Changes in the Global Economy Transform the Political System

At the outset of the world financial crisis in September 2008, states went to war domestically, introducing complex economic and financial procedures meant to reduce the negative consequences of the crisis, in an attempt to stop its exacerbation, first of all, and secondly to halt its destructive effects on their economies.

Some of them were able to reduce the negative effects in a big way while others barely escaped. However, all of the countries possessing large economies fell in the throes of a world war termed “the currency war.” A currency war is when every country seeks to reduce its currency’s exchange rate so that the goods they produce are cheaper in overseas markets, and thus more competitive. The country in question boosts its exports, subsidizes its economy and creates jobs. And this means that what benefits one country is translated into a loss for another, because a profit for one particular side in a given market means a loss for the other side. [The risk in] provoking commercial battles on more than one front – the most prominent and most dangerous front lying between the U.S. and China – is that the U.S. is the world’s largest consumer while China is its largest exporter. The baffling development numbers achieved by the eastern part of the world underpin this transformation, with rising giants China and India at the forefront. Meanwhile, American and European plans remain stalled in developing the sound economic plans needed to activate their faltering economies.

The United States realizes the extent to which China endangers its leadership of the world order. For the U.S. considers China – and has considered her since the fall of the Soviet Union – America’s enemy of the future. And because America’s policy is always based on creating balance in the world, the United States is currently working on making India the counterbalance to China in Asia in order to face China’s quick rise within the international system. From here we are able to understand the trip that Obama made to India and the great moral support he offered the Indians in obtaining a permanent seat on the U.N. Security Council, and in assuring them that India is not an “emerging power,” but a power that “has emerged.”

On the other hand, earlier this fall 6 percent of voting rights in the International Monetary Fund (IMF) were transferred from the “developed” countries to the “developing” countries like China, India and Brazil. Under these amendments, China now ranks third in terms of voting power after the United States and Japan, overtaking Germany, France and Britain. This list also witnessed India’s ascension to the eighth highest rank, followed by Russia and Brazil, while Turkey entered the top 20 for the first time.

These amendments constitute a reform of the international economic order established with the founding of the IMF in the wake of World War II. The reform pushed IMF Managing Director Dominique Strauss to describe the agreement as “historic,” saying “this is absolutely the greatest reform ever in the institution’s operation and management.”

It is likely that this development will include the World Bank and the World Trade Organization (WTO), the other institutions that shape the economic game internationally.

There are growing calls for China to end its reliance on foreign exchange reserves and instead widen usage of its own currency, the Chinese yuan, in order to avoid the risks stemming from the volatility of prices in currency exchange markets and international monetary reserves like the dollar and euro. China, which has the largest foreign currency reserves in the world, fears that the depreciation of the American dollar is detrimental to the country’s huge stock of foreign currencies, most of which are in dollars, because depreciation will lower the value of U.S. debt to China, which stands in excess of $700 billion.

The fundamental economic changes that the world is witnessing are setting up multiple profiles for a new world economic order, which necessarily will result in a new international order. Indeed, the economic crisis of 1929 led to the collapse of multi-polarization and the impetus for World War II. Western agreement on the Bretton Woods system, which the Soviet Union refused to join, confronted the world with a bipolar world order. Then, following the fall of the Soviet Union and the appearance of economic blocs like the European Union – connected politically, for the sake of security, to the United States – the U.S. continued its control over vital international economic organizations and became an unrivaled superpower.

Today the G-20 has replaced the G-8. The Asians have a growing role in the world economy. Beyond the currency war, the West falters in facing the world economic crisis. All of this facilitates the rise of a new economic system with which the international order will adapt to (politically) just as it is in line with current (economic) developments.