A choice for cooperation over competition
Line of thought
For many decades, the geopolitical dynamics of today’s global landscape have been characterised by a delicate balance between great power cooperation and rivalry. America has been the world’s economic and military superpower, gaining influence and leverage through economic leadership and military power politics. The US dollar has always been the global reserve currency. What began in the early 2000s as a rather loose forum of emerging economies such as China, India, Brazil, Russia and South Africa (BRICS) became a regular grouping for annual meetings. Alongside the United States (US) and the European Union (EU) as the dominant players in the industrialised world, the aforementioned nations were increasingly gaining ground in the emerging world. Common interests revolved around the global growth of trade in raw materials and settlements. The BRICS summit in Johannesburg in August 2023 was a turning point, and since then developments among the emerging powers have accelerated a global shift and a change from a unipolar to a multipolar world order.
America has dominated the global economic system for the past 75 years, or at least since the end of the Second World War. Excessive financial and military support for Ukraine, in the hope of winning the war against Russia, added to the unprecedented financial debt in America and Europe and further weakened their economies. The weakening of political leadership not only undermined democratic systems, but also continued to ignore the signals of an economic and political downturn. In spite of clear signs, political leaders seem to be in denial about the consequences of an economic downturn cycle, which means that the current recession in America and Europe, with a progressive weakening of Western democratic societies, is inevitable. Current developments point to significant changes in America. The spillover effects have dramatic consequences for the European allies because of their extensive economic dependencies and because of America’s military capabilities, due her dominance in NATO and the subsequent military influence over European countries.
So far, America has been the leader of the global economy and has kept its European allies in check. Whereas in the past the world witnessed the rise and fall of colonial powers such as Britain and France in their rivalry over Africa, since the end of the Cold War it has been America that has been primarily concerned with exerting greater political, economic and military influence in Europe. American dominance in NATO is the most important example of US leadership over its European allies.
The major changes in the global economy ahead
The changes in the world economy are worrying for Europe and America, but they are happening. A simple economic statistic shows this: America is the centre of the G7 economic alliance (US, Canada, Japan, Germany, France, UK, Italy and the European Union). By 2020, the global output of goods and services (GDP) of the G-7 will be larger than the GDP of the new emerging dominant economic bloc (BRICS), with China at its core. By the end of 2022, the share of the G7 in global output is about 29%, while the share of the BRICS is 33%. At a meeting between the Russian President and business leaders in Khabarovsk, a city in south-eastern Russia, on 11 January 2024, Putin noted that Russia has become the largest economy in Europe in terms of economic volume. Russia has overtaken Germany to take 5th place in the world – China, USA, India, Japan, Russia. According to him, gross domestic product in 2023 could be higher than the previously forecast 3.5% and could even reach 4%.
The figures for 2023 are not yet available at the time of writing, but it is left to the reader’s imagination what the figures will look like in 2024 after the crude oil trade with Saudi Arabia, Iran and the UAE has been taken into account.
The division between the Western and BRICS economies, which is increasingly coming to the fore, is becoming more visible. This year, US GDP is expected to grow by around 2.5%. China’s GDP growth is estimated to be around 5.5%. Such disparities cannot be sustained for long.
A crash or hard landing of the US economy seems almost inevitable because the system is unstable. On average, there is an economic downturn every 4 to 7 years. So far in the 21st century, the world has seen the crash of 2000 (dot.com crash), 2008 (subprime mortgage crash) and the COVID 19 crash in 2020/21. The obvious question is why the Western economic systems have failed to overcome them.
Looking across the Atlantic, the scale of America’s socio-economic problems seems insurmountable. The spillover effects on Europe can no longer be ignored. level of government, corporate and household debt is the highest in American history and there is no end in sight. Record levels of homelessness, a continuing accumulation of social problems. Recent developments at the United Nations seem to point to the end of US domination of key international bodies. At the United Nations General Assembly, a vote on the Gaza ceasefire in mid-December saw 153 countries vote in favour of a ceasefire, with 10 countries voting against and 23 abstaining. The result of this vote shows that the majority of states in the international community, including the BRICS states, are on one side, and America and Israel, together with a few other nations, are on the other side.
The world today is witnessing the decline of the US empire and the rise of China as a superpower. In the past, every developing country went to Washington, London or Paris to ask for help when it wanted to build railways, highways, infrastructure or markets for its goods. These countries now have an option for such investment, they can go to China, and so China’s importance through development cooperation and financial assistance has grown immensely over the past few decades. Economic ties have led to political alliances, strategic partnerships with China and like-minded countries, and ideological shifts towards the East, as well as military reorganisation. This process can no longer be stopped. The trade and tariff war that began under the Trump administration and continues under the current Biden administration has not stopped China’s rise. The attempt to destroy the computer chip industry in China was another failure. The current political/military showdown over Taiwan in the Chinese Sea can be seen as folly, given that China has a population of four times the size of the US and it is a nuclear power.
The question that will arise in the future is whether China will claim empire status, as the US did in the past and the British, French and Dutch did before them, or whether China, together with the economic BRICS bloc, will act more as an international collective, more interested in inclusiveness than exclusive dominance.
The global markets and the looming bank crisis
After the Second World War, America’s generous spending policies led to huge deficits at home and abroad. From 1971 to 2022, the US accumulated current account deficits of around $16 trillion. In the case of accumulated (non-annual) deficits, some of the money is eaten up by trading partners through inflation. The more cumulative the losses over the years and the higher the inflation in America, the greater the loss of purchasing power of its partners. The cumulative erosion of the purchasing power of the partners since 1971 amounts to about $6 trillion in today’s purchasing power. This is the reserve currency or tribute system that the USA has created around the dollar. It was not possible to replace the US dollar as a reserve currency because America’s trading partners were sitting on dollars. The equivalent value was about 8,000 tonnes of gold and the partners did not want to write it off in full. To avoid the consequences, it was agreed to switch from a gold standard to a gold paper standard. In recent years, there has been increasing resistance from the BRICS member states. These five nations are running a trade surplus of almost USD 1 trillion per year (2022), which has led to increased demand for gold.
The Bank of America is responsible for over $130 billion of economic debt, resulting from the loss in value of government bonds due to rising interest rates. The Federal Reserve Bank has a secret list of some 722 banks that are on the verge of collapse, which, if the scenario were to become reality, would require an expansion of the so-called „giral money“ by up to 30-40% (Federal Reserve money) and a shift from bank money to central bank money.
As unimaginable debt levels continued to rise in both America and Europe, the Western financial system was perceived as risky by the rest of the world. All the more so since on 10 January 2024, according to Bloomberg News, the White House in Washington passed legislation to seize $300 billion in Russian assets and use the funds to rebuild Ukraine after the war. This unlawful confiscation of foreign assets by the US is creating further uncertainty in many countries around the world and is seen as unacceptable by many states around the globe. This policy has aroused much opposition among the BRICS member states. Since Russia is not at war with America or Europe, but with Ukraine, the confiscation is seen as contrary to international law and completely arbitrary.
Institutional enlargements with a new financial concept
When African countries occasionally complained that the US was taking their natural resources and giving them worthless US dollars in return, the Americans promised to bring Western-style democracy to these countries, usually with a carpet of bombs.
For many decades, Western democracies tied their financial aid and development cooperation policies to the promotion of democratic political institutions, the rule of law and the fight against corruption. China, on the other hand, has entered and conquered the markets of the global South, offering development loans in exchange for vast tracts of agricultural land, mining concessions and raw materials. In these developing countries, China has built modern infrastructure and flooded the markets with cheap goods and services. No questions asked, and so China’s importance as a major economic and political actor has grown steadily over the past few decades.
Despite having different interests due to their heterogeneity, the BRICS countries decided to act. They have created a reserve bank for financial transactions, the New Development Bank (NDB), based in Shanghai, China. The NDB is chaired by Dilma Rousseff, a former president of Brazil. Like the World Bank in the past, the NDB is currently financing infrastructure programmes in the Global South using local currencies and offering more favourable lending terms than Western countries or their monetary institutions.
The impact of the BRICS in the energy sector is becoming increasingly apparent, as they control almost 50% of global crude oil production. The bloc is in a position to influence global markets and energy policies by advocating major reforms and international order, seeking greater representation, fairness and respect for their interests. As a result, there will be reforms and changes in international law regarding trade and the abandonment of the past practices of many former colonised members of the bloc. One of the forthcoming changes will be a further move away from the use of the US dollar as a global trade currency. By 2024, de-dollarisation could be even more pronounced, with BRICS members prioritising the reduction of dependence on the dollar and the creation of a new parallel financial system with a basket of currencies as a strong alternative to Western payment systems. The BRICS will have another reason to favour de-dollarisation, as a weak dollar will make it easier for them to repay their debts to international organisations (i.e. the World Bank and/or the IMF).
In addition to the SWIFT payment system, „BRICS pay“ is a digital blockchain payment system. It has been launched to transform trade and transaction volumes, bypassing the US dollar and Western financial systems. It is not designed to replace the SWIFT payment system, but as a parallel payment system to enable trade in local currencies.
Payments for commodities or oil will not be denominated in US dollars. It is not a Central Bank Digital Currency (CBDC) or a cryptocurrency. It is designed as a digital service with more than a single accepted currency, allowing use for any of the member currencies. As such, it is intended to enable financial transactions in the BRICS countries, bypassing the US dollar and Western financial systems (SWIFT).
Several institutions in the BRICS countries, such as the Bank of India, Sberbank, VTB Bank, Standard Chartered in England, Bank of China, ICBC and PetroBras, have adopted this new blockchain system. All financial transactions between members will be handled by the BRICS Bank.
The BRICS bloc is heavily focused on commodities and securing raw materials, such as copper, silver and lithium, which are crucial to meeting industrial and consumer demand. Saudi Arabia and the United Arab Emirates could deliver a major blow to the Western industrialised world. India and China are the largest importers of oil, while Saudi Arabia and the UAE are among the world’s top oil producers. India and China each have more than 1.4 billion people, and together they account for almost a third of the world’s population. By comparison, the US and Europe together have close to a billion people.
The BRICS bloc will soon account for 50% of the world’s population and more than 40% of global oil production. It is challenging the existing global financial structure through the creation of a new development bank or the BRICS bank and contingent reserve arrangements.
The bloc will also focus on growth by facilitating access to new members. Nearly 40 countries have expressed interest in joining or have formally applied for membership. This will undoubtedly make the bloc the global majority.
Changes in the Global South (BRICS+) and the question of de-dollarisation
The BRICS bloc of emerging economies welcomed five new members, Iran, Saudi Arabia, Egypt, the United Arab Emirates and Ethiopia, with Argentina withdrawing at the last minute. Russia will hold the presidency in 2024, focusing on strengthening multipolarity in its various aspects through the theme „Strengthening Multilateralism for Equitable Global Development and Security“. Out of 40 countries, 20 have formally applied to join the BRICS bloc, indicating a new power formation in the global economy. This shift in power politics and likely new alliances in foreign and security policy, with the formation of new geostrategic partnerships, is based on common economic interests.
Their oil is increasingly being transported to the East, while the West pursues its new direction of a green economy, moving away from fossil fuels towards electrification of everything and so-called „new green energy“ sources. Instead, African nations want to become more independent and don’t want to be organised by the Western economic order. They want to have their own systems of trade in raw materials. It is clear that the new formation of the BRICS+ bloc no longer subscribes to the Western-led order, but at the same time it does not clearly oppose it. From the point of view of the BRICS member countries (i.e. Brazil, South Africa, etc.), they want to trade with many partners and not be tied to the purchase of the US dollar as a foreign currency in their trade relations. On the contrary, the majority of countries in the global South see the US dollar as detrimental to the security of their economies, including bank reserves. This is one of the reasons why they are looking for alternatives for their cross-border trade. Settling trade invoices in local currencies will make goods and services much cheaper for them by eliminating foreign exchange costs, which makes a big difference to the nations of the Global South. They don’t want to face the same risks as Russia in the event of a dispute with America, being cut off from the SWIFT system, or having to deal with sanctions imposed by Western countries or institutions. This means that a de-dollarisation is already underway, which is significantly slowing down economic growth in America and Europe. The BRICS have made it clear that a gold-backed trade currency will be established in the future, and until then the trade in resources, including oil and gas, will be conducted in national currencies (rials, rubles, renminbi, etc.).
The global trading system has traditionally been designed to allow America to accumulate a reserve currency by running deficits for many, many years, while the rest of the world runs surpluses that are devalued by US inflationary policies. Since the US dollar has been a paper currency (over the last 52 years – since 1971), those who adopted the dollar at that time have lost almost 95% of its purchasing power. The question of de-dollarisation is how hard the BRICS will push for it. They have a $1 trillion trade surplus with the West every year. That $1 trillion trade surplus has been paid for in US dollars, through inflation, and those dollars are becoming less worth every year. The ratio of dollars to gold has deteriorated much more drastically than the purchasing power of goods.
The BRICS countries would not need to deposit large amounts of gold. Gold only needs to be moved when surpluses or deficits arise. If BRICS members run trade surpluses, a few hundred tonnes of gold deposited in a common institution will suffice. With current account surpluses of $1 trillion per year, the inflow of gold into this institution will increase, while the need for gold will decrease.
America, Europe and China: a choice of cooperation over competition?
China’s rise as a global power has challenged the traditional supremacy of the United States, with economic cooperation and technological dominance fuelling and intensifying the rivalry between the two powers over the years. The competition between the US and China goes beyond economic factors to include technological dominance, military advances and strategic influence. This rivalry has implications for the rest of the world, as countries are forced to choose sides or navigate a delicate balance between the two powers.
Russia has adopted a more assertive foreign policy, seeking to regain its position as a major player on the global stage. Russia has cooperated with the West on certain issues, such as counter-terrorism or arms control, but its aggressive actions in Ukraine and Georgia have strained relations with the US and the EU. The perception of Russia as a revisionist power has contributed to heightened tensions and rivalries, particularly in Eastern Europe.
The EU has historically emphasised cooperation among its member states, but the fragmentation of divergent national interests and internal challenges have increased and complicated its role as a unified geopolitical actor. America has been the world’s preeminent power, and it has also dominated European politics through NATO memberships. Military leadership and influence in NATO have reinforced political and economic control, similar to the patterns used by colonial powers in the past. Regular visits by executive government missions to European countries on major political and economic issues ensured that European countries remained aligned with America’s political agenda.
In the light of the current requirements for peaceful engagement, a realistic assessment of the recent power shifts in world politics, with the role of China and the emerging balance of power, and its aspirations for peace is indispensable. It is also essential to shed light on the mutually beneficial relationship between China and Russia. The two countries share a border of about 4,260 km, one of the most important strategic borders in the world, and Russia has the longest Arctic coastline, including direct access to the Arctic Ocean with the right to develop natural resources and an exclusive economic zone. In the context of China’s „One Belt and One Road“ initiative, one of the associated projects is the Ice Silk Road to Europe, which China is trying to establish in the Arctic waters. China wants to expand and its creeping conquest of the Arctic through access to natural resources and the creation of transport and communications infrastructure will eventually lead to control of the Northern Sea Route (commonly known as the Northeast Passage) along the Siberian coast, linking East Asia and Europe.
In January 2023, it was reported that a major Chinese state-owned company was in talks with representatives of a Russian mining and metals company to help develop the massive Pizhemskoye titanium and quartz deposits in the Russian Republic of Komi, near the Arctic Circle. In the light of the above, it would be foolish to assume that China would allow Russia to emerge as the loser from this most unfortunate war in Ukraine. The reason for emphasising this is that Russia and China are members of BRICS and the Eurasian region is the largest region on earth. Taken together, they make up a huge concentration of population on the planet.
In the past, when America felt its economic or national interests were threatened, it more than often went to war, using its own military and intelligence forces and NATO troops, such as in North Africa/Libya against M. Gaddafi or in Iraq against S. Hussein. This time, however, the policy of conflict doesn’t work the way it did in the past. The BRICS account for about 32% of the world’s gross national product and more than 50% of the world’s population. If you include the 40 countries that have expressed interest in joining, it is closer to 60% of the world’s GDP and 80% of the world’s population. In my view, it seems highly unlikely that a war scenario could be a realistic option. Rather, with a realistic view of the ongoing global dynamics, America might decide to sit down at the negotiating table and discuss arrangements with these powerful trading partners.
The effects of these geopolitical shifts for Europe?
The European Union played a significant role in the world, both as an economic powerhouse and a political actor. While the EU’s primary objective was to promote integration and cooperation among its member states, seeking to project its values, principles, and interests beyond its borders. In the realm of conflicts, the EU employed various diplomatic, humanitarian, and development tools to foster stability, peace and conflict resolution. For many years, the EU has actively engaged in diplomatic efforts to prevent, manage and resolve conflicts around the world. It has leveraged its diplomatic networks, mediators, and institutions to facilitate dialogue, promoted negotiations, and mediated peace processes. The EU’s approach emphasizes multilateralism, dialogue, and the respect for international law.
Its diplomatic efforts have often been conducted in cooperation with other international actors such as the United Nations and regional organisations such as the Organisation for Security and Cooperation in Europe (OSCE).
Its diplomatic efforts have often been conducted in cooperation with other international actors such as the United Nations and regional organisations such as the Organisation for Security and Cooperation in Europe (OSCE).
In recent years, and especially during the Ukraine-Russia conflict, the EU has been significantly weakened in its economic power. Undoubtedly, the EU has been significantly affected by the war in Ukraine – after the COVID pandemic, Brexit and the migration crisis have already challenged its economic and political capabilities.
According to President Ursula van der Leyen, the European Union and her member states the overall support to Ukraine amounts to almost 83 billion Euro already paid out in humanitarian, financial, emergency and budgetary assistance. The taken in more than 4 million Ukrainian refugees. It hopes to secure another 50 billion Euro budget assistance through to 2027.
It has become party to the war, providing over $30 billion in military assistance– ranging from ammunition to air-defence systems, Leopard tanks, and fighter jets. This includes an unprecedented $6 billion from the “European Peace Facility,” in addition to supplies provided directly on a bilateral basis by our Member States. On ammunition for Ukraine, EU support includes $2.2 billion for the joint procurement and delivery of up to an additional one million rounds of artillery ammunition by early 2024, and an additional $535 million to urgently boost EU defence industry capacities in ammunition production. The EU is today the largest military training provider to the Ukrainian armed forces — by the end of 2023, 40,000 Ukrainian military personnel will be trained under the EU’s $390 million Military Assistance Mission. An additional $27 million has been provided to support Ukraine’s de-mining of liberated territories temporarily occupied by Russian armed forces.
The question is at what cost has the European Union become a liberal power that defends its values with sanctions like a hard power, while at the same time walking a tightrope by supplying arms to Ukraine? The pressure exerted by the United States in the framework of sanctions and a military strategy mainly implemented through NATO – with a particular focus on the Alliance’s eastern flank – suggests that this war situation is also somewhat designed to weaken the European Union in the long term.
The position of the West, especially the United States and the European Union, as political actors and war-makers has been scrutinised and criticised in certain academic circles. In a world of interest-driven conflicts, where geopolitical considerations often shape international interventions, the perceived biases and motivations of Western actors have raised questions about their credibility and agenda-setting.
New BRICS members by 2024 shaping the global economies
The move towards de-dollarisation and closer ties has become a growing trend among countries that previously did not have close ties. These countries are banding together to pursue common national interests and economic goals, with the main aim of improving cross-border trade and becoming less dependent on the US dollar. The recent entry of Saudi Arabia into the BRICS formation has significant economic implications for both America and Europe and their currencies. Working agreements between Saudi Arabia and China aim to accelerate the move towards the Chinese yuan and Saudi riyal in international trade.
Both countries are seeking to enhance their geopolitical positions, with China as the world’s second largest economy and Saudi Arabia as one of the largest crude oil producers and top oil exporters. This practice will help Saudi Arabia diversify its economy and attract more investors. On 20 November 2023, a currency swap agreement was signed between China and Saudi Arabia, allowing them to reduce their dependence on the Western financial system. The new currency swap agreement aims to further strengthen financial cooperation and boost trade and investment between the two countries.
It is worth remembering that the US dollar gained its strength through the ‚Petrodollar Agreement‘ signed in 1974, under which Saudi Arabia agreed to sell oil exclusively in US dollars in exchange for US military, security and economic development aid. Recent developments between Saudi Arabia and China therefore raise red flags for America. It will find it increasingly difficult to run large annual deficits and issue debt without offering investors extremely high interest rates. High interest rates will drive up the cost of financing and could ultimately lead to bankruptcy. America currently pays up to $1.5 trillion a year in interest on its $34 trillion national debt.
The new swap deal between China and Saudi Arabia, worth up to $7 billion, allows China to price crude oil derivatives in yuan, which is crucial for investors in commodities trading. Over the next five to seven years, international trade will become less dependent on the dollar, eroding America’s influence over the global financial system. Both countries are full members of the BRICS bloc, which favours developing multiple relationships with multiple countries and using multiple currencies for cross-border trade to counter the dominance of the US dollar.
