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The president of the European Central Bank, Christine Lagarde, gave a speech acknowledging that “the tectonic plates of geopolitics are shifting faster” and “we may see the world becoming more multipolar”, with the decline of US dollar hegemony, war in Ukraine, and rise of China.
“We could see more multipolarity as geopolitical tensions continue to mount”, Lagarde added.
Geopolitical Economy Report editor-in-chief Ben Norton analyzed Lagarde’s speech with Radhika Desai, professor in the Department of Political Studies at the University of Manitoba and director of the Geopolitical Economy Research Group:
In the April 17 speech, titled “Central banks in a fragmenting world”, the European Central Bank (ECB) president cited the “growing rivalry between the United States and China”.
So I decided to accept the idea, and I do that reluctantly, because I don’t think that it’s necessarily a pretty picture, but to accept the idea that we are moving towards a fragmented or a more fragmented world than we’ve had it, and that we are not necessarily in a completely bipolar situation, but that we might move in that direction.
We are witnessing a fragmentation of the global economy in two competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values. And this fragmentation, as I have mentioned, may well coalesce around two blocs led respectively by the United States of America and by China, the two largest economies in the world at the moment.
In her presentation, Lagarde hinted that the European Union could potentially try to pursue an independent path, mentioning the “strategic autonomy agenda in Europe”.
This was a clear reference to a concept that French President Emmanuel Macron has promoted. This April, Macron visited China and publicly criticized US dominance of Europe, arguing the leaders of the region cannot simply be “vassals” and “followers” of Washington.
Lagarde is one of the most powerful people in Europe. She was France’s former finance minister, before later serving as director of the International Monetary Fund (IMF).
The current ECB president gave this speech in New York for the Council on Foreign Relations (CFR), a powerful think tank with a close relationship with the US government, which essentially acts as the link between the State Department and Wall Street.
The politically connected Rockefeller oligarchs cultivated the CFR in the early 20th century, funding its influential War and Peace Studies Project during World War Two and collaborating with Washington to help plan the First Cold War against the Soviet Union.
Lagarde addressed the CFR just one day after the former Federal Reserve chair and current US secretary of the Treasury, Janet Yellen, admitted in an April 16 interview with CNN:
There is a risk, when we use financial sanctions that are linked to the role of the dollar, that, over time, it could undermine the hegemony of the dollar.
Of course, it does create a desire on the part of China, of Russia, of Iran to find an alternative.
Rising wages for Asian workers fuels inflation in Western economies
Professor Radhika Desai noted that much of Lagarde’s speech was about inflation.
“This point about inflation goes to the nub of the issue of multipolarity, which, ultimately, what is it but is diminution in the power of imperialism?” Desai said.
In her speech at the CFR, Lagarde acknowledged that, following the end of the First Cold War, the world was “under the hegemonic leadership of the United States”.
In the time after the Cold War, the world benefited from a remarkably favourable geopolitical environment.
Under the hegemonic leadership of the United States, rules-based international institutions flourished and global trade expanded.
This led to a deepening of global value chains and, as China joined the world economy, a massive increase in the global labour supply.
As a result, global supply became more elastic to changes in domestic demand, leading to a long period of relatively low and stable inflation.
That in turn underpinned a policy framework in which independent central banks could focus on stabilising inflation by steering demand without having to pay too much attention to supply-side disruptions
In these comments, Lagarde was clearly indicating that the exploitation of low-paid Chinese workers by Western companies was a significant factor in reducing consumer price index inflation in the core of the imperialist world system.
Lagarde’s remarks were reminiscent of a confession by EU foreign-policy chief Josep Borrell, who admitted in Brussels in October that “our prosperity was based on China and Russia”:
So our prosperity was based on China and Russia – energy and market.
You, US, takes care of our security. You, China and Russia, provide the basis of our prosperity.
This is a world that is no longer there.
Our prosperity has been based on cheap energy coming from Russia – Russian gas, cheap and supposed[ly] affordable, and secure and stable, which has been not the case.
And the access to the big China market for exports and imports, for technological transfer, for investment, and for having cheap goods.
I think that the Chinese workers with their low salaries has done much better, much more to contain inflation than all the central banks together.
So our prosperity was based on China and Russia – energy, a market.
Desai stressed that it is not true, as Lagarde claimed, that “the world benefited from a remarkably favourable geopolitical environment” under US “hegemonic leadership”.
“No, the First World benefited”, Desai countered.
How the hegemonic US dollar system hurts the Global South
Desai noted that this system of US hegemony, which was never really stable, was based on two things: “US military power on the one hand, but also equally importantly, the US dollar system”.
“And if we look a little bit more closely at it”, Desai said, “in practically every major respect, the dollar system has not been good for the Third World, not good for the vast majority of countries in the world, that are not Western, that do not have a place in the G7 where they can coordinate macroeconomic policy and make sure that US allies don’t get too badly burned by the US dollar system – although they have been badly burned by it as well, as we saw in 2008”.
Political economist @RadDesai explains the imperialist nature of the US dollar-dominated financial system, which systematically undervalues currencies, labor, and resources in the Global South
The US often wages war on countries that try to create alternatives (eg, Libya, Iraq) pic.twitter.com/Czs0fujDYy
— Ben Norton (@BenjaminNorton) April 21, 2023
First of all, the dollar system systematically undervalues the currencies of the Third World.
And when you undervalue a currency, what you are doing is you are undervaluing the resources and the labor of those countries.
Precisely, this is the mechanism by which the West has managed to get access to the resources and the labor of these countries cheaply.
And that also means that the rest of the world has to sell their resources for a song and to work doubly hard, triply hard in order to sell – they have to sell a massive volume of goods, export a massive volume of goods to Western countries, in order to earn Western hard currencies, including the dollar, because their money is systematically undervalued in relation to this.
So that there has always been a big discrepancy between the volume of exports and the value of exports, which of course is artificially lowered by the bad exchange rate.
Secondly, the dollar financial system has given the world nothing but a series of crises after crises, a great deal of volatility.
An international medium of [exchange] ought to have a stable value, but the dollar’s value keeps fluctuating.
Another problem, and a large part of the volatility, and the tendency to crisis, comes from the fact that, whereas a proper monetary system should be based on sort of a balanced environment, the dollar systematically has required imbalances.
The chief among them, of course, being the vast US current account deficits, which the rest of the world has to finance.
But also the imbalances that are created by the US dollar-centered financial system, which has been on the one hand creating vast amounts of unsustainable dollar debt, indebting households, indebting businesses, and indebting governments around the world.
And, on the other hand, blowing up asset bubbles so that US financial institutions and high-net-worth individuals can make a killing with the inflation of asset values.
But this, of course, only leads to the crash of these, or the bursting of these bubbles, and this has created more problems.
Further, the Third World is told that the US has a very sophisticated financial system; it’s great, it’s going to provide you with the capital you sorely need for development.
But of course, in reality, the US-focused financial system offers the opposite of that, because capital for productive investment – which indeed the Third World and the rest of the world really needs – needs to be stable, long-term capital that is able to invest for a long period in infrastructure projects and projects that have long gestation periods, but eventually are very important and good for the economy.
But this is not the sort of capital that the US financial system offers. Instead, the US financial system offers short-term capital that only goes to inflate the value of existing assets, rather than investing productively in the creation of new goods and services.
So the rest of the world is told, you know, ‘Lift your capital account restrictions, allow free capital flows and you will get the capital you want’.
In fact, what the Third World gets is the opposite of that: the capital they don’t want – hot money that comes stampeding in when these investors, who are not particularly knowledgeable, think things are good, and hot money that stampedes out at the slightest sign of a problem, thanks to equally ignorant investors leaving behind financial crises, credit crises, currency crises, and, of course, economic crises.
A couple of other points that one should also add to this: Number one, this system, particularly debt crises, from the Third World debt crisis onwards, has enforced a system of debtor responsibility, completely ignoring that any credit relationship has two relatively equal parts, and if things go sour, if things go wrong, if a debt cannot be paid, both debtor and creditor are co-responsible for the problem.
Instead, all the weight of adjustment, the weight of repayment, etc. has been on the debtors.
And, as you know, this is the chief mechanism by which so much money is being drained out of debtor countries, which are the vast majority of countries in the Third World, and goes into the coffers of the rich countries.
And finally, one final point: Given that this system has been so awful, naturally, countries have wanted to leave it.
And what has the US done historically to countries that have wanted to leave it? It has essentially waged war against them.
Think of Saddam Hussein. Think of Moammar Qadhafi. What was crucial about these two leaders? It was the fact that one of their key projects in each case was a project to leave the dollar system and try to create an alternative to the dollar system.
And this is why they were essentially deposed and killed, in gruesome ways, in the case of Qadhafi.
And, of course, their countries have been left essentially prey to all sorts of military, political, financial, and economic instability.
So this is not a [stable] system.
And so, naturally, finally now, the rest of the world has alternatives. And the United States can’t even wage a war to force the Third World back to the dollar system.