Contributed by Joe Montero
The number of international agreements aimed at abandoning the US dollar in trade has been growing lately. This movement has been pushed along by Washington’s aggressive foreign policy. Buts its roots lie in a history of colonialism and neocolonialism, and the attempts of subjugated nations to break free.
We are witnessing today, a monumental shift from a global economy dominated by the United States towards one it no longer dominates, and the associated decline in Washington’s capacity to impose its political will on the world.
Paradoxically, it is this decline that is driving Washington’s use of trade sanctions and the weaponizing of the dollar like never before, as stools to both export domestic economic problems to other nations and achieve its own political ends. These actions are further undermining both and pushing dozens of countries to look elsewhere.
A legacy of revealed military weakness is another factor. From Korea, through to Vietnam, Iraq , Afghanistan, and Syria, they have all brought about defeat. Now the proxy war in Ukraine shows signs it is heading in the same direction. The military posture against China of recent years threatens a war that the United States can’t win.
The difference toady is that all of this is combining and has become entrenched enough to create an opportunity for nations to assert greater independence.
Here are a few salient facts.
The United States accounts for around 20 percent of global economic output. At the same time, it has possession of more than half of the world’s currency reserves, and the bulk of international transactions are carried out with the US dollar. The discrepancy between the share of output and control over the global financial system reveals the extent of dependency on financial transactions as the engine of the economy.
It also reveals a parasitic aspect. This is because financial transactions in excess to the needs of economic output, means that money is invested and then drawn out again in a bigger volume and leaving little behind, except a web of debt and dependency.
United States dominance over the global financial system and its institutions with a weaker United States economy and an associated failing capacity to export its problems, is undermining this same global financial system and its institutions and now threatens to pull down everyone.
The sanctions that were supposed to cripple Russia haven’t worked. Russia has seen a modest growth in its economy instead. The intention to stop Russian global financial transactions through expulsion from the SWIFT messaging system controlling financial transfers has largely been circumvented, by the ability of Russia to operate outside it.
These are the reasons why a growing number of nations are looking for alternatives. In comes BRICS. Originating as a group of 5 major economies, China, Russia, India, Brazil, and South Africa, and now has around 20 other nations applying to join. Examples of the major applicants are Mexico and Saudi Arabia. France has applied, and this is building pressure for other European nations to do so.
The new alignment is where most of the stuff we use is made. because of this, it does not rely on the parasitism of dependency on financial transactions.
Put this into context by comparing this with the G7 group of what have till now been the world’s most economically powerful nations. Without the new BRICS entrants, each accounted for about a third of the global economy. Now BRICS is outpacing the G7.
Add to this the fact that 140 nations are now participating in the China initiated Belt and Road Initiative that centres on the building of infrastructure and expanding trade opportunities. The writing is on the wall.
This does not mean that the United States and that portion of the global economy still under its control will fall overnight. But it does mean the days when it could control the world are over. In the short-term, the economic problems facing the United States will be covered by ordinary taxpayers through the rising deficit in government spending and the growing deficit in international transactions, mainly held by China, Europe, and Japan.
The mid and longer-term prospects are that this will further undermine the United States’ own economy and global diplomatic position.
The emerging new alignment is now taking shape is the main centre of economic activity and real wealth creation. The west, including the United States, would be better served by recognising the reality and adjusting to it.
Nations like Australia face the choice. Continue to cling to the sinking ship or get off and embrace the new reality as an opportunity.