During the Cold War, the Soviet Union dominated the East and the United States the West, but the end of the Cold War changed the balance of the
world. The American victory resulted in American hegemony in a unipolar
system--America. Even all the tall monuments in Washington, DC represent America’s supremacy as the world superpower. However, America’s international
standing has started to fade. America no longer is the world policemsn, even in the face of rising terrorism. The reason that the world has become so disordered and chaotic is because America is
no longer able to bring order to a disordered world.The leaders of the world no longer care
much about the White House, and this explains why President Duterte cursed President
Obama and why the Syrian President Bashar Al Assad is using chemical weapons against his own people.
Putin annexed Crimea and now has established bases in Syria helping the Assad regime to
succeed. Recently the foreign ministers from Russia, Turkey, and Iran met in Moscow to
bring peace in the Middle East, and, noticeably, they excluded America from the talks on this strategic region. President
Obama was unwillingly to put boots on the ground to deal with Assad’s regime; instead, Russia took
charge under the Obama administration, and America even lost the trust of its long-time ally, Israel, and
relied on its absentee status at the UN thus abstaining against the Israeli settlement. The world really sings that America
is no longer supportive of and no longer engaged in the Middle East. That is also why Saudi
Arabia took military action in Yemen.
America lost in the Asian pivot too. America can no longer lay claim to being the world’s largest economy. In the past Americans have been privileged to pay their bills in the currency their nation prints. This standard has been a matter of great discussion beginning in the 1960s, and since then the world has provided alternative currencies to the dollar as the world’s dominant and reserve currency. In the 1960s, they created the Special Drawing Rights (SDR) to offer a supplementary reserve asset and the IMF’s unit of account. China recommended creating a currency made up of a basket of global currencies and controlled by the International Monetary Fund that would help to achieve the objective of safeguarding a global economy and financial stability. China wants 185 IMF members to create a reserve currency based on shares in the body members known as Special Drawing Rights.
For decades, the American currency of the dollar has been the world’s most widely used currency. Many countries hold a large portion of their reserves in American currency dollars. Businesses around the world from commodities to crude oil are priced in dollars. However, China has already began to provide loans directly in yuan, instead of resorting to American currency dollar loans, such as in African countries; in states like Fiji; and in Latin America, where China is playing on a big scale. China is trying to bring the yuan with it in its relations with European countries, Eurasian countries, Russia, and Turkey. Turkish President Recep Tayyip Erdogan said his country is moving towards allowing trade with Iran, Russia, and China to be conducted in local currencies, as he continues his efforts to strengthen the falling lira. If Turkey buys something from Russia or China, it will use the lira currency. if China or Russia buys something from Turkey, it will use its own money, the yuan or ruble, respectively.
The Turkish lira has lost its value by the rise of the dollar, by pressure from the West and the USA, and by Turkey’s crackdown on Fethullah Gulen’s cult religious group after its failed coup in July. Of course, for years China has been quietly preparing alternatives to the dollar system. On October 1, 2016, China’s yuan has been officially accepted in the list of the International Monetary Fund reserve currencies with a share of 10.93 %, taking third place after the US dollar’s 41/% and the EU’s 30%. This means that it is mandatory for all countries’ central banks to keep a portion of their reserves in yuan and that we will have a multi-currency world system, a sign of how weakened the hegemony of the dominating dollar system is.
Economists project the yuan could become second place in world currencies against the weakening EU within three years. in 2013, the People’s Bank of China and the European Central Bank signed the largest deal on a 45 billion dollar Euro currency swap. China has already made the same agreement with its neighboring countries, such as Japan, South Korea, Malaysia, etc. In 2014, The London Stock Exchange started trading the yuan for the first time. Most of the European states as well as Russia hold the yuan in their portfolios. Further, China has been providing loans to some of the countries that have had financial crises, such as Spain, Greece, Portugal, and Ukraine. In the meantime, China has become a major US creditor, investing more than 1,261 trillion dollars in the American economy, and holding the largest gold reserve on earth.
All this strengthens China’s power and its currency around the world. China is trying to reduce the IMF’s and the World Bank’s influence in developing nations because the policies of the IMF and the World Bank are defined by America. China invests in the establishment of the Silk Road to export its goods to the EU and to Asian infrastructure investment banks. In 2016, a quarter of the world trade deals was done in yuans. Some experts predict that in 2017, the yuan will become a freely convertible currency. The BRICS countries, Brazil, Russia, India, China, and South Africa, have already decided to use its first bonds in yuan instead of dollars.
On the other hand, there are many reservations regarding the future of the yuan because China‘s economy is slowing down while inflation remains at a high, and domestic debt could lead to a possible banking crisis; however, the yuan already has a place in the global financial system
Ending the domination of the dollar as the currency for most world trade
in goods and services is not going to be easy. Despite the slowdown in the US economy
and more than $19 trillions in the public debt of Washington, the dollar still makes up 41% of all
central bank reserves. Of course, the largest holders of America‘s debt are China and Japan.
America still thinks that as long as the dollar is a world currency, it can run an endless budget deficit and
thinks that China and other countries do not have any alternative to invest in their foreign currencies. China is trying to reestablish an international gold standard, not based on
the Bretton Woods dollar-gold exchange that President Richard Nixon unilaterally ended in
1971, bringing the Bretton Woods System to an end and making the dollar the only reserve currency. In part, because of this agreement,
China is now the world’s gold king, not South Africa, and is followed by Russia.
The Bretton Woods Exchange-Rate System is a set
of multilateral agreements on international economic relations, negotiated at the UN
Monetary and Financial Conference held in 1944, after the Second World War and attended by the
finance ministers of the US, the UK, and other allied countries. These signers had an obligation for each country to
adopt a monetary policy that maintained the exchange rate to rebuild the international
economic system. Allied nations gathered at the Washington Hotel in Bretton Woods, New
Hampshire, in the United States for the United Nations Monetary and Financial Conference, also
known as the Bretton Woods Agreement, setting up rules, institutions, and procedures to
regulate the international monetary system. This established the IMF and the World Bank. The
United States, which dominated the world’s gold, insisted that the Bretton Woods System
should be based on both gold and the American dollar.
When America’s 45 th President Donald Trump enters the Oval Office in January 2017, he will inherit a superpower in decline and weakened American influence around the world. Under the Obama administration, America’s allies were losing trust in Washington, while Russia, China, and Iran were gaining strength and becoming increasingly emboldened. From the Philippines and Africa, to Eastern Europe and the Middle East, America is being challenged while its Commander-in-Chief has sought to retreat from the world stage. Those who thus far have dominated and ruled the world’s economy from centers, such as New York, Frankfurt, and London, have to understand that they have reached the end of the line. We are now living under very different conditions than in 1944, and today developing nations are gaining a significant position in the world production. Further, the world’s production center has shifted from the West to the East. With the convergence of all these variables, we now live in a multi-polar system with a multi-currency system.
Dr. Aland Mizell is President of the MCI and a regular contributor to Mindanao Times. You may email the author at:aland_mizell2@hotmail.com
