The New Order Emerges
March 23, 2015
China and Russia have taken
the lead in establishing the Asian Infrastructure Investment Bank
(AIIB), seen as a rival organisation to the World Bank and the Asian
Development Bank, which are dominated by the United States with Europe
and Japan.
These banks do business at the behest of the old Bretton Woods* order. The AIIB will dance to China and Russia’s tune instead.
The geopolitical importance was immediately evident
from the US’s negative reaction to the UK’s announcement this week that
it would join the AIIB. And very shortly afterwards France, Germany and
Italy also defied the US and announced they might join. In the Pacific
region, one of America’s closest allies, Australia, says she is
considering joining too along with New Zealand. The list of US allies
seeking to join is growing. From a geopolitical point of view China and
Russia have completely outmanoeuvred the US, splitting both NATO and
America’s Pacific alliances right down the middle.
This is much more important than political
commentators generally realise. We must appreciate that anything China
does is planned well in advance. Here is the relevant sequence of
events:
• In 2002 China and Russia formally adopted the
founding charter for the Shanghai Cooperation Organisation, an economic
bloc that today contains about 35% of the world’s population, which will
become more than 50% when India, Pakistan, Iran, Afghanistan and
Mongolia join, which is their stated intention. Russia has the resources
and China the manufacturing power to develop the largest internal
market ever seen.
• In October 2013 George Osborne was effectively
summoned to Beijing because China wanted London to be the base to
develop renminbi-denominated financial instruments. London has served
China well, with the UK Government even issuing the first
renminbi-denominated foreign (to China) government bond. The renminbi is
now on the way to being a fully-fledged international currency.
• The establishment of an infrastructure bank, the
AIIB, will ensure the lead funding is available for the rapid
development of road, rail, electric and electronic communications
throughout the SCO, ensuring equally rapid economic development of the
whole of the Asian continent. It could amount to the equivalent of
several trillion dollars over time.
The countries that are applying to join the AIIB
realise that they have to be members to access what will eventually
become the largest single market in the world. America is being frozen
out, the consequence of her belligerence over Ukraine and the exercise
of her hegemonic power through the dollar. America’s allies in South
East Asia are going with or will go with the new AIIB, and in Europe
commercial interests are driving America’s NATO partners away from her,
turning the Ukraine from a common cause into a festering liability.
The more one thinks about it, the creation of the
AIIB is a masterstroke of tactical genius. The outstanding issue now is
China and Russia will need to come up with a credible plan to make their
currencies a slam-dunk replacement for the dollar. We know that gold
may be involved because the SCO members have been accumulating bullion;
but before we get there China must manage a deliberate deflation of her
credit bubble, which will be a delicate and dangerous task.
Unlike the welfare-driven economies in the west,
China has sufficient political authority and internal control to survive
a rapid deflation of bank credit. When this inevitably happens the
economic consequences for the west will be very serious. Japan and the
Eurozone are already facing economic dislocation, and despite
over-optimistic employment numbers, the US economy is faltering as well.
The last thing America and the dollar needs is a deflationary shock
from China.
The silver lining for us all is a peace dividend:
it is becoming less likely that America will persist with a call to
arms, because support from her allies is melting away leaving her on her
own.
*The Bretton Woods system of monetary management
established the rules for commercial and financial relations among the
world’s major industrial states in the mid-20th century.
-Disclaimer- The views and opinions in this article
are those of the author, do not reflect the views and opinions of
GoldMoney, and are not advice.
Reprinted with permission from GoldMoney.
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