Ariel Noyola Rodríguez
Economist graduated from the National Autonomous University of Mexico (UNAM). Involved in the Centre for Research on Globalization, Global Research, based in Canada. His reports on World Economy are published in the weekly magazine Contralínea and his opinion columns in the international news chain Russia Today. The Journalists Club of Mexico awarded him the National Journalism Prize in the category of Best Economic and Financial Analysis for his pieces issued in the Voltaire Network during 2015.
During the first Annual Summit organized by the Asian Infrastructure Investment Bank (AIIB) in Beijing, China has shown her intention to take over the global leadership in infrastructure investment. By the end of this year, AIIB would have more than 100 members, making it the first lending institution in multilateral loans in history, under the control of the most important emerging countries. Yet, it is expected that she makes the decision of dropping off the Dollar, as it is the only way to break away from US hegemony in international finance.
The US labour market has begun to stumble. In the past month of May, non-agricultural labour added 38 thousand new jobs while the Wall Street investors hoped for an increase of 160 thousand, Janet Yellen, the President of the Federal Reserve System, had no alternative but to leave the reference interest rate intact after the June meeting of the Federal Open Market Committee. The risk of a new recession in the United States is more of a threat than ever, although the Western media insist on promoting the idea that the principal dangers are the deceleration of the Chinese economy and the possible abandonment of the United Kingdom from the European Union.
After the economic sanctions that the United States and the European Union imposed against Russia, Moscow and Beijing put together an imposing energetic team that has radically transformed the world oil market. In addition to increasing their interchange of hydrocarbons exponentially, both oriental powers have decided to put an end to the domination of the dollar in fixing the prices of the black gold. The petroyuan is the instrument of payment of strategic character that promises to facilitate the transition to a multipolar monetary system, a system that takes various currencies into account and reflects the correlation of forces in the current world order.
Many have insisted on promoting the idea that the recovery of the United States economy is gathering strength for some time. Even high level functionaries of international financial organisms have declared that the North American economy has managed to escape the tendency of low growth that prevails in the rest of industrialized countries. Nevertheless, this unlimited optimism contrasts with the reality: inflation has not increased in any significant way and unemployment has been chronic in more than 30 states of the American Union, with this, the dangers of deflation persist and with this a new recession.
The year 2016 has hardly begun and the losses in different stock markets around the world care colossal: nearly 8 trillion US dollars during the first three weeks of January according to the calculations of the Bank of America Merrill Lynch. The Government of the United States made addicts of investment banks of policies of cheap credit. And now that the System of the Federal Reserve ended their monetary stimuli the whole world is paying the consequences. In the most recent Davos summit it was noted that there is much uncertainty among big businesses: no one knows when the next crisis will explode.
The leaders of South America are in a point of divergence. The economies of the Latin American region regressed in 2015 and, according to diverse estimations will not grow in 2016. Nothing indicates that commodity prices will rally. The dilemma between adjustments, public spending and seeking loans from credit institutions subject to the US Treasury Department remains. Nevertheless Ariel Noyola believes that the leaders of the region can strengthen the bases of South American financial architecture through the operation of the Bank of the South, a project that has been stagnated for eight years, and that in the face of the current economic situation, could prevent the deepening of the debacle.
Apparently the year 2015 marks the beginning of the new IMF interior revolution. First the incorporation of the yuan into the SDR’s was approved, the reserve basket created in 1969 to serve as a supplement of member nations’ official reserves. And now, thanks to approval from the US Congress, the IMF will finally be able to implement the reform of the quotas representation system, China and other emerging countries will increase their power in decision-making, whilst European countries will lose relevance. However, it is still too early to conclude that this is a radical transformation of the correlation of forces inside the IMF: The United States will retain its powers of veto.
In spite of the fierce opposition of the US treasury Department, on November 30 the IMF finally approved the inclusion of the yuan in the Special Drawing Rights, the currency basket created in 1969 to complement the official reserves of the members of the multilateral organization. With this the Chinese currency will become, next October 1 (2016), part of the integrating fifth of the IMF basket. The financial influence of China on a world scale will continue to grow at high velocity: the weight of the yuan in the Special Drawing Rights will be greater in comparison with the Japanese yen and the pound sterling.
The Government of China promotes the internationalization of «the people’s currency» (‘renminbi’) through a policy of alliances that does not take ideological barriers into account. In a first moment the diplomatic forces of the yuan were concentrated in Pacific-Asia, but in a second moment, it became necessary to gain the support of the West. After the President Xi Jinping visited London, between the 19th and the 23rd of October, the bases of the «golden age» between China and the United Kingdom were established, with which both countries looked to push the yuan-ization of the world economy.
The economic perspectives that Japan brings in evidence that the «non-conventional» monetary policies implemented by some central banks of industrialized are an absolute failure. The Japanese economy not only fails to register sustained economic growth but has regressed to the fall of prices according to official data. The recovery plan of Prime Minister, Shinzo Abe, is dead: as already happened from the middle of the decade of 1990, Japan is sinking into economic stagnation and deflation, even as the public debt continues to grow.
The ego of Janet Yellen has broken into a thousand pieces. The new data published some days ago by the US Department of Labor confirms the hypothesis of the economist Ariel Noyola Rodríguez, who had maintained since last year that the United States’ labour market was much more fragile than was presumed by the head of the Federal Reserve. If the situation of the North American economy continues to get worse it is probable that in coming weeks new measures will be taken to mitigate structural unemployment.
After the reintegration of Crimea in Russian territory, the United States has pressured regulatory authorities of the European Union to restrict the access of Russia to SWIFT, the system of international payment founded by 200 Anglo-Saxon banks in the decade of the 1970s. In response, the government of Vladimir Putin has established an alternative system of payments that has already begun to extend its operations among Russian banks and, let it be said in passing, has served as an inspiration for China as well as the other countries that make up BRICS.
For several months the Federal Reserve has insisted that with the recovery of the North American economy they are in a tail wind. However, the multi-millions of monetary stimuli (“Quantitative Easing”) and maintaining the “federal funds rate” close to zero have not been sufficient to completely dissipate recessive tendencies. Seven years after the Lehman Brothers bankruptcy, the current President of the US central bank, Janet Yellen, faces a serious dilemma: detain the stock market rise under the risk of converting into reality the worst nightmare of the United States, deflation.
After the devaluation of the yuan, the international financial markets started trembling. Washington accused Peking of taking advantage of the market. As China wants to incorporate the yuan into the Special Drawing Rights, it is inconvenient to prolong the devaluation. Furthermore, if a currency war broke out, China would risk increasing the economic and geopolitical tensions between countries in the Asian-Pacific region. That way, the United States would have more possibilities to disrupt regional co-operation initiatives and thereby undermine China’s rise as a world power.
Economic relations between China and Latin America are living increasing tensions. As a result of deflation (fall in prices) on a global scale, the South American region is suffering the consequences of concentrating the bulk of its exports to China on commodities. However, the opening of the first yuan financial center in Latin America, in Santiago de Chile, agreed during Prime Minister, Li Keqiang’s visit, is bound to attract a number of technological investments which could drive peripheral industrialization and decrease the dollar’s dominance in Southern Cone countries.
In international press, a lot of ink has been devoted to the BRICS. Without a doubt the participation of the five-party in the world economy block has increased over the course of the last years, competing directly with the United States and the European Union. However, the details about the New Development Bank and the Contingent Reserve Arrangement make it clear that its members resist to abandoning the orbit of the dollar in order to destroy the shell of the Bretton Woods institutions.
On June 18, negotiations between Greece and the Eurogroup stagnated again. The Troika insists that Yanis Varoufakis, finance minister, must present a “credible” plan with reform proposals for its creditors, in other words destroying labor rights, boosting austerity and along with that, giving maximum priority to paying its debts. Time is running out along with the confidence in Syriza. Therefore Greece needs to find oxygen more than a monetary union.
During his tour through Brazil and Peru, China’s Prime Minister Li Keqiang committed to the construction of the “Silk Road” of South America; a continental train that would connect the Atlantic to the Pacific. Within its objectives, this mega-project will seek to impulse the industrialization and with that, to promote economic development in the region.
The number of adepts of the Chinese currency is ever-growing in its process of internationalisation. After gaining support in Pacific Asia and Europe by installing clearing centres and permit the investment of financial assets denominated in yuan, now Canada, the United States’ long-time ally, breaks its resistance and is called upon to become the platform of «yuan-ization» on the American continent.
The current world out-stands the creation of alliances between emerging countries which favor the conformation of a multipolar new world order. The visit of the Argentinian president to Moscow on the third week of April is a clear example of this process, since it fulfilled the objective of articulating a long term strategic partnership.
Despite US opposition, the global rise of the yuan has become unstoppable. In the light of IMF reunions, the Chinese government is now looking for a way to incorporate the yuan into the Special Drawing Rights, which is a crucial step in order to convert it into a global reserve currency.
In the light of the imperial offensive Washington launched against Russia and the democratically chosen governments in Latin America, the strategic partnership between the Common Market of the South and the Eurasian Union emerges like a crucial mechanism in the defense of sovereignty and the development of a multipolar world order, which is ever further away from the orbit of the dollar and less focused on the American economy.
The loans granted by China have changed into an instrument of foreign politics. At the same time these loans permit China to forge closer ties with fundamental allies and reduce the influence of financial institutions under the aegis of the United States in strategic areas.
After Syriza’s victory, everything seems that the new orientation of the Greek foreign policy is in favor of Russia and against the European Union. The troika efforts to impose the interests of creditors in Greece and the reinforcement of the economic sanctions policy against the Russian Federation by NATO, make strong an alliance which will redesign the economic and geopolitical map of the European continent.
The establishment of the Asian Infrastructure Investment Bank was finally approved by 22 Asian countries on Friday 24 October. On the one hand, the new regional development bank enters into direct competition with the Asian Development Bank, established in 1966 under the overwhelming dominance of the United States and Japan; on the other hand it will serve as a mechanism for regional integration and against the “pivot doctrine”, driven by Pentagon and the State Department.
Integration in Latin America is moving forward with missteps, contradictions of peripheral capitalism and the strong opposition from the United States. However, the prompt implementation of the Banco del Sur in partnership with the new development bank of the BRICS could call into question the financial dominance of Washington in the region and strengthen the integration dream of the economies of the South.
BRICS are laying the foundations of a new financial architecture with the Contingent Reserve Arrangement and the creation of their own development bank. However, as Ariel Rodriguez Noyola points out, cooperation among its members is plagued by strong rivalries, making it difficult for them to reach an agreement.
China’s defiance before the IMF
Asian Infrastructure Investment Bank’ First Annual Summit