National Power Potential And Its Components
Political thinkers have provided various definitions of national power potential. However, in simpler explanation “National power is the capacity or ability of a nation with the use of which it can get its will obeyed by other nation. It involves the capacity to use force or threat of the use of force over other nations. With the use of National Power a nation is able to control the behaviour of other nations in accordance with one’s own will” (1).
As for the components/elements of national power potential, a number of the tangible and intangible components are quoted, ranging from seven or eight to about fifteen. However, generally the tangible components include geography, population, location, territory, natural resources, technology, economic development, political structure, military advancement, and diplomacy. And, intangible components include ideology, leadership, national character and morale (2).
In fact all of these components have their own significance. However if we consider the rather heightened ‘competitive power play’ of the major powers in the post-World War II realm of geopolitics and geo-economics, the two most important components of national power potential stand out to be the economic potential and military potential – and, importantly, both complement each other. And, the US certainly has progressed from strength to strength in terms of these two components particularly since World War II.
US’ Dollar-Based Economic Power Potential
Utilising the power of these two components US became one of the two super powers after World War II, the other being the Soviet Union (USSR). Then, after break up of USSR, the US became the only super power, and applied to the maximum effect its military and economic power, in collaboration of its European allied powers, to almost dictate its terms on the countries particularly in Asia.
The long list of US’ post World War II military interventions/invasions, as also the offensive intelligence operations under the umbrella of US’ military might by US’ top intelligence agency (CIA) for staging coup/regime change/etc in different countries, is well-known.
However, since the last some decades US’ has considerably increased the application of its strong ‘Dollar-based’ economic power potential, through economic sanctions, to coerce the target countries/business firms/persons to submit to US’ geopolitical/geo-economic dictates.
An article titled “How Dollar became king of global finance”, published by the Indian newspaper Business Line dated 8 November 2018, has explained as to how US managed to attain this ‘Dollar-based’ economic dominance on world financial system. The article highlights that the countries of the World War II wining side, realising the importance of an anchor like gold for promoting stable trade and finance, wanted to establish a robust global financial system.
For that purpose 44 countries participated in the meeting. Many options were considered, US rejected the proposals, “and proposed that the new system should rest on both gold and the US dollar. No one liked this idea as this would make the dollar the supreme currency of the world. But the US, the principal financier of the victorious side of the war prevailed. And except for the Soviet Union, all 44 participating nations signed the Bretton Woods agreement in 1944 at Bretton Woods, New Hampshire, US”.
“The gold for dollar system worked during 1950-70. But it came under strain as the US started printing and spending a large value of dollars on post-war reconstruction efforts. When countries holding these dollars went for exchange with gold, the US gold reserves started vanishing. Gold supply was finite, but the dollar printing knew no limits. The story came to an end in August 1971 when the US reneged from its commitment to convert the US dollar to gold. De-linking gold with dollar made the US the linchpin of global finance”. (3)
And now the US has almost ‘weaponised’ the Dollar. In that context many publication outlets have published their articles. One such article titled “How the US has made a weapon of the dollar”, by Satyajit Das, a former banker and author of books, has been published in The Economic Times, an Indian daily newspaper dated 7 September 2018. In his article he highlights, “Convinced of an existential threat from competitors, America is weaponizing the dollar to preserve its global economic and geopolitical position. While the U.S. accounts for about 20 percent of the world’s economic output, more than half of all global currency reserves and trade is in dollars”.
He also asserts, “But the real power of the dollar is its relationship with sanctions programs”. ….. “Sanctions target persons, entities, organizations, a regime or an entire country. Secondary curbs restrict foreign corporations, financial institutions and individuals from doing business with sanctioned entities. Any dollar payment flowing through a U.S. bank or the American payments system provides the necessary nexus for the U.S. to prosecute the offender or act against its American assets. This gives the nation extraterritorial reach over non-Americans trading with or financing a sanctioned party. The mere threat of prosecution can destabilize finances, trade and currency markets, effectively disrupting the activities of non-Americans” (4).
Initial Attempts by Certain Countries to De-Dollarize Their Financial System
However, despite such economic and military might of US there were attempts by certain countries to get out of the financial dependency of US’ Dollar; but those earlier attempts were thwarted by US – some very ruthlessly.
Iraq’s President Saddam Husain planned to convert Iraq’s oil sales in Euros in place of the US Dollar. His country was militarily invaded by the US along with its NATO allies; and Saddam Husain was ultimately hanged to death. That fact, despite US’ efforts to hide, did find place in certain publications. One such publication was the lengthy essay titled “The Real Reasons for the Upcoming War With Iraq” dated January 2003, published by UNSW, an institution of Australia.
The first paragraph of its summary asserts, “Although completely suppressed in the U.S. media, the answer to the Iraq enigma is simple yet shocking – it is an oil currency war. The real reason of this upcoming war is this administration’s goal of preventing further Organization of the Petroleum Exporting Countries (OPEC) momentum towards the euro as an oil transaction currency standard. However, in order to pre-empt OPEC, they need to gain geo-strategic control of Iraq with its 2nd largest proven oil reserves”. (5)
Later, same the fate was meted out to Libya – a fact also well-known. To quote just one publication, a reference is made to the article by Brad Hoff who served as a Marine from 2000-2004, after military service lived, studied, and traveled throughout Syria off and on from 2004-2010, and currently teaches in Texas.
His article is titled “Hillary Emails Reveal True Motive for Libya Intervention”. It was published by the US-based Foreign Policy Journal dated 6 January 2016. In his article Brad Hoff asserts: “Newly disclosed emails show that Libya’s plan to create a gold-backed currency to compete with the euro and dollar was a motive for NATO’s intervention”. ….. “Instead, the great fear reported is that Libya might lead North Africa into a high degree of economic independence with a new pan-African currency”. ….. “French intelligence “discovered” a Libyan initiative to freely compete with European currency through a local alternative, and this had to be subverted through military aggression”.
Besides that, Brad Hoff has also disclosed, basing upon the newly disclosed e-mails, the criminality of US’ government and its NATO allies. In that he has highlighted, “But historians of the 2011 NATO war in Libya will be sure to notice a few of the truly explosive confirmations contained in the new emails: admissions of rebel war crimes, special ops trainers inside Libya from nearly the start of protests, Al Qaeda embedded in the U.S. backed opposition”.
Then under the article sub-heading “Hillary’s Death Squads”, he mentions, “A March 27, 2011 intelligence brief [archived here] on Libya, sent by long time close adviser to the Clintons and Hillary’s unofficial intelligence gatherer, Sidney Blumenthal, contains clear evidence of war crimes on the part of NATO-backed rebels”; and that, “It appears that Clinton was getting personally briefed on the battlefield crimes of her beloved anti-Gaddafi fighters long before some of the worst of these genocidal crimes took place”(6). So the military intervention by NATO, along with its supported rebels, toppled the government of Libya’s leader Muammar al-Gaddafi, who was got ruthlessly murdered through the NATO-supported rebels. And, what happened to the much known gold reserves of Libya became a mystery after that NATO military intervention.
The Emerging Geo-Economic ‘Reset’
However, now the US’ unilateral dominance of world financial system is certainly facing serious challenge. For quite some time now instead of certain countries like Iraq and Libya, the two formidable world powers – Russia and China – have been working out a trade and financial system based upon the use of their own currencies – Russian rouble and China’s yuan – in place of US dollar.
The efforts of Russia and China in this regard have been going on for some years, albeit with a mixture of some successes and certain serious difficulties – difficulties included the deeply entrenched dominance of the US Dollar in international financial system, different financial status of rouble and yuan, and other related complications of financial infrastructure. Those difficulties were causing delay in formalisation of that Russia-China financial arrangement; however hopes and efforts have also been continuing.
In that context, an informative article titled “Why China and Russia are struggling to abandon the US dollar and forge a yuan-rouble deal” was published by South China Morning Post dated 15 January 2019. Following extracts of that article provide clarity to the emerging situation in this regard:
“Another delay to a bilateral payments system shows how tough it is to develop an alternative to the US dollar. But the rise in Russia-China trade means the two countries won’t abandon the mission, analysts say”.
“Russia, China and a number of other countries are aiming to cut their dependence on the US dollar, as Washington uses access to the dollar payment system as a weapon to punish nations and individuals for breaking US laws, even outside the United States”.
“In 2014, China and Russia signed 38 energy, trade and finance deals and a currency swap worth 150 billion Yuan (US$22 billion). Russia had sought trade links with China after its forceful annexation of Crimea soured ties with the United States and European Union”.
“In bilateral trade with China, about 14 per cent of payments are already done in yuan, and about 7 to 8 per cent in the Rouble, according to Russia’s Finance Ministry”.
“The Russian central bank is also buying yuan for its foreign reserves, purchasing US$44 billion worth of the Chinese currency in the second quarter of 2018, while selling more than US$100 billion of US dollars. Russia held US$67 billion in yuan as of mid-2018, 15 per cent of its international reserves”. (7)
US Dollar Too Facing Serious Difficulties
It is also important to note that while China, Russia, and many other countries are facing certain financial infrastructure difficulties in swapping over from US dollar to their own currencies; US dollar too is facing serious difficulties since many years now in retaining its dominating position.
That aspect was amply highlighted by Lan Cao, who had received her Juris Doctor from Yale Law School, is Professor of Law at Chapman University of California US, specializing in international business and trade, international law, and development. She has taught at Brooklyn Law School, Duke Law School, Michigan Law School and William & Mary Law School.
Her detailed research article titled “Currency Wars and the Erosion of Dollar Hegemony” was published by Michigan Journal of International Law, Volume 38, Issue 1, 2016. In her detailed research article Professor Lan Cao has asserted (8):
“In recent years, much attention has been paid to the wars in Iraq, Afghanistan, and Syria, and the nuclear ambitions of Iran. Wars and breaches of the peace are of paramount importance and thus are rightly matters of international and national concern. But there are other forces at work, perhaps less conspicuous but nonetheless debilitating to the United States and the dollar-based international system, that merit more attention” (p.57);
“Although the U.S. economy seems to have emerged strong from the 2008 financial crisis, serious fault lines exist under the American-dominated international economic system” (p.p. 57-58);
and “Over a span of five years, countries such as China, Brazil, India, Mexico, Japan, South Korea, Iran, Russia, and the United Arab Emirates have not only quietly increased their gold holding but have also engaged in currency swap agreements in which they agreed to use each other’s currencies in bilateral or regional trade. In yet another type of deal, countries also agreed to engage in a barter system–Iranian oil for Chinese goods. Against this background, two developments are particularly important because they show the beginning of the erosion of dollar hegemony. First, note the concerted actions by Brazil, Russia, India, China, and South Africa (BRICS) to pursue a dollar-alternative path, most notably the establishment by BRICS of a New Development Bank (NDB) as a rival to the Western-dominated Bretton Woods system.
And second, take as an example the historic gas deal worth 400 billion, between Russia and China, concluded after ten years of negotiations, to provide the world’s fastest growing economy with the natural gas it needs for the next thirty years, most likely to be transacted in yuan, not dollars, undercutting both the primacy of the U.S. dollar as the top dog currency used in oil trades and its role as the international reserve currency” (p.p. 64-65).
In the conclusion of the article Professor Lan Cao asserts: “The dollar may be strong this year or weak last year. That is the nature of a market-based floating system. But, regardless of any momentary snapshot, various indicators show that an alternative, non-dollar system is being slowly but surely created” (p. 114).
And, she also quotes the well-known George Soros, Hon FBA the Hungarian-American investor and philanthropist, “As George Soros succinctly described, “in the financial sphere the Bretton Woods institutions—the IMF and the World Bank—have lost their monopoly position. Under Chinese leadership, a parallel set of institutions is emerging.”
Soros noted that against this context of “rival camps” with China and Russia on one side and the United States on the other, “China has begun to build a parallel set of financial institutions, including the Asian Infrastructure Investment Bank (AIIB); the Asian Bond Fund Initiative; the New Development Bank (formerly the BRICS Bank); and the Chiang Mai Initiative, which is an Asian regional multilateral arrangement to swap currencies” (p. 116).
Current Status of the Emerging Global Geo-Economic ‘Reset’
If all available published pieces of related information and analytical inferences of the experts are placed properly in perspective, the picture of the status of the emerging Global Geo-economic ‘Reset’ can be clearly discerned. In that context certain pieces of information and analyses, mostly already mentioned in this article, are of particular significance.
As published by South China Morning Post dated 15 January 2019. “In 2014, China and Russia signed 38 energy, trade and finance deals and a currency swap worth 150 billion Yuan (US$22 billion). In bilateral trade with China, about 14 per cent of payments are already done in yuan, and about 7 to 8 per cent in the Rouble, according to Russia’s Finance Ministry. The Russian central bank is also buying yuan for its foreign reserves, purchasing US$44 billion worth of the Chinese currency in the second quarter of 2018, while selling more than US$100 billion of US dollars. Russia held US$67 billion in yuan as of mid-2018, 15 per cent of its international reserves”.
As mentioned by Professor Lan Cao of Chapman University (US) in her detailed research article of 2016, “Over a span of five years, countries such as China, Brazil, India, Mexico, Japan, South Korea, Iran, Russia, and the United Arab Emirates have not only quietly increased their gold holding but have also engaged in currency swap agreements in which they agreed to use each other’s currencies in bilateral or regional trade. In yet another type of deal, countries also agreed to engage in a barter system–Iranian oil for Chinese goods”. And, “the concerted actions by Brazil, Russia, India, China, and South Africa (BRICS) to pursue a dollar-alternative path, most notably the establishment by BRICS of a New Development Bank (NDB) as a rival to the Western-dominated Bretton Woods system”.
As reported by RT dated 26 October 2018, “Beijing and Tokyo sealed a multi-billion dollar currency swap arrangement on Friday, aimed at enhancing financial stability and spurring business activity in both countries. According to the Bank of Japan (BOJ), the arrangement which will last until October 25, 2021, will allow the exchange of local currencies between the two central banks for up to 200 billion yuan or 3.4 trillion yen ($30 billion). The agreement was sealed during Japanese Prime Minister Shinzo Abe’s visit to Beijing for the first formal Sino-Japanese summit in seven years. The meeting comes as Asia’s two biggest economies look to strengthen relations against a backdrop of trade friction with the United States”. (9)
As reported by VOA dated 5 November 2018 and others, “China has agreed to carry out bilateral trade with Pakistan in the Chinese yuan instead of the U.S. dollar. The central State Bank of Pakistan has already declared Yuan as an approved foreign exchange for all purposes in the country”. (10)
Report of RT dated 2 January 2019 has highlighted five countries which are opting to replace US Dollar with other currencies. Those countries include China, India, Turkey, Iran, and Russia. The article cites US’ sanctions and trade frictions as the cause of this move by these countries. It mentions that “China is trying to internationalize its own currency, the yuan, which was included in the IMF basket alongside the US dollar, the Japanese yen, the euro, and the British pound”.
Another highly significant aspect highlighted by this article is, “As part of its ambitious Belt and Road Initiative, China is planning to introduce swap facilities in participating countries to promote the use of the yuan
Moreover, the country is actively pushing for a free-trade agreement called the Regional Comprehensive Economic Partnership (RCEP), which will include the countries of Southeast Asia. The trade pact could easily replace the Trans-Pacific Partnership (TPP), the proposed multi-national trade deal which was torn up by US President Donald Trump shortly after he took office. RCEP includes 16 country signatories and the potential pact is expected to form a union of nearly 3.4 billion people based on a combined $49.5 trillion economy, which accounts for nearly 40 percent of the world’s GDP”.
India’s efforts to purchase the S-400 air-defense system in Russian ruble and Iranian oil in Rupees are facing problem due to US’ pressure. “Turkey’s leader announced that Ankara is preparing to conduct trade through national currencies with China, Russia and Ukraine. Turkey also discussed a possible replacement of the US dollar with national currencies in trade transactions with Iran”. Iran is also trying to have barter trade or in Iraqi Dinar with Iraq. And, as for Russia, “So far, Moscow has managed to partially phase out the greenback from its exports, signing currency-swap agreements with a number of countries including China, India and Iran. Russia has recently proposed using the euro instead of the US dollar in trade with the European Union. Once a top-10 holder of US sovereign debt, Russia has all but eliminated its holdings of US Treasuries”. (11)
Another later report which is of noteworthy significance has been published by RT dated 26 April 2019. It shows further expansion of this geo-economic ‘reset’ in South East Asia. It reported, “The Association of Southeast Asian Nations (ASEAN) and its East Asian partners consider adding Chinese and Japanese currencies to their $240 billion currency swap safety net, business journal Nikkei Asian Review reported. …… The governor of the Bank of England (BoE), Mark Carney, said recently the greenback may one day be rivaled by the Chinese renminbi, which is likely to become a major global reserve currency. He was echoed by strategists and economists who say the global importance of the yuan seems destined to rise as flows in the currency will grow over the long term if Beijing continues to gradually open its financial system”. (12)
And, a major step forward in formulating the Global Geo-Economic ‘Reset’ has now been taken by China and Russia this month (June). According to the report by RT dated 5 June 2019, in the meeting of Russian leader Putin and Chinese leader Xi “Russia and China took another step away from the US dollar after the two countries agreed to develop bilateral trade using the ruble and the yuan”. ….. “A draft government decree on the national currencies trade was released earlier during the day. The document stipulates that Moscow and Beijing will cooperate on development of national payment systems, as well as facilitate cross-border payments in national and other currencies”(13).
Russian News Agency TASS also reported on 5 June 2019 some details of the approved draft decree. It highlighted, “According to the draft decree approved through that government document, “settlements and payments for goods, service and direct investments between economic entities of the Russian Federation and the People’s Republic of China are made in accordance with the international practice and the legislation of the sides’ states with the use of foreign currency, the Russian currency (rubles) and the Chinese currency (yuan).” Economic entities agree on the choice of the payment currency and the way of payment independently”. (14)
Keeping in view all these facts, following aspects of the status of the emerging global geo-economic ‘reset’ are easily discernible:
After about half a decade’s efforts China and Russia have by now succeeded in initiating the formulation of a global geo-economic ‘reset’ for removing the over-riding domination of world’s financial system by US’ imposed Dollar-based financial system and Bretton Woods institutions IMF and World Bank (WB).
Though in its initiating stage, yet this ‘reset’ has attained firm foundations. Being lead by the two formidable world powers – China and Russia – and being joined by many countries, it is not possible for US and its allies now to either crush it militarily, or strangulate it economically.
The deeply entrenched Bretton Woods US Dollar-IMF-WB system, and problems in creation of the financial infrastructure for the new ‘reset’, are certainly going to create hindrance in the final establishment of this ‘reset’. However, in all probability the ultimate establishment of this global geo-economic ‘reset’ can be expected in not too distant a time-frame.
It appears more likely that China is going to take a lead role in this geo-economic ‘reset’, because of three reasons. Firstly, Chinese yuan is more stable currency as compared to Russia’s ruble, Japanese yen, or currency of any other participating currency. Secondly, Chinese development and investment projects, like BRI etc offered to countries in Europe, Asia, Middle East, Latin America, and Africa are without any ‘politico-social strings’ as the ones attached by US/IMF/WB. Third, China is already preparing to build a parallel set of financial institutions, including the Asian Infrastructure Investment Bank (AIIB), the Asian Bond Fund Initiative, the New Development Bank (formerly the BRICS Bank), and the Chiang Mai Initiative, which is an Asian regional multilateral arrangement to swap currencies.
However, this newly set up global geo-economic system is not likely to be pegged only upon the Chinese Yuan; rather, the trading/investing partners will mutually choose the financial mode of trade/investment, by swapping mutually agreed currency, or even through barter. That flexibility is bound to facilitate much free and conducive environment for trade and investment for countries in this system, as compared to the current US-dominated system gagged by ‘sanctions’, etc.
This formulating global geo-economic ‘reset’ is also triggering the formulation of a global geopolitical ‘rest’ – the signs of which are also clearly discernible. That is yet another significant aspect for study and analysis.