The nations which will have the maximum impact in shaping the international affairs in the upcoming era will be the ones that could not just balance conflicting interests and rival camps but also demonstrate the capability and courage to question and cajole the West towards limiting the weaponisation of finance
The end of the Cold War had led to prophecies like Francis Fukuyama’s “End of History and the Last Man”, declaring mankind’s ideological evolution has reached a pinnacle with liberal democracy as the final form of human government. Western hegemony, globalisation, liberal international order and peace in Europe were a given. Cut to two decades later, all the above are suffering an existential crisis. Fukuyama’s ultimate nightmare is a world where China supports Russian invasion of Ukraine, and Moscow, Chinese invasion of Taiwan, and the West unable to stop it, which he called as “the end of the end of history”.
The onslaught on West-led world order is not temporary; it can be seen from the emphasis on Atmanirbhar Bharat by our External Affairs Minister and Chinese Foreign Ministry’s statement that China-Russia cooperation has “no limits” on upholding of security and towards opposition of hegemony. Apart from Russia, China has a strong stake in creating an alternative financial system to evade Western sanctions, when it invades Taiwan or more.
The world is again splitting into two rival camps: the West versus Russia-China with few allies, leaving the rest of the developing world gasping amid geo-political hostilities, sanction regimes, food shortages, skyrocketing energy and commodity prices, supply chain disruptions, gloomy global economic outlook that jeopardise their developmental needs.
De-globalisation and the de-dollarisation
The “weaponisation of finance” by the West on Russia has sounded a death-knell to globalisation, threatening the technological developments, efficiency of production and all other benefits and prosperity ushered by it. Among other sanctions, freezing of Russian Central bank’s foreign reserves, cutting Russia off the SWIFT financial payment system, and institutions of international finance, including IMF and foreign banks, were historic and unthinkable, their consequences unpredictable. Raghuram Rajan has called these economic weapons of mass destruction.
Now, situations are building up for secondary sanctions against nations that refuse compliance with the primary. Most nations are themselves adopting import-substitution policies for de-risking.
Alternative financial systems are building up; Chinese-SWIFT CIPS (Cross-Border Interbank Payment System) and the Russian-SWIFT SPFS (System for Transfer of Financial Messages) are expected to merge. Petro-dollar could be a thing of the past as Saudi Arabia is willing to sell oil to China and others in national currencies and Iran is to follow suit. Russia will trade with China, India and Iran in national currencies. Developing countries like India and Israel are diversifying their forex away from dollars. Move away from dollar and euro is fueled not just due to the fear of western diktats, but also expected depreciation of these currencies owing to lower demand.
Cryptocurrency is being used for transferring assets internationally. Russia is preparing to launch digital Ruble which would be used for trade internationally bypassing the dollar-based system. Russia has been lobbying in SCO, BRICS and other forums for using national currencies for trade, integration of payment systems and cards, financial messaging system and creation of an independent BRICS rating agency. In times to come, more trade will happen in national currencies, and developing nations will find new avenues to limit exposure to western currencies like gold, innovative assets in oil and metals or even crypto-currencies if they stabilise.
To measure the decline of any superpower it is needed to gauge the incapability to check a disruptive or destabilising event. A declining power can also continue to reign the world if it has a realistic assessment of its own power and is ready to make compromises to maintain peace and stability. However, Washington today along with all its allies and their collective might lacks strength in not just having failed in preventing the war but even bringing in a ceasefire. The loss of esteem is visible in Gulf monarchies not taking US President Joe Biden’s phone call and Beijing demanding a role in maintaining world peace and stability.
Inflation is expected to hit a four decade high in the US at 8.4 per cent, three decades high in the UK at 8 per cent and at record 7.5 per cent in Europe. The Federal Reserve’s increasing interest rates to tackle the inflation is expected to send the country into a recession. The largest US banks are reporting their biggest slowdown in investment banking revenues in years due to the war. Europe too is expected to fall into recession, with the World Bank predicting the impact of the war on the economy to be twice as devastating as the Covid impact.
Indo-Pacific: New centre of world
China, though slowing down, is still predicted to grow by 5 per cent this year with inflation at 1.5 per cent. India’s GDP is set to grow at 8 per cent this year, though with high commodity and energy prices, inflation in India has reached a worrying 7 per cent. The South Asian economy is poised to grow at 6.6 per cent and East Asia at 5 per cent. Both the regions are expected to return to the economic growth rates they experienced before the pandemic. Beijing and New Delhi are clearly the two actors that received massive attention from the West over Russia, with China engagements being more confrontational for its clear support to Russia, India tactics being of carrot and stick, but reflecting understanding. The Indo-Pacific will not just be the centre of economic growth in the present times but also geo-political heft and centre of gravity.
Militarised-Inward looking Europe and rise of the middle powers
As Germany, Sweden, Finland, Romania, Latvia, Netherlands, Belgium, France and the UK decide to increase their defence spending, a militarised Europe is set to give up the advantage of devoting its finances to infrastructure development and socio-economic welfare of their citizens. This will have consequences for their prosperity and quality of life. A Europe lost in continental hostilities, mistrust, weapons race and sanctions will not just be economically weaker but also possesses even lesser appetite for engaging in larger world affairs, more so in confronting China.
Multi-polarity will be the defining theme of the changing world order with nations like China, France, Germany, India, Turkey and Israel, together with other middle powers like Gulf states, and maybe Brazil and South Africa playing greater role in influencing world affairs.
The nations which will have the maximum impact in shaping the international affairs in the upcoming era will be the ones that could not just balance conflicting interests and rival camps but also demonstrate the capability and courage to question and cajole the West towards limiting the weaponisation of finance.
If this world, especially the developing truly neutral nations, seeks and deserves peace, it will have to shoulder the responsibility of not just nudging Russia, but also calling out a stop at further membership of NATO if not its complete de-bundling, when nations like Finland and Sweden make a beeline for it. It ceased being an internal matter for concerned nations, Europe or NATO, the moment the rest of the states became victims of its grave consequences especially as the planet faces its greatest challenge of climate change.
Evolution, seldom linear, is the never-ending process of Fukuyama; to proclaim an ideological end point is the sheer under-estimation of the potential of man, for the good or bad.
(The writer is a foreign policy expert and a lawyer)