The Exhaustion of Monetary Consensus
wykco essay | January 2026
Current openings:
The Exhaustion of Monetary Consensus:
Why Regime Change Is Not Forecast, But Structural
The global financial system enters 2025 operating on an assumption that has worn thin: the assumption that sovereign debt matters, that currency discipline binds policy, and that reserve architecture remains stable. This essay examines why that assumption is failing, and what it means for capital allocation in an era when central banks themselves have begun pricing the probability of its failure.
The question is not whether monetary regimes change. They always do. The question is whether the current transition is already priced into institutional capital allocation, or whether the most consequential repositioning is still ahead.
The Mechanics of Regime Exhaustion
A monetary regime does not collapse from a single shock. It exhausts. The exhaustion happens gradually—in central bank balance sheets that expand to levels previously unthinkable, in debt-to-GDP ratios that mathematical models flagged as unsustainable fifteen years ago, in fiscal transfers that make monetary policy subordinate to political survival rather than inflation control.
We have been watching this exhaustion accumulate since 2008. The policy response to that crisis was straightforward: massive monetary intervention to prevent financial system collapse. That intervention worked. It also created a structural dependency. When the next stress emerged—the pandemic—the policy response was identical in character but larger in magnitude. When commodity inflation emerged in 2021-2022, the response was initially to deny its existence, then to accept it, then to tolerate it in service of financial stability. Each time, the monetary regime bent further.
What is remarkable is not that this happened. Regime exhaustion is predictable. What is remarkable is the transparency with which it is now occurring. Central banks are no longer hiding behind technical jargon about "price stability" or "inflation targeting." They are actively accumulating gold at rates not seen since the 1960s. They are repatriating reserves from foreign custodians. They are signaling—clearly, to those watching—that they expect the next regime to operate differently than this one.
Reading the Signal:
Central Bank Behavior as Institutional Foresight
Central bank gold purchases over the past three years have averaged over 1,000 tonnes annually. This is not a return to normal demand. This is a structural repositioning. When you examine who is buying—not just China and Russia, but also Poland, India, Singapore, Turkey, Egypt, and dozens of other institutions—the pattern becomes unmistakable. This is not speculation. This is institutional preparation for a world in which reserve composition looks fundamentally different.
Why gold? Because gold asks no permission, requires no trust in counterparties, cannot be frozen by sanction, and carries no default risk. Gold is the asset that says: we are preparing for a regime in which the system we have relied upon functions differently.
Peter Zeihan has articulated the core structural constraint clearly: a reserve currency requires three things simultaneously—size, access, and trust. The US dollar still possesses all three. No alternative currency does. The dollar is therefore not at risk of replacement. But the distribution of reserves is at risk of reallocation. Central banks are not abandoning the dollar system. They are internally hedging against the confidence it commands eroding further.
This is not a BRICS currency moment. The BRICS nations cannot agree on what a common currency would mean, let alone build one. The dedollarization narrative that circulates in financial media misses the real story. The real story is that institutions managing sovereign wealth are asking a different question: not "what replaces the dollar?" but rather "what preserves value when the policies that have supported dollar hegemony run out of runway?"
The answer they are giving, through actions rather than words, is gold.
The Policy Framework Constraint:
Monetary Debasement as Structural Choice
To understand regime change, you must understand why central banks cannot exit the policies that have created the current system, even if they wanted to.
The mechanics are straightforward. Developed economy governments carry sovereign debt loads that exceed sustainable levels under historically normal interest rates. This is not cyclical. This is structural. The United States carries explicit federal debt of $34+ trillion and implicit unfunded liabilities many multiples of that. European sovereigns face similar dynamics. Japan operates in a regime where debt-to-GDP exceeds 250% and interest rate defense against that level would require fiscal restructuring that no political system has proven willing to undertake.
There is a policy choice here, and it is one that Michael Every has articulated with particular clarity: the choice is between structural deflationary adjustment (which requires genuine fiscal discipline, productive capital reallocation, and painful distributional consequences) and continued monetary accommodation (which requires accepting currency depreciation, external imbalances, and the slow erosion of purchasing power).
No government has chosen the first path voluntarily. Instead, the pattern has been toward the second: continued debt issuance, monetization of that debt through central bank asset purchases, and the acceptance of inflation as the mechanism of debt reduction.
This is no longer a cyclical phenomenon. This is the policy framework. Michael Every calls it "neo-mercantilism"—the deliberate use of economic policy (monetary, fiscal, and trade policy) as tools of national security and regime preservation rather than as abstract instruments of inflation targeting or unemployment minimization. The shift happened gradually, but it is now explicit.
In the US context, it manifests as the conversation around tariffs, industrial policy, and the deliberate reallocation of capital toward domestic productive capacity rather than consumption and asset inflation. In the geopolitical context, it manifests as the weaponization of financial infrastructure (sanctions, SWIFT restrictions, and asset freezes) and the corresponding desire by other nations to hold reserves that cannot be weaponized.
This is the environment in which gold accumulation becomes rational for reserve managers. Gold is the hedge against a system in which your reserves might be frozen, your currency deliberately depreciated, or your economy subjected to financial isolation.
The Fiscal Arithmetic Is No Longer Theoretical
Central bank balance sheets globally exceed $35 trillion. Developed economy sovereign debt-to-GDP ratios have crossed levels that textbook economic theory marks as unsustainable. The fiscal-monetary nexus—the relationship between how much governments spend and how monetary authorities manage the consequences—has become so tight that separation between the two is illusory.
Here is the constraint that matters: if real interest rates rise to historically normal levels (say, 2-3% in nominal terms, accounting for inflation expectations), debt service costs become mathematically unsustainable without either (a) massive fiscal contraction or (b) default. Neither is politically viable in the near term.
Therefore, central banks cannot allow real interest rates to normalize. This is not optional. It is structural. The policy framework requires that rates remain suppressed relative to what debt dynamics would otherwise dictate. This means monetary policy becomes subordinate to fiscal needs.
When monetary policy is subordinate to fiscal needs, currency debasement becomes inevitable. Not as accident or mistake, but as policy choice.
This is where regime change manifests at the micro level. Every policy decision gets filtered through the question: does this support fiscal sustainability? Rate hikes that would trigger debt service crises get deferred. Asset purchases that suppress long-term yields get expanded. Currency weakness that reduces external debt burdens relative to export capacity gets tolerated rather than resisted.
The central bank governors will not frame it this way publicly. But the behavior is transparent to anyone reading the actual decisions rather than the communications.
Geopolitical Fragmentation Accelerates the Timeline
There is a second force compounding monetary regime change, and it operates independently of fiscal dynamics.
The international order built after World War II rested on an implicit bargain: the US would provide security guarantees and currency stability in exchange for alignment with US foreign policy and acceptance of financial arrangements that favored US interests. This bargain held when the US was geopolitically dominant and had the economic capacity to service it.
That capacity has eroded. The US remains the dominant military power, but its share of global economic output has declined from 50% in 1945 to roughly 25% today. The alliance structure has become expensive to maintain, and the willingness to underwrite it politically has declined. Simultaneously, alternative power centers (China, Russia, the EU as an economic bloc) have emerged and begun challenging the institutional arrangements that underpin the current order.
This is not ideological. This is structural. When the hegemon can no longer cheaply service the costs of hegemony, challengers emerge.
The weaponization of financial infrastructure—most visibly in the sanctions regimes against Russia and Iran, but also in the threatened freezing of central bank reserves and the targeting of SWIFT participation—represents an acceleration of this dynamic. Countries that previously had confidence in the neutrality of reserve currency arrangements now have explicit evidence that those arrangements can be weaponized for political purposes.
Peter Zeihan's framework remains relevant here: there is no alternative currency system that meets the three criteria (size, access, trust) simultaneously. Therefore, dedollarization as a wholesale movement is unlikely. But diversification of reserves away from pure dollar concentration? That is now rational for any central bank that views geopolitical isolation as a plausible scenario.
This is precisely what the gold accumulation data documents. It is not a bet against the dollar. It is a hedge against the possibility that reserve access could be restricted, or that dollar-denominated assets could be frozen in service of political objectives.
The irony is that such hedging, if widespread, makes the concern self-reinforcing. As central banks accumulate gold specifically to hedge against dollar regime risk, they are simultaneously expressing lack of confidence in dollar regime stability. This lack of confidence, once expressed through reserve behavior, can influence private investor behavior and external demand for dollars.
The Private Credit Overhang
There is a third structural force that has emerged: the explosion of private credit and its concentration in asset classes that depend on credit quality improvement and currency stability.
The private credit ecosystem has expanded to approximately $1.5 trillion in assets under management. This entire category represents capital that is exposed to corporate cash flows, real estate valuations, and receivables—all of which depend on either (a) the credit quality of obligors improving, or (b) currency remaining stable so that nominal cash flows can service debt denominated in stable currency.
In a regime where central banks are monetizing fiscal deficits and accepting currency depreciation as a consequence, these assumptions break down. Receivables denominated in depreciating currencies lose real value. Real estate that has been bid up based on low-rate financing becomes illiquid if financing conditions tighten. Corporate cash flows that depend on revenue stability face compression from inflation.
Simultaneously, institutional investors (pension funds, sovereign wealth funds, endowments) that would historically hold fixed income are facing a new problem: there is no longer meaningful fixed income available that does not depend on credit quality improvement or currency stability.
This is where the structural opportunity emerges. Institutions require collateral—assets that hold value regardless of credit conditions or currency movements. Gold fits this requirement. Gold is fixed income for an era when currency debasement is policy rather than accident.
A $13.3 million gold position appreciates 10% to $14.66 million. If held as collateral at a 75% loan-to-value ratio, this supports $11 million in senior debt. A 10% appreciation in collateral improves the LTV by 7 percentage points, which mechanically expands borrowing capacity by approximately $1 million.
This is not aspirational. This is mechanical. It is rooted in the structure of leverage mathematics rather than in market sentiment or credit analysis.
The Debasement Trade Is Not Prediction;
It Is Observed Behavior
Here is where this analysis transitions from observation to implication: the central bank behavior we are documenting is not a forecast of regime change. It is pricing of regime change that is already understood by the institutions that manage sovereign reserves.
Central banks do not speculate. They do not front-run market moves. They operate with twenty-year time horizons and mandates focused on preserving national wealth across generations. When they accumulate gold at rates tripling the twenty-year average, they are expressing institutional judgment that the next two decades will look materially different from the last two.
This is not conspiracy. This is policy communication through action rather than through words.
The implications ripple outward in ways that most financial institutions have not yet priced. If central banks are correct that monetary debasement is structural policy (not cyclical), then:
First: Currency-denominated fixed income is no longer the natural inflation hedge. Assets that physically exist—commodities, real estate, productive assets—become the natural allocation for institutions protecting against real value erosion.
Second: The private credit explosion creates a vacuum. All of that capital concentrated in receivables and corporate cash flows requires a reserve asset that is outside the credit system. Gold, held physically, serves this function.
Third: As institutional capital reallocates toward physical assets and away from currency-denominated claims, the velocity of that reallocation will determine regime timing. Regime changes are not continuous. They are discontinuous—they happen when the threshold of recognition crosses into critical mass.
Fourth: The institutions that have recognized this regime change first (as evidenced by their reserve accumulation) will have first-mover advantage in capital repositioning. The institutions that recognize it second will face the velocity dynamics of everyone else reallocating simultaneously.
What Regime Change Looks Like in Practice
A monetary regime change does not mean currency collapse or financial system failure. It means a sustained shift in how policy operates and which assets are valued as stores of value and collateral.
The transition from Bretton Woods to floating rates in 1971 was a regime change. It did not destroy the dollar. It changed how currencies were priced and what anchored reserve accumulation. Gold stopped being the direct collateral for currency issuance and became instead a commodity subject to market pricing. But the strategic importance of holding gold never disappeared—it merely evolved into a different form.
The regime change ahead will be similar in character but operating in reverse direction. Instead of moving away from gold-backed finance toward pure currency abstraction, the shift will be toward hybrid arrangements where physical assets (gold most prominently) play a more central role in collateral and reserve management.
This will not happen through policy announcement. No central bank will declare a new regime. Instead, it will happen through the accumulated behavior of reserve managers responding to the structural constraints they face: unsustainable debt loads, currency debasement as policy choice, geopolitical fragmentation that increases regime risk, and the need for collateral that cannot be weaponized or politically restricted.
Private capital will eventually follow. But the lead will come from reserve management, because reserve managers are the institutions whose mandates require them to see decades ahead rather than quarters ahead.
For institutional capital, the question is not whether to have an opinion on monetary regime change. The question is whether to align capital with institutional actors that are already positioning for it, or to assume that the regime will continue indefinitely and that the behaviors we are observing (central bank gold accumulation at historic rates, repatriation of foreign-held reserves, diversification away from currency concentration) reflect something other than what they appear to reflect.
We are not arguing that any of this is easy or obvious. Central banks are professional institutions staffed by economists trained in the current regime. The fact that they are accumulating gold does not mean they have articulated an alternative regime. It means they are hedging against the probability that their current models underestimate the risks embedded in the current policy trajectory.
That hedge is becoming visible. Visible hedges become self-reinforcing. Once visible, they shape behavior. Behavior, accumulated across enough institutions, becomes regime change.
The institutions that position for the second phase of that process—after central banks have moved but before everyone else has—will have captured the transition at the point of highest opportunity value.
The window for that positioning is narrowing. It is not yet closed. But the behavior of reserve managers suggests the conclusion about regime change has already been drawn.
The Institutional Question
We began by noting that monetary regimes do not collapse from shocks. They exhaust. The current regime is exhausting visibly. The policy tools that worked to sustain it in prior phases—rate cuts, asset purchases, balance sheet expansion—have become less effective while simultaneously creating larger structural imbalances.
Central banks understand this. Their gold accumulation documents this understanding. Their repatriation of reserves documents understanding that the political risk around reserve access has changed. Their diversification away from currency concentration documents understanding that the trust element of
Zeihan's framework (the belief that reserve arrangements will function neutrally) has eroded.
None of this is speculation. None of this is based on what anyone is saying. All of it is based on what institutional reserve managers are actually doing.
Regime change is not forecast. It is observed. The implications are not abstract theory. They are material to capital allocation. The institutions that recognize what is being signaled in reserve behavior have a decision to make: whether to continue allocating as if the regime will persist, or to reposition in alignment with what the reserve managers' actions are actually expressing.
This is the essence of the analysis. Not prediction. Recognition. Recognition of what is already being priced by the institutions with the longest time horizons and the largest mandates to preserve value across generations.
That recognition is the foundation for understanding where capital needs to be positioned as we enter a monetary regime that the central banks of the world are already hedging for, even if they have not yet named it.
Wykco Inc
January 2026
Miami, USA | Stellenbosch, South Africa
Conclusion:
Regime Change as Structural Inevitability, Not Forecast