Fiat paper money may be living its final chapter, according to Julius Baer’s Asia Pacific chief investment officer Bhaskar Laxminarayan, accelerated by modern monetary theories.
«We are going to see very unorthodox [policies],» said Laxminarayan in a virtual briefing today. «The so-called modern monetary theory of keeping very low rates, printing a lot of money, having rallies go huge distances – this is only possible by the government.»
Two to three years in the near-term, Laxminarayan believes markets will remain stable especially given the ongoing support by governments, most notably the upcoming Biden administration's plans for a near $2 trillion stimulus program.
«Finals Days»
But in the longer term, sustained ultra-loose monetary policy is unlikely to fuel strength in major global currencies. «We may very well agree that, yes, fiat currencies are possibly seeing their final days in one form or another because of the constant debasement.»
According to Laxminarayan, the bank forecasts an end to a strong dollar and mostly sideways movements throughout 2021. This is expected to be a positive driver for emerging market currencies, most notably the Chinese yuan which has strengthened over 9 percent against the dollar since June 2020.
Crypto Takeover? Not So Fast
«[But this] does not necessarily mean that cryptocurrencies can just take over without a certain amount of time, regulation and oversight,» Laxminarayan said.
He noted that a number of issues still need to be resolved, most notably the general public’s understanding of its attributes, function and how to hold or trade the asset. «As a storer of value, crypto still has a way to go but as a fringe asset, it is certainly very interesting.»
2021: No Flight
Despite a weakening dollar, Laxminarayan believes that 2021 will not be the year for safe havens like gold due to significant improvements in the environment across financial, economic, political and other factors. «Gold always does well when in a very high level of uncertainty,» he explained. «But given what we are seeing in terms of the current situation […] gold becomes a sideshow for this year.»
The bank is currently advising investors to take a risk-on approach and stay invested, especially in the coming six months to take advantage of rebounding growth and stimulus support from governments.
