In 1913, China issued a £25 million gold loan through a consortium of British, German, French, Russian and Japanese banks. Within a year, several of those powers were at war. Yet the eventual beneficiary of Britain’s declining monetary supremacy was America. There is an instructive analogy for today. Between 1913 and 1945, Britain was the incumbent monetary hegemon, America the ascendant industrial power, and Germany the geopolitical challenger. Germany challenged Britain’s security order. America inherited its monetary position. War accelerated an economic transition already under way, converting American industrial strength into creditor power and eventually monetary dominance. Today, America is the monetary incumbent, China the industrial challenger, while Russia and Iran disrupt the European and Persian Gulf security orders. But there is an additional complication: America is also undermining some of its own monetary advantages. By weaponising the dollar through sanctions, reserve immobilisation and financial exclusion, Washington is encouraging other sovereigns to reduce their dependence on American monetary infrastructure. Meanwhile, prolonged military commitments impose fiscal and strategic costs, while geopolitical disruptions threaten the trade and energy flows supporting China’s industrial economy. The consequences are contradictory. Financial coercion encourages alternative payment arrangements, while geopolitical crises can reinforce demand for dollar liquidity. China’s industrial ascendancy does not automatically translate into monetary succession. For Africa and the Global South, this distinction is critical . Trade settlement, international financing and reserve accumulation need not remain anchored to the same currency. More options beat less. The emerging hegemonic transition is a two-power economic competition unfolding within a multipower geopolitical conflict. Its outcome may depend less on China’s industrial ascendancy alone than on whether geopolitical conflict and monetary coercion erode America’s financial advantages faster than they damage China’s productive advantages. The greatest beneficiary of a hegemonic conflict need not be the power that starts it, fights it or wins it.

Those that study monetary history know the sequence: •Physical hegemony change - Energy, Industry, Trade •Bond yields cross •Financial hegemony change - Financial, Monetary We need not cross to RMB as the reserve asset. Maybe the gold bugs are right. Maybe it will be collateralised bilateral central bank swaps. The UST is no longer the trusted Global Reserve/ Settlement/ Collateral Asset. Scotland as 21st Century Hong Kong for Arctic access. 🫣

I’m outside the house! When your boss has bankrupted every casino he has run.

This is a sovereign debt crisis and not a private debt crisis. This crisis is inflationary and a private debt crisis is deflationary. It’s government debt service ratios not debt to gdp - Debt Payments/ Income - Debt Issuance/ Expenditure Ask any EMDE trader — G7 governments are becoming banana republics as debt servicing requirements take up an increasing proportion of income and expenditure against the fact that G7 governments neither want to tax citizens or reduce programs. The dynamics are self reinforcing for now.

The Hegemonic Yield Spread Widens. US10Y - CN10Y = 357bppa This has just exploded in the past month and China CUTS rates!! Who is Superman, who is Buzarro? America pays more for capital; China pays less to turn capital into capacity. In a CAPEX-intensive technological transition, that difference compounds through every power plant, grid, battery factory, EV plant and data centre. America may offer investors the higher return on capital. China may offer industry the lower cost of capital. For building the next technological system, those are very different advantages. #CAPEXTransition #DollarCitizenship #YuanCarryTrade scmp.com/business/banking-fi…

The elephant in the room for CAPEX — Energy, Compute, or Manufacturing — is the Cost of Capital. Chinese Produced Goods are Cheaper RMB financing is also Cheaper than USD Financing Chinese ElectroTech, ComputeTech, or ManufacturingTech with RMB is over 350bppa cheaper for 10 year debt. RMB financing for Chinese Real Goods is the #YuanCarryTrade

Global and Domestic Balancing The problem with “global rebalancing” is that nobody appears to say clearly what a balanced economy actually looks like or the end point they are aiming for. Apparently, we can identify imbalance easily enough: China may invest too much and consume too little; the US may consume too much and save too little. But that only tells us the direction of adjustment, not the destination. A zero current account is not balance. Nor is there a universally correct consumption-to-investment ratio. Is it better to think of balance dynamically? A domestic economy is balanced when its structure of production, income, consumption and investment can reproduce itself without requiring progressively greater leverage, asset inflation, income suppression or dependence on external demand. But that is impossible as fiat currencies are tax backed and tax policy is coercive by definition. Internationally, balance does not require every country to run (CA=0). It requires that persistent surpluses and deficits serve intelligible intertemporal purposes, and that the claims they create remain serviceable. Once again we meet inter-generational politics as governments trade generations against each other. Accounting balance is an identity. Macroeconomic balance is a structure. Sustainable equilibrium is a property of that structure through time. Perhaps “balance” is not a destination at all. Perhaps it is a stability property. If so it is completely and utterly a political construct under a fiat currency. Coercion can work domestically where politics allow. Internationally it’s the same but the politics is harder — significantly.

Bond Yields and Infrastructure Financing If energy moves from buying molecules repeatedly to financing machines upfront, the monetary locus of energy moves from settlement to capital. The energy transition therefore changes what money does within the energy system. Fossil energy requires the repeated purchase of fuel; electrical energy requires the upfront financing of capital. As expenditure shifts from OPEX to CAPEX, the cost and currency of capital become increasingly important relative to the price and currency of fuel. The CAPEX Transition can therefore become a Monetary Transition: competition shifts from the currency in which energy is traded to the currency in which energy infrastructure is financed. As of Friday, 25 September, the gap between US and Chinese 10-year sovereign yields was roughly 350 basis points, having widened by more than 50 basis points in less than a month. People are not paying enough attention to this. The world is being rewired—for Energy and Compute. Both are increasingly capital-intensive. And G7/dollar capital is no longer necessarily the cheapest capital. For infrastructure finance and global competitiveness, the currency that finances the machines may matter more than the currency that once bought the molecules. @ember_energy @adam_tooze @AdamPosen @Nicolas_Colin @noah_gordon_ #ElectroYuan电力人民币

The CAPEX Transition 
Capital has displaced income — and fuel — as the hinge of energy power. A growing literature now links the energy transition to financial-monetary power: Bracarense and Berthonnet on the “Energy-Yuan”; Huang et al. on a “Green Energy RMB”; Weldzius and Buckson on currency power in a greener, more fragmented system; Ma Jun and @seankidney on cheaper RMB finance riding China’s green-tech supply chain. The energy-finance work is sharper still. @bencaldecott, Gireesh Shrimali and Christian Wilson (Oxford Sustainable Finance Group / @TheSmithSchool) show why the cost of capital becomes decisive as the system electrifies. @IEA surveys find clean-energy WACC in many emerging markets two to three times the level in advanced economies — not because panels are dearer, but because risk is priced that way. What geopolitics still under-theorises is the mechanism itself. Electrification raises the weight of WACC. Monetary competition therefore migrates: from the currency in which energy is bought to the currency in which energy infrastructure is financed. Renewables harvest flows. They do not consume recurring fuel. More of their lifetime cost is paid upfront, so they are structurally more capital-sensitive than thermal plant. Rate shocks illustrate the asymmetry. Between 2021 and 2024, higher financing costs added on the order of 18% to US solar LCOE versus about 9% for gas. In India, Oxford modelling finds a 25% cut in WACC would bring onshore wind to parity with coal. That is the CAPEX transition. It changes the basis of energy-monetary hegemony. In the fossil system, competitiveness turned on the cost of recurring fuel. In the electrified system, it turns on the cost of upfront capital. For the Global South the live contest is therefore no longer: Western technology vs Chinese technology It is: Western technology + the USD cost of capital
versus
Chinese technology + the RMB cost of capital As energy moves from OPEX toward CAPEX, the monetary system that finances that CAPEX becomes part of the technology’s bid. Kit, EPC and the term sheet arrive as one package. In a world of national capitalisms, that is why directed credit, preferential refinancing and the management of domestic capital costs are no longer “industrial policy on the side.” They are energy strategy. This is not an argument that development requires abandoning the dollar. It is that development can become cheaper when you are no longer captive to the dollar curve — provided the alternative is not a different captivity: unhedgeable RMB debt, weak offtakers, or grids that never get built. WACC is not only the policy rate. Currency mismatch, DISCOM risk and transmission still kill projects that look cheap on a slide. The prize is still real. Whoever can hold down the cost of building the machine — not just the price of burning the fuel — writes the default offer for countries that cannot print a reserve currency. That is why the CAPEX transition matters.
 Monetary power is moving from the invoice for barrels to the term sheet for silicon, steel and transformers. #CAPEXTransition #ElectroYuan电力人民币

The software companies are getting a brutal lesson in hardware and project financing. The days of free cashflow to pump up share prices and perform share buybacks are over!

A Cambrian Explosion of Creativity We may have spent thousands of years creating knowledge faster than we could explore its implications. If so, things have changed. OpenAI says an internal model, training only since 28 August, has already resolved more than 100 long-standing open problems across mathematics. Its own mathematicians were surprised by the rate at which the problems fell. (openai.com/index/advisory-gr…) This adds to a trend that I suspect may be larger than mathematics, or even AI. Language, in its most abstract sense — natural language, mathematics, code, notation — is how we represent knowledge and, imperfectly, reality. Semantic ←→ Epistemic ←→ Ontic Civilisation has accumulated an enormous architecture of such representations. But accumulation is not exploration. Much of what follows from what we already know may remain unknown simply because no human being has searched the relevant path. Epistemic cartography. AlphaGo gave us the first startling glimpse. Move 37 was not retrieved from a Go textbook. It emerged from searching a possibility-space centuries of human play had explored only sparsely. AlphaZero went further, starting without human games and rediscovering the strategic landscape for itself. AlphaFold was the more consequential transition. Go is a world whose rules we invented. Protein folding is a world whose rules nature invented. The machine had crossed from discovering possibilities inside a formal human game to finding structure in a physical system we had spent decades struggling to understand. Mathematics now pushes the same idea back into the most abstract language we possess. This is what interests me: machine-assisted discovery in latent language spaces. The machine is not finding reality hidden inside language. It is finding implications hidden inside our representations of reality — relationships, constructions and hypotheses that are already possible within what we know, but which no human has yet made explicit. Semantic unknown-knowns. The sequence is simple: representation → search → hypothesis → verification → knowledge Mathematics is unusually clean because proof can close the loop. Physics, chemistry, biology, materials science and engineering eventually have to ask nature. Software can ask the machine directly: compile, execute, test. And that is where this becomes extraordinary. We may be approaching a Cambrian explosion of human creativity: not because machines suddenly contain all knowledge, but because enormous spaces created by accumulated human knowledge have become searchable at machine scale. We spent civilisation building the library. We may only now have invented the reader.

Absolutely

A Russian 🇷🇺 woman who lived in Trinidad 🇹🇹 for 10 years, says she not the same anymore, she doesn’t like things from Russia anymore, she likes Trinidad culture over where she was born 🤣

Renewables are affected by the weather and therefore climate. People need to look at hydro! Mitigation is the Carbon Cycle. Adaptation is the Water Cycle.

🤣

Multicurrency Functionalism US–China 10-year borrowing costs have diverged to a record 317bp: 4.85% versus 1.68%. Cheap RMB funding is already driving record offshore RMB borrowing. US-China borrowing costs diverge to widest level ever The usual question is whether the renminbi can replace the dollar. It may be the wrong question. @Kathleen_Tyson_ ’s Multicurrency Mercantilism sees trade fragmenting across currencies rather than migrating to a new hegemon. Zoltan Pozsar’s Bretton Woods III sees commodities and gold recovering monetary importance as confidence in purely financial claims weakens. @AdamPosen and others increasingly frame the problem as the decentring, rather than simple replacement, of the dollar. @B_Eichengreen et al. make the crucial technical point: RMB internationalisation can proceed through trade, investment, lending and swap lines without reproducing the dollar’s financial architecture—or displacing it. I would go one step further: Multicurrency Functionalism. Currencies need not compete for the same economic job. RMB: trade, production, primary finance; USD: liquidity, collateral, secondary finance; XAU: savings, reserves, monetary insurance. The dollar became hegemonic because it bundled these functions. A polarised world appears to want to unbundle them. For the Global South, the emerging choice may therefore be neither dollar nor renminbi. It may be: Build in RMB. Finance and trade liquidity in USD where necessary. Preserve sovereignty in gold. Not de-dollarisation. Monetary specialisation. #MonetaryFunctionalism ft.com/content/258d6f1d-07a5…

𝗦𝗲𝗲𝘀𝗮𝘄𝘀 𝗮𝗻𝗱 𝗼𝘁𝗵𝗲𝗿 𝗽𝗹𝗮𝘆𝗴𝗿𝗼𝘂𝗻𝗱 𝗿𝗶𝗱𝗲𝘀. The argument — by the FT (and others — over China’s trade surplus is beginning at the wrong level. The problem is a monetary problem before it is industrial. 𝗔𝗻 𝗶𝗻𝘁𝗲𝗿𝗻𝗮𝘁𝗶𝗼𝗻𝗮𝗹 “𝗶𝗺𝗯𝗮𝗹𝗮𝗻𝗰𝗲” 𝗽𝗿𝗲𝘀𝘂𝗽𝗽𝗼𝘀𝗲𝘀 𝘀𝗼𝗺𝗲 𝗱𝗲𝗳𝗶𝗻𝗶𝘁𝗶𝗼𝗻 𝗼𝗳 𝗯𝗮𝗹𝗮𝗻𝗰𝗲 𝗮𝗻𝗱 𝘀𝗼𝗺𝗲 𝗺𝗲𝗰𝗵𝗮𝗻𝗶𝘀𝗺 𝗳𝗼𝗿 𝗿𝗲𝘀𝘁𝗼𝗿𝗶𝗻𝗴 𝗶𝘁. The present international monetary order provides neither. It permits persistent creditor and debtor positions, then leaves governments to argue afterwards about which domestic economic model produced the unacceptable outcome. That makes the problem underdetermined. Tariffs and industrial policy may rebuild domestic productive capacity. They may even be strategically necessary. However, they cannot determine whether adjustment should come from China consuming more, America saving more, currencies moving, fiscal policy changing, or some combination of all four. Before prescribing the cure, specify the balancing rule. There is none! ft.com/content/b397ced1-b9bc…

At 5% per annum is going to take a while!

The Change is bigger than many realise. I would go further than the IMF paper — Macroeconomic Impacts of China’s Energy Transition. imf.org/-/media/files/public… Financing EnergyAsCAPEX rather than continually purchasing EnergyAsOPEX produces a radically different long-run cost structure. The distinction may be as consequential as that between hunter-gatherer (CaloriesAsOPEX) and agricultural societies (CaloriesAsCAPEX): one continually searches for flows; the other accumulates productive stock. As energy production migrates from recurrent fuel expenditure towards installed capital, the marginal cost of additional work falls. Ok collapses. The economic organisation around energy must therefore change with it. Once the machinery for producing work increasingly sits on the balance sheet rather than arriving recurrently through the income statement, work itself begins to reorganise. Neo-feudalism? Universal abundance? Who knows? The issue is who is allowed to capture the gains?

The load-bearing on the axle of expression.