Shortly after Putin´s Russia had invaded
Ukraine, I observed that global governance was disintegrating into an
American-dominated bloc and a Chinese-dominated bloc, with Russia and the EU
countries as junior partners. The link between geopolitical and economic
division would not only be calibrated by sanctions,
to the extent they are effective. China containment, protectionism, and friend-shoring
next to sanctions are offsetting development friendly Shifting Wealth, as defined by
the OECD Development Centre in 2010[1].
To be sure, the concept of Shifting
Wealth has entirely ignored that the rise of the BRICS has been shaping the
world to suit autocracy. True, the multipolar world has been leveraged by
totalitarians, whence the notion of system
rivalry. Yet, I will argue here that it is the West that will shoulder most
of the economic cost of a dark age of “systemic
rivalry”.
The BRICS and much of the “Global South”, a
risk first overlooked (and denied) by Western observers, might opt for the
China-dominated bloc. With a prolonged division
between the west and a bloc centred on China and Russia, economic divisions
will deepen. As lucidly summed up by Pascal Lamy (ex WTO): “Putin pushes us
into the arms of the Americans and we push Putin into the arms of the Chinese.
This world benefits Beijing, Moscow and even Washington, but can it satisfy us the EU?”[2].
Former UK Foreign Secretary David Miliband notes “Few governments endorse the
brazen Russian invasion, yet many remain unpersuaded by the West’s insistence
that the struggle for freedom and democracy in Ukraine is also theirs. …The
concerted Western response to the Russian invasion of Ukraine has thrown into
sharp relief the occasions when the West violated its own rules or when it was
conspicuously missing in action in tackling global problems”[3].
UN General Assembly resolution that demands #Russia leave #Ukraine, 23.2.2023.
The claim that much of the Global
South is on Ukraine’s side became first questionable at the United Nations General Assembly in March
2022, with BRIC members abstaining a vote for Russia to leave Ukraine. A year
later, the 136 countries of the Global South embraced a range of positions. By
number of countries, almost 62% of Southern countries were classified by
Nicolas Vernon at Bruegel as pro-Ukraine. However, with abstentions by both China
and India, the pro-Ukraine share shrinks to a third by aggregate population[4].
Much will depend on Brazil´s and India´s soft power where the Global South will
stand in international diplomacy.
The cost of rival blocks might now be
higher for the West than for the South. The rise in South-South linkages has
led to a new world less dependent on the West. From the perspective of poor
countries, the most important consequence of China and India’s entry into the
global economy operated through both global and direct linkages The second
phase of shifting wealth from 2000 to the 2008 great financial crisis GFC (after the first of initial opening during the 1980-2000 period), saw
pervasive convergence of poor countries largely due to increasingly
China-centric growth[5].
Since the GFC, Chinese imports have been the driving force for South-South
trade. The percentage share of China’s imports in world imports has surged
since China’s WTO accession in 2001. A new geography of South-South development
finance allowed governments to tap a bigger pool of transformative
infrastructure finance and to choose from more financing options[6].
The China’s Belt and Road Initiative (BRI) deepened South-South integration in
the postGFC period.
In
1979 already (after the 2nd oil price shock), Arthus Lewis imagined
the new world in his Nobel lecture. He hoped that sustained Southern growth
would become fired by South-South trade and less constrained by balance of
payment problems and by slower Western growth[7]:
“If a sufficient number of LDCs has reached self-sustaining growth we are into
a new world. For this means that instead of trade determining the rate of
growth of LDC production, it will be the growth of LDC production thatdetermines
LDC trade, and internal forces that will determine the rate of growth of
production.”
FX Turnover by Major Currencies
In 2009, I had raised the question whether
the US
dollar empire was falling. I ventured the Chinese yuan would soon overtake
the US dollar. If history of the last switch in reserve currency (from pound
sterling to the US dollar) was any guide, the yuan could be expected to replace
the US dollar as a reserve currency by around 2050. But I cautioned that the
renminbi wasn´t ready for reserve
currency status. China that does not respect property rights nor other
democratic freedoms such as full currency convertibility. Thus, the yuan sits
on shallow capital markets and frightens as a mousetrap currency (a term coined by Wilhelm
Röpke). If anything, the perspectives for the yuan to serve as reserve
currency have worsened under Xi´s increasingly dictatorial rule. So it was
premature to talk about the greenback’s demise, as was rightly pointed out by John
Authers at Bloomberg. BIS triennial surveys of foreign-exchange markets
show that the dollar is not yet losing market share, unlike the euro, until
2022.
In 2025 however, those numbers may reflect
the fallout of Russia’s invasion, with the Yuan share rising. Economic
sanctions imposed on Russia and other countries by the United States put the
dollar’s dominance at risk as targeted nations seek out an alternative, US Treasury
Secretary Janet Yellen has warned. Already, China and Brazil are working on
a deal to settle trades in their own currencies rather than dollars. Quite
recently, as the US’ rivalry with China and Russia intensified in an increasingly
polarized world, Saudi Arabia and other Middle Eastern nations were choosing to
diversify their global partnerships, removing important oil resources from
Western control. Oil transactions between Saudi Arabia and China could be
denominated in the Chinese yuan, a significant development in the evolving international
economic and geopolitical landscape. If this move happens, it could have
far-reaching implications for the US dollar’s status as the dominant global
currency, as well as for US-Saudi relations and broader regional dynamics in
the Middle East[8].
[1] OECD, Perspectives
on Global Development 2010: Shifting Wealth, OECD 2010.
[2] Pascal Lamy, “L’Union
européenne est-elle toujours pertinente?, Le Grand Continent, 12. April 2023
[3] David Miliband, “The World Beyond Ukraine: The Survival of the West
and the Demands of the Rest”, Foreign
Affairs, May/June 2023.
[4] Nicolas Vernon, Much
of the Global South is on Ukraine´s side, Bruegel, 13. March 2023.
[5] OECD, Perspectives on Global Development 2019: Rethinking
Development Strategies, OECD 2019.
[6] A vivid account of China´s footprint in Africa has been given by
Deborah Brautigam, The
Dragon´s Gift: The Real Story of China in Africa, OUP 2009.
[7] Arthur Lewis, The Slowing Down of the Engine of Growth, https://www.nobelprize.org/prizes/economic-sciences/1979/lewis/lecture/,
1979.
[8] Habib al-Badawi, “Can
Saudi Arabia switch from the US dollar to the Chinese yuan?”,
SpecialEurasia, 13. April 2023.
No comments:
Post a Comment