Zoltan’s Year-End Masterpiece: Dusk For The Petrodollar, Dawn For The Petroyuan And The Coming Commodity Rehypothecation

Earlier this month, former NY Fed repo guru Zoltan Pozsar wrote one of his most important reports of 2022, in which he described how Putin could unleash hell on the Western financial system by demanding that instead of dollars, Russian oil exporters are paid in gold, effectively pegging oil to gold and launching Petrogold. Such a move, Zoltan said, would lead to an immediate overnight banking crisis due to the synthetic gold short held by most western banks:

Banks active in the paper gold market would face a liquidity shortfall, as all banks active in commodities tend to be long OTC derivative receivables hedged with futures (an asymmetric liquidity position). That’s a risk we don’t think enough about and a risk that could complicate the coming year-end turn, as a sharp move in gold prices could force an unexpected mobilization of reserves (from the o/n RRP facility to banks) and expansions in balance sheets (SLR) and risk-weighted assets. That’s the last thing we need around year-end.

Yet one thing which Pozsar’s ignored in his latest piece, perhaps on purpose, was China (which as we now know was has secretly been buying up hundreds of tons of physical gold) and specifically how it would fit into this new global monetary arrangement, an arrangement which as we explained previously, it was actively preparing for: