The old West against the new Asian financial order

Will the newly-born Eurasian Economic Union (EEU) soon have a new and single currency? Vladimir Putin is exploring the possibility, and governments and financial institutions in the bloc have been requested to present a report on it by 1 September (see http://www.themoscowtimes.com/business/article/putin-eyes-single-currency-for-eurasian-union-trade-bloc/517234.html); the proposal has then been re-iterated by Russia’s president in his recent meeting with those of Belarus and Kazakhstan (20 March; see http://america.aljazeera.com/articles/2015/3/20/russias-putin-calls-for-regional-currency-union.html). The idea of a Eurasian currency is not entirely new, and would complement the trade integration of the four EEU members (Russia, Belarus, Kazakhstan, and Armenia, which will be soon joined by Kyrgyzstan). Russia, in other words, is laying the ground for another monetary union. Will the Rouble become the EEU’s single currency? Or will an entirely new currency be created (last year there were rumours about a new entity to be called ‘Altyn’)? Whatever the answer, the key point is that Eurasian countries will likely have their own monetary independence, a fact which will contribute to eroding the Dollar’s global hegemony and limiting the powerful rise of China’s Renminbi.

China’s reach is meanwhile becoming increasingly global. In September 2013, President Xi Jinping announced the ‘New Economic Silk Road’, a major infrastructural project (whose main features are still rather unclear) involving Central Asian countries. Approximately one year later, China launched another, and much bigger, project: the AIIB (Asian Infrastructure Investment Bank), a giant institution which has already attracted traditional US allies such as Britain, France, Germany, Italy, Qatar, Kuwait, and New Zealand. The AIIB, which has an initial capital of 100 billion$, aims at financing infrastructures in Eurasia and has been joined by more than thirty countries. Despite US opposition, Britain has recently applied for membership; Australia and South Korea might follow suit (http://www.theguardian.com/world/2015/mar/13/support-china-led-development-bank-grows-despite-us-opposition-australia-uk-new-zealand-asia). Amongst others, Singapore, India, Saudi Arabia are also ‘in’; according to Chinese sources, Luxembourg and Switzerland might join soon. China is proposing a kind of new international financial order, which the USA perceives as parallel and alternative to that based on the IMF, the World Bank, and the ADB (Asian Development Bank); all institutions which, in Beijing’s view, would favour and promote American interests. In addition, China can boast the Shanghai-Hong Kong Superbourse (the two exchanges are linked by the Connect), which in the future may become e true ‘Wall Street of the Pacific’, and a currency, the Renminbi, which is already the fifth most traded in the world and is increasingly used in the oil-rich Gulf region. Of course the Renminbi has also the potential to become a global reserve currency and challenge both the Dollar and the weakened Euro. China’s tremendous rise is worrying the USA, but causing concern in other world regions, too. How would the relations between the Renminbi and a new Eurasian currency be accommodated? Would then China’s and Russia’s interests overlap in Central Asia? China and Russia are strategic partners in the SCO (Shanghai Co-operation Organisation) and in the BRICS Bank, another key platform for a new global financial order, which already has a capital of 50 billion Dollars. But how will the overall ‘division of labour’ between Beijing and Moscow be organised?

Europe is of course concerned as well. The Euro has received a lifebelt from Mister Draghi and the Quantitative Easing, which however should have been launched years ago, when the USA and the UK started adopting similar policies. Despite that, the EU currency is constantly depreciating against the Dollar and the exchange rate is fast moving towards a 1:1 parity. Such rate is a blow to the Euro’s credibility, even if, from another point of view, the Dollar’s power is bloated by its use in oil and commodities trade, capital markets, and as a reserve currency. But for how long is this condition sustainable, for both the Dollar and the Euro? This story shows how at the moment the West is once again divided, ten years after the dramatic split on the Iraq war. The EU is stuck in its economic woes, and the USA is unable to enact a sensible foreign policy. Consider for a moment President Obama. None among his transoceanic free trade projects have become reality, and China seems to be framing the rules in the Pacific region. Traditional allies (Britain, above all) are going East, the Middle East looks in a chaotic state, and Binyamin Netanyahu, who has just won again Israeli elections, gave a speech to Washington’s Congress without meeting Barack Obama.

The Dollar’s value is then strongly linked to oil and its price, particularly in the Gulf region. Since January the Brent has risen, but 55-60 Dollars is still far from Saudi Arabia’s break even, which is estimated at around 80 Dollars. Can Saudi Arabia sustain an absolute monarchy with such low prices? What about the USA and shale? Prices will likely rise, even if they will probably never return to the heights of the latest years. Political problems, however, will remain on the table.

Russia, China, India, and (in a much less clear way) the EU are calling for change in the world financial, economic, and ultimately political order. A US-dominated planet is neither viable nor acceptable. New monetary unions and new financial institutions are cropping up, and the old ones need refurbishing. Despite the last (2010) reform, China’s voting power in the IMF remains 3.81%, that is, less than France’s (4.29%)! Saudi Arabia, with 2.80%, dwarfs Spain (1.63%) and even India (2.36%). The hope is that the powerful rise of new players and institutions will urge the West, and the USA in a particular, to re-think the so-called ‘global’ institutions in a plural, inclusive, and less Western-centric way.