The global financial overhaul
THERE is an aggressive surge of transformation in the global financial system. Financial experts around the world are of the view that the downfall of the Dollar has begun and with it the systems that kept it the exchange currency of the world. The dominance of the Dollar ensured the dominance of world institutions like the International Monetary Fund and the World Bank. Across different continents there are simultaneous moves to De-dollarize the economy and it is having far reaching effects on the political and financial landscape of the entire world. This is the beginning of the end for the Dollar and the hegemony of the IMF and the World Bank but it is also a time of a fresh overhaul. The cycle of change never stops and now it has taken a sharp turn. Although, there is still much ground to cover for other currencies such as the Chinese Yuan and the Indian Rupee, but the change is solid and imminent. It is time to re-think the global economy and analyze the pattern for taking maximum advantage.
For over four decades, Capitalism has dominated that world stage. The downfall of the (former) Soviet Union is considered a blow to socialism. In the wake of the Cold War, socialism was discarded for hardcore capitalism. Even countries like Vietnam and China began movements towards private property, ownership and Capitalism run with the controls of democracy. It was called the New World Order. A system of profits and global dominance based on market forces and those market forces were controlled globally by the IMF and the World Bank, which in-turn were run by Washington. It was a perfect loop to control the world and offer funds to allies whether at a national or an Individual level. Even today, it is the case as the IMF has offered over 17 Billion Dollars to Ukraine to fight Russian forces. At the same time, nations like Lebanon, Sri Lanka and Pakistan have been subjected to harsh conditions and damaging regime changes for bailout packages.
The IMF and the World Bank have been used by the Western Powers towards geo-political agendas. In short, favourable leaders and regimes get credit lines, bailout packages and project funding and those who do not comply get sanctions or worse. There are dozens of examples. In Africa, in South America and even Asia, countries that align their foreign policy according to Washington get relief from IMF. Those that do not like in the case of Iran, get sanctioned and damaged. Similarly, enemies of enemies are friends and receive fair facilitation whereas these financial institutions were made to avoid war and conflict and help boost progress in poor nations. There are some success stories such as the banning of human trafficking and money laundering across the world but mostly it has been a case of loyalty to Western countries. Even during the Covid pandemic, the IMF and World Bank gave preferential treatment when it came to funding third world countries versus developed nations of Europe. Instead of assisting poor nations to develop, the United States has made poorer countries totally dependent on IMF loans and credit lines. Because of this, these countries have become poorer and reliant on these financial institutions. In actual, the loans and funding go to the Government and their corrupt systems where only a handful of families or policy groups benefit from the international loans while the public suffers the economic limitations. The Governments are then forced to carry out the will of these financial institutions. The loss of economic sovereignty is converted into loss of political will and freedom. This is the hallmark of the current world order which is soon to change for the better.
The growth of China is a unique case study in the economics of the world. A country founded on communism and socialism has become the top economic power in an overarching global system of capitalism. Actually, the Chinese model is neither socialist nor capitalistic but a beautiful combination of the two. The Chinese system has raised millions out of sheer poverty and today the average household income of the Chinese family is over thirteen thousand Dollars a month. The Capitalist economy mainly relies on democracy which is about the will of the majority in a multi-party system governed through elections but China is a one-party country that continues to produce leaders that are competence, loyal, brave and nationalistic. The Chinese model is a brand-new overhaul and it is transforming the global economy. The financial system powered by the Western nations is in decline. The loop of Western nations standing behind the Dollar and that Dollar being supported by the IMF and the World Bank is eroding fast.
Brazil and Argentina, the two largest economies of South America are already trading in non-Dollar currencies. China, India, Russia and South Africa are launching their own currencies as an alternative to Dollar. It is clear that the road ahead is long as in 2022, 58 percent of the Global financial reserves were in Dollars which is going to change with the launch of the Chinese Yuan. The Asian Monetary Fund is already in motion as an alternative to IMF. Saudi Arabia and Iran are set to sell their fuel exports apart from Dollar and similar scenarios are emerging everywhere. The BRICS initiative and the One Belt Road project have no equal in the western world, rather many European countries want to join China in its expansion of trade and commerce. And the rise of China and third world nations is peaceful, a stark contrast from the warring ways of United States standing on the Dollar and military budget.
Pakistan is a geo-strategic country. It is full of opportunities and potential and with the massive flood of change and transformation of global financial system, it is imperative that the focus of Government must shift form inward to outward. Chinese expansion and the De-Dollarization can have huge benefits for Pakistan as the majority of external debt of the country has been incurred in Dollars and if the value of Dollars goes down when it is not the fundamental currency for oil, the debt ratio of Pakistan and many other third world countries will drop. Trade and commerce can be the saviours of Pakistan and the tide of change will go in favour of countries with large populations. Gwadar and the Western trading routes in Pakistan can change the financial landscape of the region and with the resumption of peace between neighbouring Iran and Saudi Arabia, the potential is limitless. Now is the time to prioritize and channelize all energies to ride the tide of global financial overhaul.
—The writer is Chairman, Jinnah Rafi Foundation, based in Lahore.
Email: adnan.khalid@rafigroup.com
