Russia’s Ukraine Military Operation goes on and there continue to be ups and downs for both Russia and Ukraine. However, the fact remains that Russia has been able to seize substantial territory from Ukraine. Russia has also significantly damaged Ukraine’s power, water, and other necessity supplies. So far, the winter has been mild in Europe and the impact of these destructions are yet to be felt. But once winter is in full swing, especially between December and February, the impact would be severe on Ukrainian population. We have also had some nuclear scares but thankfully, cooler heads seem to have prevailed, and the consequences have been curtailed.
The Red Wave That Wasn’t To Be:
The US elections have thrown up mixed results. The predicted red wave turned out to be a damp squib. The Democrats have been able to retain the Senate with a slender majority, but the Republicans have taken control of the House. Trump’s influence on Republicans has also taken battering. His leadership plans will face new challenges within the party, especially with DeSantis gaining popularity after his landslide victory in Florida. News is even worse for the Biden Presidency. With the loss of House, the Biden Administration is crippled from introducing any impactful new laws or legislations. This will embolden the Republican’s efforts to accuse Biden personally as well as his family members about their alleged omissions and commissions including potential calls for impeachment as already seen in the news with the Republicans calling for a probe into the Biden family being a top priority. This will also have impact on US support to Ukraine in its conflict against Russia. US leadership of the international arena is already under clouds and these mid-term results will solidify the impression of dilution of American power both militarily and economically. Overall, it seems like the last two years of the Biden Presidency may be a lame duck.
Winter is Coming, European Pivot and Britain in Chaos:
Winter has been very mild so far and this has given Europe a good chance to reduce the effects of shortage of energy supplies on its citizens. We will, however, see changes once winter gets more severe in the coming months. There have also been overtures from Germany to restart the relations with China. We saw this with German Chancellor Olaf Scholz being the first western leader to visit China since the Coronavirus Pandemic. This seems to be against the wishes of other European countries, UK, and US.
The UK’s Conservative government has faced lots of criticism over last 3-4 months. Two quick leadership changes at the helm had severe impact on British Pound. The new government now led by Rishi Sunak has a huge task cut out on economic front. There are cries to blame most of these problems on Brexit. However, some questionable economic policies of various past governments, Covid time loose purse string policies and a continuous attempt to punch above its weight in world affairs are the key reasons for such a downfall of the UK. Soon something will have to give in, and we can assume where the this may be. Overall, Europe’s influence on the world events has been reducing and will shrink further and at a faster pace.
Rising Asia and Shining Global South:
The only shining light in these messy times has been the Asian Economies, albeit minus Japan and China. Both have been forced to sell lots of their US treasuries to defend their currencies against US Dollar. The Japanese economy continues to struggle. China is still following zero covid policy. Interestingly, Xi Jinping has taken complete and total control of CCP and removed any remaining opposition. This is an interesting phase. The CCP which previously was under US influence and aimed to make China the factory of the world has been on rethink under Xi Jinping. If China starts reducing its dependence on exports, then the impact on the world’s economy and globalisation will be tremendous. We will see how these measures are implemented in weeks and months to come.
India has been doing very well so far. Its economy has been well sheltered from global events by strong leadership from the Modi Government. India has benefited from cheap energy purchase from Russia. Surprisingly, the US has been publicly non-committal on such transactions between Russia and India. The Modi Government is following its national interest and is also not shy in talking about it on various public platforms. As the 5th largest economy currently and projected to be the 3rd largest by 2028, India finally is seen to be arrived at the international stage. It is expected to play a significant role in any new international groupings.
Currency Upheavals and Shining Global South:
The Russia- Ukraine conflict has opened the soft underbelly of western powers both in military and economic terms. The NATO alliance is already over stretched. Any attempts to open a new front anywhere, including by China on Taiwan will test the NATO alliance to the fullest. There already murmurs of discontents within the alliance, especially given the recent events in Poland and the belligerent response from Ukraine for NATO intervention. It simply cannot take anymore.
Economically all the major reserve currencies like USD, EUR, GBP, JPY, and others are riddled with huge debts. Currently, all international trades happen in these currencies. USD has dominance in international trades because of its large economy and military. EUR, JPY, and GBP are also influential currencies because of their respective economic powers and their military alliance with US. However, their influence is dwindling due to the emergence of China and India. Other economies like Indonesia etc are also rising quickly. These displacements are going to have significant impact on G7 countries. Their economies could end up becoming small and this will impact their military capabilities as well. Earlier, this was expected to happen at a slower pace of over 20-25 years. However, Covid and current geopolitical developments have hastened this process. It is likely that this transformation may happen in next 5-7 years.
As mentioned in my previous articles, the resource consumers have been the kings for last 50 years due to the influence of their currencies on the world economy. Resource producers who are Global South have been the lowest in this food chain. They sell their resources cheap for these reserve currencies which were considered strong. Now the perception and facts have changed. The reserve currencies are no longer strong due to the debts they have been burdened with.
The Global South now have realised this and have been using the BRICS alliance to further this agenda. Apart from Brazil, Russia, India, China and South Africa, other countries like Saudi Arabia, UAE, Indonesia, and a few others have shown interest in joining this group. It is expected to be a formidable alliance in near future. The logical outcome of this alliance is to come up with an alternative global currency. This new currency may have weightage of all its member currencies including various commodities or resources. This currency may also have digital features. This new currency then can be used by its members to settle international trades. We are already seeing glimpses of this where countries are using bilateral exchange mechanisms to settle the trades. These bilateral exchanges can take the new BRICS currency as the reference instead of USD, EUR, or JPY. This is a more credible way of conducting global trades than what is currently practiced.
This new currency is expected to be launched in the next year. Once this happens, most global trades will shift away from USD, EUR and JPY. The process of replacements amongst the top economies would then be very quick. This will have far reaching impacts on the finances of most countries. The requirement to keep reserves in major foreign currencies will diminish. This will also lead to the end of the reserve currency status of G7 countries. This BRICS alliance and their proposed new currency will become a symbol of stabilisation of world trades and affairs.
This is likely to be the response from Global South to the imperfect market problems. Recent statements from one of the ministers of Indonesia on having an OPEC like cartel for important resources including Nickel is a classic give away of things to come. So, brace up……
-Sandip Parekh
