have a positive impact on U.S. economic growth, tax revenue, and the job market in the long run. Taking the current U.S. fiscal deficit as an example, it is currently about 6% and is expected to decrease in the near future. If interest rates are 100 basis points lower than the nominal economic growth rate, economic indicators will change, but the decrease in the deficit does not solely depend on this factor. This adjustment process is relatively mild and will not bring excessive pain to the economy.

In addition, from an investment perspective, any investor with a portfolio hopes that assets can provide stable returns. Because if the portfolio contains only appreciating assets, when investors need to allocate funds or respond to emergencies, they will have to sell assets. Although investors can optimize decisions by learning investment knowledge, returns may only come from limited coupons. As a traditional asset, gold does not provide fixed substantial returns, but due to its stability and hedging properties, it always occupies an important position in the investment portfolio.

In summary, this is the current economic situation in the United States. In contrast, countries like France, Japan, and South Korea may face more severe challenges amid similar changes in the global economic environment. What is the specific situation? Next, let us temporarily turn our attention to currency testing; through this method, we can further connect various economic elements and anticipate future trends in the world economy. Under the influence of rapidly changing economic forces, the stable points in the economic system are also constantly adjusting. In the face of changes in the future currency system, the government and the private sector need to make corresponding decisions, which may require abandoning some traditional practices to adapt to the new economic situation.

Therefore, I believe that from a national perspective, the public-private partnership model undoubtedly holds significant importance. The current issue is how to view the challenges this model faces in practical operation. For my part, my focus has always been on areas related to security products. Any scholar who has conducted in-depth research on the history of currency knows that the issuance and circulation of currency either targets the general public or relies on the cooperation of partners. In the current context, while we can understand the existence of certain phenomena, we must admit that in promoting relevant reforms and developments, actual actions still seem to lag behind.

I firmly believe that the current currency system has certain advantages compared to the traditional centralized currency system. From both international and domestic perspectives, this system is expected to enhance the operational efficiency of the banking system. As a form of currency creation, its impact on the economy cannot be ignored. However, there are still many areas for improvement within this system, and all parties need to further deepen their learning and exploration. This actually constitutes a brand new economic association model, which is very likely to bring significant changes to the existing economic landscape from a macroeconomic perspective.

Here, I would like to mention a phenomenon regarding the economic dynamics from Africa. One might consider whether these new situations will impact the transmission mechanism of the global economy? And to what extent will they affect the economic relations between countries? From the perspective of the evolution of the global economic landscape, we have long been under a dollar-dominated system, which is characterized by a high concentration of resources at the top. Taking China as an example, when China exports goods to the United States and acquires dollars, it usually needs to remit the dollars to its central bank, which then converts them into its local currency. This process results in a significant concentration of dollars at the national level, creating a unique economic phenomenon.

This system has exposed some problems during its operation. For many countries, especially those that have geopolitical differences with the United States, their attitudes and methods of participation in the dollar system are changing. This phenomenon is underpinned by complex geopolitical and economic interest considerations, and the United States, leveraging the unique position of the dollar system, has gained various advantages in the global economy.

Regarding the concept of “stablecoins” in the dollar system, we can understand it this way. Suppose some countries (such as China and other emerging nations) reduce their purchases of US Treasury bonds based on their own economic development strategies and risk considerations. The reasons behind this decision may vary; perhaps they have detected potential risks or need to optimize their asset allocation. In this case, the US financial system will inevitably be affected. So, how can we find new “stablecoins” in this changing environment? This requires all parties to re-examine and adjust their economic strategies.

In daily economic activities, people face numerous currency choices and transaction issues. For example, when using a credit card for purchases, the settlement currency of the credit card (such as a US credit card) can significantly impact the transaction. Cardholders may decide whether to convert their funds into US dollars based on their economic situation and market conditions during the transaction process. If the use of stablecoins can provide a more convenient and economical payment method, then in some cases, people may prefer to use stablecoins for transactions. This seemingly simple daily transaction behavior actually reflects the operational status of the global monetary system at a micro level and the interactions between different currencies.

This phenomenon is reflected in many countries and regions around the world. The United States has created a new capital operation model through various digital currencies (such as USDT, USDC, etc.) to provide funding support. Ordinary investors, when conducting daily transactions, may not realize that their actions have, to some extent, supported the U.S. government’s debt financing. Looking back two or three years ago, the United States faced challenges in debt financing, and now the adjustments in investment strategies from countries like China towards the U.S. will undoubtedly trigger a chain reaction in the global economic landscape.

Today, many countries' economies are facing similar dilemmas. When the public uses cards for daily consumption, what accumulates is not local currency deposits, but dollars. This phenomenon not only affects the circulation of local currency and the stability of the financial system but also deepens the local economy's dependence on the dollar. This situation helps the United States consolidate its dominant position in the global economy, but it brings numerous challenges and risks for other countries.

In summary, I believe that this economic strategy of the United States demonstrates a high level of wisdom, but at the same time, it has triggered profound changes in the global economic landscape. In the long run, we need to pay attention to two key factors. First, the value fluctuations of the dollar have cyclical characteristics. Although the dollar has not experienced a significant downward cycle in the past period, with changes in the global economic situation and adjustments in various countries' economic policies, the cyclical fluctuations in the value of the dollar are unavoidable. Second, the development trend of the dollar network cannot be ignored. During the previous administration, although the dollar performed strongly in terms of exchange rates, its influence in the global economic network was gradually eroded in the margins. This is mainly reflected in the increasing number of countries beginning to use their own currencies for trade settlements and actively promoting the development of Central Bank Digital Currency (CBDC) projects. In the face of this situation, the U.S. government has taken a series of countermeasures aimed at maintaining the global dominance of the dollar.

Under the current government's leadership, we can foresee further expansion of the dollar network, although the dollar may face some degree of depreciation pressure. In the financial markets, this seemingly contradictory phenomenon actually reflects the complexity and dynamics of the global economic landscape. Finally, let's look at a set of data: currently, the 5-year treasury yield is 13%, the 12-year is 10%, and the 2.5-year is 2.5%. The relevant data for current U.S. Treasury indicates that the 3.5-year treasury yield is 4.15%, and the dollar index (DXY) is around 98. This data provides an important reference for our further analysis of the global economic situation. That is the situation.

So, this discussion will come to an end here. Goodbye!