On Monday, some people (like me) were struck by a brief note published by Zoltan Pozsar, Credit Suisse’s short-term interest rate strategist, about a new world monetary order. At first blush, the full note (available here) seems to be unrelated to Bitcoin (but more on that later).

Pozsar sees the “birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the eurodollar system and also contribute to inflationary forces in the West.” Here’s what it might mean for us if his assessment of the world is accurate and how it’s related to Bitcoin.

I totally already know, but what is Bretton Woods again?

The Bretton Woods system was a system of monetary management established in 1944, more toward the end of World War II. It set the rules for financial relations between countries and created the International Monetary Fund, World Bank and World Trade Organization. In short, Bretton Woods outlined the rules central banks and governments played by financially.

Entire books have been written about Bretton Woods, and so I won’t pretend this piece is an exhaustive history of how things happened, but it helps to recall (as painlessly as we can) how we got from Bretton Woods I to III.

First, we need to explain one important concept. The term “countries’ reserves” is thrown around a lot with little explanation. It simply means that governments hold different types of currencies, securities or commodities (i.e. “stuff”) to react to things that are happening in the economy. For example, if your currency looks weak, you sell foreign currency and buy your own. Without “stuff” in reserve, governments and central banks can’t react. Countries are free to hold whatever “stuff” they want in reserve.

The first iteration of Bretton Woods, now called Bretton Woods I, was a gold-based system where the U.S. dollar dominated and was freely convertible into gold at $35 per ounce (about 5,600% below its current price). This is where “the U.S. dollar is backed by gold” misappropriation comes from. In 1971, a confluence of factors led to the U.S. changing its currency so that the dollar was free-floating and backed by the full faith and credit of the government, not to mention by a massive military and oil.

From there, Bretton Woods II was born, where the dollar still dominates, but in a system that mostly uses “inside money.” Inside money is made up of claims that are someone else’s liability, while outside money is the type of money that is the liability of no one. In other words, the money system became largely debt-based. So when China holds U.S. Treasurys, that is inside money. When Russia sells USD to buy gold, that is outside money.