The Historical Shift in Global Economic Power and the Decline of the West
In this comprehensive exploration, we delve into the intricate world of global economics, tracing the evolution of currency from ancient trade systems to modern financial structures. We'll examine the pivotal role of gold in shaping economic power, the rise and potential fall of the US dollar as the world's reserve currency, and the emerging trends that may redefine the global financial landscape. This journey through time and across continents will uncover the complex interplay of politics, economics, and technology that has brought us to a potential turning point in monetary history - what could be the end of West for the current global financial order.
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Currency is not just a paper or any digital number visible on your screen. Or it is not just something used in exchange for goods & services. What back it? is the real question.
There are so many variables that go into consideration to decide what value any particular currency hold. And historically and in now at present we can simple say we have seen 2 phases of such currency. Before 1971 & After it.
What happened before 1971? And what followed after?
Before 15th August, 1971 - All the currency of the world was pegged to gold. Meaning the currency was backed by something that is finite and limited in supply.
On 15th August, 1971 - Was the day when American President Nixon removed the gold standard from the dollar. And it was the point when the world got “Fiat Currency”. To put it in simple perspective it basically meant that Currency (in this case the dollar) would not be backed/Pegged by gold.
General questions like Why the American decision of un-pegging the currency made the world un-peg it currency? And did it help? And why was it done on the first place?
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Before we understand ‘Fiat Currency’ which is just around 50 years old. Left go back and see how the whole civilization evolved in trade?
As humans the only thing that separates us from any organism is our ability to think and build tools that help us go beyond. Be it the time of hunter gatherers when we started making tools and then we started learning about seeds and made tools for farming to storing etc. Now it made us not risk our life for food and as Humans we lived in small packets of groups exchanging goods, tools etc.. This was the first stage of our trade which we called “Barter System”. But now as civilizations expanded and started growing in population, became more and more sophisticated and it was becoming harder to find people who needed the same goods in exchange for their goods. Then we evolved into using precious metal for exchange of goods and save precious metal for future purchases and then created centralized system of trade like Markets.
Any civilizations be it Indus-Valley Civilization (Harappan), Ancient Egypt, Mesopotamia, Ancient China, etc.. All started adopting to mixture of precious metals like Copper, Silver, Zinc, and common in all was the Gold. and we started making surplus and started trading with other nations and all in mutual understanding gold became the reserve currency for trade.
Now if we go back, Ancient Bharat was the alone contributing 50% to the world GDP in trade (Chart below). It can be found in ancient Greek scripture where kings are buying luxurious good, Spices, Etc.. from Bharat and it was active & busiest trade route (Topic is covered below about the route, More details there).
From the recorded history of 2000 years Ancient Bharat dominated in trade and contributed around 50% to the GDP of the world and even after Mughals invasion and destruction of many trade ecosystem and loot of gold from ancient temples. Still Ancient Bharat contributed about 25% to the world GDP. Then comes the East India company (British) And slowly through trade and system they start draining Bharat gold and started sending it to Europe and that is how the Europe managed to bring Industrial revolution in Europe through gold accumulation and precious metals that it stool from other countries and Bharat. (Approx. East India looted around 72$ Trillion worth of gold and goods in its 200 years of ruling Bharat)(Source: Reset by Dr. Subramanian Swamy: Link below in the source document).
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When Britain was busy in world war the United States started accumulating gold from the allied forces during the World war in exchange for supplies. Exhausted Britain had to to give up its reserve currency status to the USD in the Bretton Woods Agreement. It was agreed since gold is pegged to USD now all the rest of the currency will be begged to USD for better stability. And it was needed to be pegged to Gold to counter the Communist whose ideology is to be self reliant and not to be dependent on the USD. To gain back the trust it had to be pegged to gold so that it can first gain back the trust of the people to use USD.
After golden pegged currency, Now lets understand what Fiat Currency is all about and how & why it came into being?
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Now that we have general understanding of how gold was important in this power dynamics. Now we have to look at What was the intent and how well did the fiat help the world.
Before we start let me share you some interesting fact that USA hate India’s socialist government and at the time it was Indra Gandhi. She started ditching USD and started buying gold using the USD that made US president hate her. And also she was declared the most admired person in the world. Which added up and Then President Nixon selected 15th August 1971 (The Independence Day) to unpeg gold from the USD.
So now lets first understand the economics of how the fiat works. As we know that Fiat currencies value is not based on physical commodities like gold. Instead, its value is determined by market forces and the economic policies of that country. In general it made US dominate in currency and inflate its currency value in return for making others countries economy to be dependent on US dollar and its policy. And that is why whole world watch’s when Federal reserve is going to hike or break the interest rate. But how did US made other countries dependent on US dollar? What geo-political event made this possible? There are two crucial events that made the US currency the safest currency.
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Soon after the President Nixon removal of gold standard from the dollar. Then the deal between Saudi Arabia and the U.S known as petrodollar deal. Which mandated for every country to make Oil trade in USD in exchange for the security of the gulf was taken up by US.
And now the demand for the US dollar sky rocketed because all the country now had to have USD in their reserves to make payment to the gulf for Oil purchases. And throw this it also became the safest currency because everyone needs oil and dollar is the only payment currency. Now meaning US had control to issue as many Treasury Bonds (T-Bonds, Loan taken from investors by the Center) and demand stayed high because it is the safest and enabled the American economy to give loans or credit in very low interest rate which made every company shift to US & Then US actually became the “United States” where it united all the best people of all the country and gave them free money to innovate on the US soil.
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Along with 1971 & 1973 agreements one of the important act that was passed was Gramm-Leach-Bliley Act passed on 12th November, 1999 by the Clinton administration. So what did it do?
Basically it Repealed few sections of Glass-Steagall Act which required keeping investment banking and Commercial banking one! From here the great Ponzi scheme started escalating where now Investment banking & the commercial banking became one meaning it helped Federal Reserve print as much money as possible and distribute it and it sits in People Commercial Banks and now that same money can be used by Federal reserve to invest the money where they like. Which made dotcom bubble and by end of the crises by Oct, 2002 dotcom crash managed to wipe out 78% of the valuation.
Lets look at some Indian companies that only serve the US clients like Infosys. When the dotcom / Currency bubble was at the highest the share price of Infosys was at peak and I don’t think even Narayan Murthy knew what he did right on that time ??. But If you would have invested on the stock then, at present your total return at present today would have been -5% CAGR.. Now imagine the scale of the crises. Indian market were not as much effected because India didn’t hold as much Treasury bonds or US currency and wasn’t entirely dependent on US economy.
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The Second crucial part of maintaining the dollar as the single reserve currency was industrialization of China with the help of US and in exchange for China to invest in UST (US treasury) & USD. Why China?
We need to look at the movement before the 2001 crises to understand this which was on 1st January, 1999. When EURO was launched by the European countries. It was challenge to the US dollar. And it was on 24th March to June, 1999 when US fooled NATO into bombing Yugoslavia to bring down the EURO valuation. And then EU (European Union) decision to not park any more of its saving into the UST (Treasury) to not participate in US politics. But then on December, 2001 US brings China into WTO as revenge.
And now after the economic crisis of the dotcom by Oct, 2002. Now US started sharing tech with China and starting making China the export hub of the world. And it one of the reason why Americans enjoyed pollution free and luxurious environment. Where all the countries had to earn the dollars to buy crude oil and also many countries currency had no value but were dependent on UST.
And now the US it again started balancing Interest rate and Treasury bills along with China & Japan buying most of the T-Bills as a deal. After Quantitative easing & Quantitative tightening (QE-QT) cycle in US. Again another crisis unfolded which is known as the Lehman Brothers crisis or Subprime mortgage crisis of 2008. Or the Real estate crises where people got loans at very cheap and long term which lead people to invest more into less liquid assets like Real estate.
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Also one other way to point out how to create an artificial demand of USD is the politics of two bucket theory that it uses. Which means that you also create the problem and also provide the solution. Meaning you spread the virus and you provide the vaccine (COVID ??). How did this happen in Geo-Politics.
This tactic was used by Europe/British Empire first and then when the power shift happened to US it used the same tactic left by Britishers. What was it? Britishers when they left the country that their imperial state ruled. If you noticed they created problem before they left. Example, Fight between Jews & Arabs, Hindu & Muslim, etc.. And part of that tactic was to keep the border loose/Unclear. Be it India & Pakistan or Israel & Palestine and etc.. Now they have created the problem they will also provide the solution of maintaining the security of that area that is why Britishers first destroyed Indian systems and then they also took Indian men used them in world war and in the name of security.
Like talked before in the Gold section how US managed to take up all the gold from the Europe and dismantled the European economy. Now slowly US managed to become the next power house and safe place to park currency now they started taking up security of the region like Israel where they provided them with technology, Saudi with security in exchange to making USD dominate, Providing Pakistan with endless loans to cause terrorism in India.
Now lets have a overview of how all the things adds up and how in general the economy really functioned.
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One day US decided to un-peg the US dollar from the Gold and within 2 years in 1973 it signed a Petro-Dollar deal with Saudi to create necessity in the country and made it the single most reserve currency of the world. And then throw Endless printing of US currency enabled it to provide good loans to its business to function without profits and given loans in the name of Globalization & Free market which lead other countries to accept other countries open up their economy to be exploited by the US company enjoying endless printed free US dollar which helped companies like Amazon, Walmart etc. give heavy discount to kill the local competitions. Providing countries with endless loans through bodies like IMF and keeping them in cycle of debt and then making them purchase weapon with the same money from the US by causing wars and radicalism everywhere. And let it civilians enjoy pollution free environment & again the same free credit line was available to consumers and that is what fueled the consumption to buy the goods.
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Like explained in the previous topic that first ever de-dollarization attempt was by the Europe Union in which they introduced new currency alternative to USD. But it failed extensively. American dominance and the privilege of printing endless money and passing down the valuation or inflation of the USD to other countries. Meaning basically The capitalism of the West was only successful because of countries like Community China were ready to exploit its people as cheap labor and pollute the eastern environment to let West enjoy the pollution free and endlessly printed money.
The other example to understand is Arab Spring 2011, Which clearly shows how the world suffer because of American life style, USD & Endless printing policies.
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Like discussed before most of the currencies are the isotopes of USD. Meaning local currency of such country only depends on the UST which enables America to exploit its power of endless printing. It was clearly seen when after the 2008 crisis, The US started quantitative easing to give relief to the Americans. Which caused massive inflation for which they again printed more money but all the inflation was distributed to all the countries that were holding USD as a reserve currency in massive numbers. This caused massive inflation in the Gulf and Asia. Several government in the Gulf fell due to massive food inflation of 2011. But only Saudi was the country that managed the riots and quickly transformed its governance structure. But they learned there lessons about the USD.
This is one such huge example of freebie based debt free lifestyle of the west was actually causing suffering everywhere. Even after this Government didn’t fix the problem of endless printing but still continued the same cycle of USD-UST. But in the back-end countries like Saudi, UAE etc.. Had already began De-dollarization.
The 50 Year Petrodollar deal came to end on June 9th, 2024. And it was not renewed by Saudi. Meaning it will not be now mandatory for any country to make payment in USD to purchase crude oil. Now this shift has accelerated the trend of using alternative currencies.
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Hence the growing popularity of BRICS nation which was termed first by economist Jim O'Neill in 2001. BRICS group was initially formed to highlight investment opportunities in rapidly growing emerging markets. But soon the actual turn came when Narendra Modi becomes the Prime Minister of Bharat in 2014. And then the BRICS evolved into a geopolitical bloc. With member countries meeting annually to coordinate multilateral policies and promote economic and political cooperation and growing demand of joining the BRICS by several country shows the falling demand of US. And if it were not Bharat indirectly leading the BRICS+ nation we would not have gotten 34 nations request to join BRICS. China & Russia are great powers but it is the philosophy of Bharat which was clearly visible during the pandemic when India helped many country with vaccines.
So now does the fall of the west is taking us back to what was normal? Lets see.
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Are we going back to normal? What is normal? Maybe there is a scope of doing the old in new ways. But first what are old ways and what can be the new add-ons that we will be having?
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Gold has historically played a crucial role in bolstering the value of a country's currency. Economy was run by Gold at the time because it was a dependable and now it seems like at current that every country is now started stack up the gold. As you can see all the BRICS nation started piling up gold. This can be one reasoning that Gold will now be considered in the new formula currency.
Along with Gold there are several metals like Silver & Aluminium which has industrial uses. But Unlike the old ways there are new metals joining the equation what are those?
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REE are a group of 17 elements that occur together in the periodic table. The group consists of Yttrium and the 15 lanthanide elements, which are Lanthanum, Cerium, Praseodymium, Lutetium, Neodymium, Promethium, Samarium, Europium, Gadolinium, Terbium, Dysprosium, Holmium, Erbium, Thulium and Ytterbium. These are also referred to as “Rare Earth Metals” or “Rare Earth Oxides”.
Countries with highest REEs reserves:
As our depends on the Technology increases then the demand for the metals being used in them also increases. You must have seen the glimpse of this during the COVID-19 pandemic which caused disruptions in the supply chain for Rare Earth Elements (REEs). The pandemic led to lockdowns and restrictions that affected mining operations, transportation, and manufacturing processes globally. Which shows how dependent our whole surrounding tech is on these small elements.
All in all in the future we will also be seeing REE also being one of the important factor in Currency valuation.
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As demand for energy and consumer electronic goods like EVs and Smartphone etc.. are going to grow then demand for green energy increases as the exploitation of the environment during the Industrial revolution during the 18th century made coal the energy source, Then we shifted to oil and experimented with Nuclear. But the search of renewables has been activated by the volatile situation in the Middle East and also the rising concern of saving the environment. Now that we also have to first invest more on Human capital the minds which will lead to increase in investment to Research and Development (R&D).
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In historical term it was not just gold that helped in valuing currency. It also included Agriculture capacity, Manufacturing capacity, Artist, Younger population. Which is all of this combined exist in India already and the only thing left is to use it in the right direction and ways. Companies will be shifting to Bharat as it has the only high workable population who are under 30. But we should be unlike capitalism of the west where it looks at human as one factor of consumption and Communist China which see them was cheap exploitable labor. Hence, you can see that is why the west hates India. In the recent election campaign Trump called India the ‘Tariff king’. Because unlike China or Japan the present Modi Government is causing a technology shift to India by indirectly stating come to India or just get restricted. Companies like Nvidia, JP Morgan Chase, Amazon, AWS, Google, Meta, Etc.. shifting there headquarters to Bharat.
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One of the Ancient trade route in the history is what is known as Silk route and this was the route that whole trade of the world used to take place and Trade route enabled Ancient India & China control the whole supply chain of the world. It is kind of getting re-established.
And one the most important trade route that is active right now is Suez Canal trade route which passes around around One trillion dollar worth of good and 12% of the world trade passes through the Suez Canal.
But Suez canal has not been the safest trade route recently be it US dominating and restricting other countries to trade with Europe and the stability of the region is very vulnerable. Always getting attacked, Looted and such a small passes is also vulnerable to ships accidental stopping/blocking the trade route. On the March of 2021 a container ship blocked the whole Suez canal and which caused disruption in the supply to the Europe energy supply and delay delivery because now ships had to be passed from around the Africa. (Estimation on loss due to this incident: link to the article in source doc).
So what is the new trade route that is being re-established that has historical connection to the ancient Bharat. Historically that trade was called as “Incense Trade route” which connected Ancient Bharat to Europe, Jerusalem, Persia etc.. The ports involved currently named are
And the new trade route that is being revived is the route currently known as IMEC (India Middle East Europe Corridor) in partnership with Israel, Saudi, Bharat and Omen.
Gwadar Port in Iran will be used to trade with Afghanistan, Russia and etc. and IMEC corridor will be used to trade with Europe, Israel, Saudi etc.. And Indian Ocean is something every country should focus on because through out history it has been the most crucial trade pass through it and that is the reason why East India landed in India.
The Indian Ocean is a vital hub for global commerce, with 30% of global containerized cargo and 42% of global crude oil, product, and distillate passing through its waters. This makes it one of the busiest and most strategically important maritime regions in the world.
Every country want part of the pie of Indian ocean history has shown it and now we can see this by way of US interest in Bangladesh, Afghanistan interest in Pakistan, China interest in Myanmar, Iran focus on Chabahar Port. And interesting fact is that Adani Ports is the biggest partner in most of these crucial ports and if you look at Adani ports business it is a very high debt company and interesting thing that money that they borrowed is from American institutions. That is why every US agency is against Adani first because it is taking up most of the ports that are important and will help Bharat in future to back it rupee dominance.
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This is nothing but the re-emergence of Asia in the Global order. And in Asia more specifically the main player will be Bharat. Why? US & Russia have destroyed their long-term economics by using women as a unit of labour during their fertile years to boost temporary GDP numbers. Now that in the future America need to set up its own manufacturing it is bring up illegal immigration. These tactics helped in ramping up GDP number in the name of competition and not focusing on welfare. China has already killed its long-term economic with the single child policy. And the fake number that they used to ramp up their GDP now China them self are in crisis of Real-estate where their cities are now Ghost town. China exploited its people by the communist party to help produce for the west and the China communist party was totally funded and was corrupt hence they were busy in serving the national interest of America. (Paper on why corruption is good for economy example is given of China: Link in source doc).
On the other hand where US in the name of Capitalism has destroyed its family structure and sell more goods and now around more than 50% of women in America are divorce and living on subsidy of Government. And they talk about Universal Basic Income (where without any work they need free money). And now the debt based one life Abrahamic model of economics where you live on debt to enjoy your one life and produce more to consume more to pass down the debt & pollution to next generation is not the Bharatiya way of doing it.
Bharatiya way of doing is Dharma (Duty based) meaning you have a duty towards your family first, society, Nature, and then state. And Bharatiya concept of economics is of preserving culture. Here in India the amount of money that Indian family save for their children and focus on educating them first that is the Dharmic way of life. In India around 60% of People here are vegetarians that is the duty towards nature. Western Abrahamic way of eating which is meat & Livestock animal breeding contribute to 16% of the total greenhouse gas emission.
No matter how many debates happen on religion or any ‘ism’ it doesn’t matter until every country collaborate and come together to save this one Earth. For now thanks for reading till this far hope you got some insight from this small explanation of Geo-Politics, Economics. All the sources and reads will be shared down below in the link form. Thank you for reading & Happy Learning.
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Accenture | B.com Graduate
4 个月Link to all the Sources: https://docs.google.com/document/d/1ojHv45IXrL4-icgTiuzLEsbuL8a_LVa-j1CsIgXaKx8/edit?usp=sharing