USD to retain its global role despite the ‘Bretton Woods 3’ hype – Rabobank

Sanctions on Russia are seen as accelerating a dramatic shift towards a new global commodity-focused ‘Bretton Woods 3’ architecture. In the view of economists at Rabobank, the opportunity to shift global trade flows away from USD to others is limited – fundamentally, neither CNY nor commodity currencies are set up to rival USD globally. 

‘Bretton Woods 3’ will not work

“Alongside dramatic world events ‘Bretton Woods 3’ has an appealing market narrative. Indeed, we agree with a lot of its core arguments, depressing as they are. However, it is not new. It is old. And in not looking back enough, it fails to look forward sufficiently.” 

“BW3 will not work, and USD will retain its leading global role – albeit perhaps with more sticks and fewer carrots.”

“If we were to see fewer USD circulating internationally via trade, servicing Eurodollar debt will just get harder – and that will keep a structural bid behind USD. By contrast, borrowing in CNY will still be unattractive for almost every economy given China’s persistent trade surpluses and capital controls.”

“On BW3 all we will see at best is a marginal increase in the ‘offsetting’ use of CNY ahead – and more rapid global decoupling, likely to its ultimate detriment.”