Over the past several months, we’ve argued that between the collapse of petrodollar mercantilism and the rise of a China-led, yuan-influenced multinational development bank, the days of dollar hegemony are likely numbered. The implications of the shift away from a global economic order that has prevailed since the end of WWII are far reaching and may include the demise of what has largely been a unilateral political and economic order characterized by the dominance of US foreign policy and Western notions of politics and capitalism. Now, it appears as though de-dollarization and the end of US hegemony may have gone viral. As The NY Times reports, a US “retreat” from the world order it has largely shaped was the unspoken topic de jour at this year’s spring meeting of the IMF and World Bank in Washington.
Via NY Times:
The spring meetings of the International Monetary Fund and World Bank have filled Washington with motorcades and traffic jams and loaded the schedules of President Obama and Treasury Secretary Jacob J. Lew. But they have also highlighted what some in Washington and around the world see as a United States government so bitterly divided that it is on the verge of ceding the global economic stage it built at the end of World War II and has largely directed ever since.
“It’s almost handing over legitimacy to the rising powers,” Arvind Subramanian, the chief economic adviser to the government of India, said of the United States in an interview on Friday. “People can’t be too public about these things, but I would argue this is the single most important issue of these spring meetings.”
Other officials attending the meetings this week, speaking on the condition of anonymity, agreed that the role of the United States around the world was at the top of their concerns.
There’s no question that The White House has had a difficult time projecting a unified front of late. Between Israel’s attempt to foment discord in Congress amid nuclear talks between US and Iranian officials and Washington’s abject failure to convince its allies to refrain from joining the newly formed Asian Infrastructure Investment Bank, it certainly appears as though the US government faces a fractious relationship not only between its two dominant political parties, but between itself and its external allies as well, and this is serving to undercut its ability to preserve America’s traditionally dominant position on the world stage. There’s perhaps no better example of this than the failure to make changes to the structure of the IMF, an institution which will now face a Chinese rival in the AIIB that could, given enough time, rise to become one of the world’s foremost multinational institutions:
Washington’s retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.
Experts say that is giving rise to a more chaotic global shift, especially toward China, which even Obama administration officials worry is extending its economic influence in Asia and elsewhere without following the higher standards for environmental protection, worker rights and business transparency that have become the norms among Western institutions…
An overhaul of the I.M.F.’s governance structure, negotiated five years ago in large part by President Obama to give China and other emerging powers more authority commensurate with their growing economic strength, has languished in Congress. That, in part, propelled China to create its own multilateral lending institution in direct competition with the behemoths in Washington.
And as we’ve argued exhaustively, the AIIB represents far more than a competing infrastructure lender. It represents the ascendancy of Chinese foreign policy and also ushers in a new era wherein the yuan charts a gradual course towards reserve currency status.
For much of Washington and the world’s economic leaders, China’s creation of the Asian Infrastructure Investment Bank crystallized the choice policy makers face. Earlier this month, Lawrence Summers, who was a top economic adviser for both President Bill Clinton and Mr. Obama, declared that China’s establishment of a new economic institution and Washington’s failure to keep its allies from joining it signaled “the moment the United States lost its role as the underwriter of the global economic system.”
For years, China had threatened to establish institutions to rival those dominated by the West, like the I.M.F., World Bank and Asian Development Bank — or even to establish its currency, the renminbi, as a reserve currency to rival the dollar.
But even as some observers describe the situation as a “withdrawal” by the US from the world stage, it may indeed be that Washington has simply lost its legitimacy after years of foreign policy “missteps” that have now culminated in multiple proxy wars across the Middle East and after mishandling China’s rise to superpower status by painting Beijing as a quasi-threat rather than adapting to a changing world order in a way that secured US interests while demonstrating an ability to respond appropriately to a changing geopolitical landscape.
Whatever the case, the effect has been to undercut Washington’s traditionally dominant role in the financial and political affairs of the world and has, for better or worse, opened the door for other powerful actors to try their hand at shaping the course of history unencumbered by the weight of an overbearing Western hegemon. We're seeing this play out both in Europe — where Russia's Vladimir Putin is not only looking to reshape borders but also to serve as a lender of last resort to Greece — and also in Asia — where, even amid decelerating economic output, Beijing has been agressive in projecting both economic and military prowess over the past several months. Meanwhile, the consequences of US foreign policy continue to materialize in the form of failed or nearly-failed states, and so at the end of the day we'll leave it to readers to decide if the new world order is preferable to its predecessor.