In the beginning of April, world got a brand new country: The Free Republic of Liberland. It occupies 7 square kilometers of no man`s land between Croatia and Serbia. The self- appointed president is Vít Jedlička, a regional party leader of the Czech Republic`s northern district and part of the Free Citizens Party of libertarian views.
Liberland already has its own flag, a national anthem and a provisional government although it is still unclear whether it is a real country or not. One issue is associated with its president that has a history of pulling pranks and pointed out in a recent interview that Liberland started out as a protest and political stunt. He also admitted that his actions were inspired by Jeremiah Heaton, an American who claimed a remote patch of land between Egypt and Sudan and claimed by neither, so his 14- year-old daughter could be a princess.
Apart from these (common- sense) reservations there is also the questionable accordance to the formal and empirical sovereignty demands. Formal apply to the legal equality of nation-states in terms of their rights and obligations in the international system. An empirical aspect of sovereignty demands states to have population, territory, effective rule over territory and population and the recognition of other nation- states. Thus, sovereignty is both a legal and empirical phenomenon; it must display certain observable characteristics however, this is not enough. For a state to be perceived as sovereign it must be recognized as such by others; arguably, sovereignty is therefore mostly granted in a socio- legal context.
Liberland, for now, has sort of a territory, sort of population and a sort of rule over its citizens, formed on voluntarist basis. By purely legal means, Liberland is not a state. Its population is largely the President and the self- proclaimed citizens, who all still seem to be living in the Czech Republic. Additionally, Liberland does not exercise effective rule over its territory, since the entry into the “country” is granted by Croatian border patrol. Effectively, in terms of international law, the best we could say on the sovereignty of Liberland is that it is a failed state, occupied by a foreign nation. Pragmatically speaking, Liberland is just a website that Jedlička made.
The issue with sovereignty is also closely linked to the philosophy of Liberland (if we can imply such a thing), which is based on libertarian political thought. Libertarianism is formed on the idea that upholds liberty as its key objective; accordingly it seeks to maximize autonomy and freedom of choice, political freedom and voluntary association; it is also against discrimination and strongly supports non- aggression. Libertarians are highly disinclined to state authority however, the desired scope of state activities differs in various schools of libertarianism. The prevalent school of thought represents the idea that governments should do as minimal as possible, limiting its responsibilities to a standing army, local security and courts system. In the case of Liberland, we see a more radical approach, for Liberland will not have an army and the country is designed to find out the minimum amount of taxes and regulations needed to live. All the coverage of basic needs and services- banks, cell phone service, hospitals etc.- are to be provided on an entirely voluntarist basis. Therefore it is hard to determine whether the Liberland government does nothing because it is so libertarian (and this is a concept I am sure the late Douglas Addams would greatly appreciate) or because it simply does not exist.
The outlined characteristics of this new proto- country at the same time point out to the mostly criticized libertarian principles and in my opinion most important social and economic consequences of libertarian thought. The calls for minimum taxes and minimum government involvement definitely align with the current wild neoliberalism and businesses, enamored with tax havens. Clearly, this is exactly what Jedlička had in mind, for he was quoted saying “I would categorize it [Liberland] as tax haven. The reason why Liberland was created was that the rest of the world ended up being a tax hell”. Additionally, he vocalized his hopes that Liberland would become a successful financial center due to its loose tax laws. In a world of incomprehensively disproportional wealth distribution, it is obscene to form yet another financial haven, accompanied with political clichés about individual freedom, liberty and recognition of private property.
In terms of economic criticisms, another very important one is also connected to the moral philosophy of libertarians. Within libertarian framework, choice is a binary concept: either it is consensual or coerced, good or evil, beneficiary of malevolent. Therefore, following this line of argument, a worker being underpaid and working in inhumane conditions is not faulty, because the responsibility rests solely upon the worker to submit himself to such conditions. This is a very dangerous concept because it disregards the impact environment, living conditions and social options have on individual choices. It also introduces the belief that the poor are to blame for their state of livelihood and the rich deserve to be rich. The accompanying line of thought here is the belief in the trickle down economy, which we noticed is not working, since the 1 % of richest people combined wealth is greater than that of the remaining 99 %. Choices are not binary, they are a scope of intertwined elements, presenting possible and more importantly, acceptable choices individual has in the terms of pros and cons for each of the presentable options.
I am sure that a true libertarian would counter me on the last paragraph, correcting me that the injustices and inequalities spring out only due to the existence of regulated international system of states and other institutions. If we dismantle the letter, the sun will be shining, the grass will be greener and everybody will be happy (or at least have exactly what they deserve). I believe that the issue with the lack of rules and authority is firstly, the lack of coordination and secondly, the inevitable clashes between stretches of personal liberty, whereas the letter is actually the consequence of the former. To expect that a world of 7 billion people can operate on a stateless basis, according to individual personal morality and choices is really a political equivalent of getting a tongue ring or a hideous tattoo at the age of 16. It just does not work in the long run, not at the current state of mind of people and at the level of social and technological human evolution.
That is also why the libertarian thought, put in practice, only comes across as another neoliberal triumph of private property and tax evasion; individual rights are in the current world framework translated from Libertarian-ese to English only with business and its profit. Accordingly, the greatest catchphrase Liberland is associated to is not that it is a haven for freedom- seekers but that it is a new haven for the wealthy. In the world, where every country is a h(e)aven for the wealthy, excuse me for not being too excited about the newest sprout of Friedmanism.
The Waning Supremacy of the Petrodollar Economy
Since the 1970s, the US dollar has been the undisputed reserve currency around the globe. Agreements with Saudi Arabia (and many other Middle Eastern countries) cemented the global oil trade in the greenback currency. Trading oil and gas futures denominated in the US dollar solidified the position of the United States as the hegemon of Global trade – a shift from the traditional gold standard. While the Euro surfaced as a strong contender in the 90s, the dollar-denominated finance still flourished. And economies like China and Russia had no choice but to hold US Treasury securities and accumulate massive dollar reserves. However, multiple geopolitical and economic factors are now turning the tide against the supremacy of the US dollar. Rapid globalization was already a ticking bomb situation for the greenback. But now, China’s rise as the next potential powerhouse and Russia’s exclusion from the dollar-embedded SWIFT system is catalyzing this historic transition.
The tread towards de-dollarisation is not exactly a novel phenomenon. The infamous drift to exclude the US dollar originally spurred in Latin America in the 90s. In response to US sanctions, Venezuela attempted to shift away from the status quo by opting for oil payments in yuan over the US dollar. Chile resorted to Consumer Price Index (CPI) indexation to attract foreign investments in local securities over US Treasuries in the secondary market. However, due to weak supplementary monetary policies and crippling economic crises, the trend of de-dollarisation steeply reversed during the 2008 financial crisis. Since then, no significant development has threatened to derail the dominance of the US dollar. Yet, the booming Asian markets and the implicit rift between the United States and Saudi Arabia could be the next bad omen.
Saudi Arabia is the world’s largest Crude exporter, amounting to about 17.2% of the Global Crude oil exports (by value). Over decades, Saudi Arabia has been one of the core allies of the United States in the Middle East. Economically, the kingdom has served as the largest Crude supplier to the United States. Moreover, as Saudi Arabia leads the Organization of Petroleum Exporting Countries (OPEC), the United States has enjoyed a sway over Global oil prices. Since the oil trade is denominated in the US dollar, it has allowed successive US governments to run massive trade deficits without any budgetary concern. Geopolitically, the Saudi kingdom has been a US proxy in the Middle East to counter its arch-rival Iran. After the landmark Iranian revolution in 1979, Saudi Arabia further climbed the ladder of US preference in the region. However, with a shift from Republicans to Democrats, the two allies have inched apart to a certain extent.
Over the years, the United States has relented its dependence on imported oil by building its own strategic reserves. For example, the US imported an estimated 2 million barrels per day of Saudi Crude in the 1990s. That figure fell to mere 500,000 barrels per day in 2021 – a drop of 75% in a couple of decades. On the political front, the Saudi royalty has been particularly dissatisfied with Biden’s policy in the Middle East. Biden’s decision to unilaterally withdraw support for Saudi Arabia in the Yemen war distanced the kingdom from the US administration. A subsequent spree of Houthi attacks on Saudi oil facilities has further incensed the royalty. To add oil to the fire, Biden’s desperation to salvage the outdated Nuclear Deal with Iran has virtually alienated the kingdom to the point of indifference.
The implications are not complex to spot. Since Russia launched its onslaught against Ukraine in February, Saudi Arabia has actively refused to pay heed to Biden’s calls to expand Crude supply quotas and suppress Global oil prices. Instead, the OPEC+ alliance – OPEC members, Russia, and other allied producers – stuck to its original plan to modestly raise the June output target by 432,000 barrels per day. The brutal indifference to the Western calls has an underlying reason besides the concurrent row with the United States. The reason is the growing China-Saudi cooperation. Over the past few years, Saudi’s structure of the international oil trade has undergone a fundamental change. That is predominantly due to increasing cooperation of China which is not just limited to the energy sector. Under the hood of its Belt and Road Initiative (BRI), China has also objectively expanded its potential presence in the kingdom through bilateral cooperation in infrastructure, trade, and investment.
According to the American Enterprise Institute’s China Global Investment Tracker, cumulative Chinese investments in Saudi Arabia reached $43.47 billion in 2021. According to data released by the Chinese General Administration of Customs (GACC), China imported an estimated 542.39 million tons of Crude oil in 2020 – comprising more than 25% of the kingdom’s total Global oil exports. Sources from Saudi Arabia’s top securities regulator suggest that the kingdom’s Sovereign Wealth Fund may soon start investing in Chinese companies after years of limiting its overseas holdings in the US and Europe. Official sources suggest that Saudi oil giant Aramco is in talks to strike a partnership with the Chinese petrochemical consortium. Recently Aramco also finalized a $10 billion deal with Chinese petroleum companies. All the factors unambiguously point in a single direction – Saudi Arabia is leaning away from the US to China. Naturally, the de-dollarisation of trade and investments would facilitate bilateral relations with China.
There are, however, some drawbacks to the petroyuan when compared to its counterpart. While China’s financial markets have exponentially grown over the past few decades, they are still relatively illiquid compared to the US capital markets. Moreover, the massive $13.4 trillion eurodollar market extensively facilitates trade in European markets. Meanwhile, trades in yuan would be limited to China and subject to manipulation from the People’s Bank of China. Thus, trades settled in yuan would be an inconvenience to the smooth operation of trade and short-term deposits. However, these problems could be resolved if petroyuan is used as a barter for investments in China.
Like Saudi Arabia, economies like Russia and Iran have also inched closer to Asia. Russia, for instance, has consistently voiced its propensity to shift toward the Cross-Border Interbank Payment System (CIPS) – a transaction system clearing international settlements and trade in the Renminbi – to trade its oil in Asia under western sanctions. India has openly defied the US pressure by purchasing roughly 15 million barrels of oil from Russia since the invasion of Ukraine. The Russian Crude now accounts for about 17% of Indian imports – up from less than 1% before invasion. The rudimentary reason is cheaper oil in Roubles, especially when Europe is still weighing an embargo on Russian oil. Even Iran has notoriously traded Crude with China under US sanctions by abandoning the US dollar for settlements.
Some economists may argue that even combined, the effect of de-dollarisation would be gradual and uneconomical. But we need to understand that the historical context is skewed, and ground realities today are comparatively different. Firstly, the economies in Asia are significantly less dollarised than the emerging economies of Latin America discussed in the existing literature. Secondly, the Asian economies – particularly China and India – are much more significant in terms of size and monetary policy. Even a shift towards semi-dollarisation could upend the clout of the United States and significantly reduce the power of US sanctions.
The US lawmakers are understandably irked by the defiance of the OPEC+ alliance. Recently, a US Senate Judiciary Committee passed the No Oil Producing or Exporting Cartels (NOPEC) bill to amend the US antitrust law. If passed by the full Senate and House, the US Attorney General would gain the authority to expose OPEC+ countries to lawsuits for possible collusion, bypassing the sovereign immunity guaranteed to OPEC+ nations. While similar motions have been filed and failed over the past two decades, the notable highlight is the US desperation in the face of helplessness. Saudi Arabia already warned the US lawmakers in 2019 that such a bill, if passed, would force its move to trade oil in different currencies. Today, with Europe’s belated timeline to phase away from Russian Crude to China’s expanding influence in Eurasia, it seems the inevitable transition from the petrodollar may strike sooner than initially expected – if expected at all!
Chinese Maritime Strategy: Further Expansion and Progress
The Belt and Road Initiative represents a shift in China’s global perspective as well as an update to its role and status in the international system, as announced by Chinese President Xi Jinping. Reviving the Silk Road as a means of connecting China with the rest of the globe was the biggest initiative so far. This initiative will connect China with the Arab Gulf states and the Mediterranean through Central Asia. The maritime silk road will connect China’s coast with Europe by way of the South China Sea and the Indian Ocean. It will also connect China’s coast with the South Pacific by way of the South China Sea.
The “string of pearls” strategy, which refers to a network of Chinese military and commercial facilities and relations on the length of the sea lines of communication, which extend from the Chinese mainland to the Horn of Africa, was used to secure Beijing’s global vision of military protection, diplomatic networking, and economic cooperation.
Some scholars believe that this would be a major threat to Britain which relies on the Commonwealth, China is gaining more influence in South Asia through the China-Pakistan Economic Corridor and the loan diplomacy, which weakens British influence in the Indian ocean. It also challenges Britain in the strategically important Malacca channel.
Experts mention that a state may only be considered powerful when it completely dominates its geographical surroundings. Aside from its strategic location on the international trade route, where 40 percent of all trade passes through the South China Sea and 30 percent of all oil traded globally. Beijing places a high value on the security of China’s regional environment.
China has overtaken the United States to become the world’s largest naval force – but experts believe that the mere comparison of the number of ships neglects many crucial elements that define the efficacy of any naval power.
The United States maintains, so far at least, a huge edge in many naval capabilities, as it has 11 aircraft carriers compared to China’s two. It also excels in the numbers of submarines, destroyers, cruisers, and huge nuclear-powered vessels. But it is projected to considerably enhance the size of the Chinese fleet.
Former Chinese People’s Liberation Army colonel Zhou Bo, currently at Tsinghua University in Beijing, says it is “extremely necessary” for China to build its navy in order to confront the maritime dangers it faces. He particularly says that “the largest challenge we are experiencing is what we regard as US provocations in Chinese territorial seas.” The US Navy expects that the total number of warships owned by the Chinese Navy would expand by 40 percent between 2020 and 2040.
Controlling waterways is a priority for Beijing. Attempts will be made to broaden its maritime presence outside the Indian Ocean, if possible. It is clear from this that China is interested in building strategic fulcrums around the world, such as huge ports equipped with sea cables and digital networks, as well as superior logistics services that might be used for military purposes if necessary.
China and the Indo Pacific Economic Framework
The Indo Pacific Economic Framework (IPEF) signed by a total of 13 countries, on May 23, 2022, in Tokyo is being dubbed by many as a means of checking China’s economic clout in Asia and sending out a message that the US is keen to bolster economic ties with its allies and partners in the Indo-Pacific.
Many Chinese analysts themselves have referred to the IPEF as ‘Economic NATO’. China has also been uncomfortable with the Quadrilateral Security Dialogue (Quad) which consists of US, Australia, Japan and India , and has referred to Quad as an ‘Asian NATO’ – though members of the grouping have categorically denied that Quad is an ‘Asian NATO’.
Countries which joined the US led IPEF are Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. These countries together account for 40% of the global GDP. The four key pillars of the IPEF framework are; supply-chain resilience; clean energy, decarbonisation and infrastructure; taxation and anti-corruption; and fair and resilient trade.
While launching the plan, US President, Joe Biden said:
‘We’re here today for one simple purpose: the future of the 21st Century economy is going to be largely written in the Indo-Pacific. Our region,’
US Commerce Secretary Gina Raimondo while commenting on the IPEF said that it was important because it provided Asian countries an alternative to China’s economic model.
A few points need to be borne in mind. First, many of the countries — Australia, Brunei, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam – which have signed the IPEF are also part of the 15 nation Region Comprehensive Economic Partnership (RCEP) trade agreement of which China is a key driver (Indonesia, Phillipines and Myanmar have not ratified RCEP). RCEP accounts for 30% of the world’s GDP. Trade between China and other member countries has witnessed a significant rise, year on year in Q1 of 2022.
Second, many of the countries, which are part of the IPEF, have repeatedly said that they would not like to choose between China and US. The Singapore PM, Lee Hsien Loong who was amongst the first to hail the IPEF, has emphatically stated this point on a number of occasions. In an interview to Nikkei Asian Review on May 20, 2022, Lee Hsien Loong reiterated this point. In fact, Lee Hsien Loong even pitched for making China a part of the Comprehensive and Progressive Partnership for Trans Pacific Partnership (CPTPP) (TPP the precursor to the CPTPP was a brain child of the US). Said the Singapore PM:
‘We welcome China to join the CPTPP,’.
Here it would be pertinent to point out, that China had submitted an application for joining the CPTPPIN September 2021. In the interview, Lee Hsieng Loong did state that countries in Asia needed to have good relations with US, Japan and Europe.
Indonesia’s Trade Minister Muhammad Lutfi who attended the signing of the IPEF on behalf of the President Joko Widodo stated that he did not want to see IPEF as a tool to contain other countries.
One of the reasons why many countries are skeptical about the IPEF is the fact that it does not have any trade component. A number of ASEAN member states have pointed to the IPEF making no mention of tariffs and market access as one of its major draw backs. At the US-ASEAN Summit, held earlier this month Malaysian Foreign Minister, Ismail Sabri Yaakob had referred to this point. Like many other countries, Malaysia has welcomed the IPEF, but in the immediate future sees RCEP as a far greater opportunity.
US President Joe Biden has not deviated significantly from the policies of his predecessor, Donald Trump, with regard to trade and the US is unlikely to return to the CPTPP at least in the immediate future. Biden and Senior officials in his administration have spoken about the need to check China’s growing economic influence, specifically in Asia, and to provide an alternative model. While the US along with some of its Indo Pacific partners has taken some steps in this direction (only recently, leaders of Quad countries during their meeting at Tokyo announced that they would spend USD 50 billion, in infrastructural aid and investment, in the Indo Pacific.
Given his low approval ratings, and diminishing political capital it is unlikely that he is likely to change his approach towards trade significantly. US Trade Representative Katherine Tai said the TPP was ‘fragile’, and that there was no domestic support for the same.
In conclusion, while the IPEF does have symbolic importance it is important to bear in mind that many signatories themselves have close economic relations with China and would not like to get trapped in competition between US and China. Unless the US re-examines its approach towards trade, which is highly unlikely, and unless countries which are part of the Indo-Pacific vision are able to strengthen economic cooperation, China is likely to dominate Asia’s economic landscape – even though there is growing skepticism with regard to the same.
African nations leading the way on ‘food systems transformation’
African countries are at the vanguard of a vital transformation of food systems to simultaneously address food security, nutrition, social...
AUKUS: A Harbinger to Nuclear Race between India and Pakistan
In the latter half of the 2021, Washington initiated strategic trilateral defence pact with the UK and Australia, colloquially called...
Israel admits involvement in the killing of an Iranian army officer
Col. Sayad Khodayee, 50, was fatally shot outside his home in Tehran on Sunday when two gunmen on motorcycles approached...
Economic And Political Reform Is Needed In Sri Lanka, Not State Violence
Sri Lanka’s worst economic crisis since independence has highlighted years of political and economic mismanagement and a reliance on state-sanctioned...
The Waning Supremacy of the Petrodollar Economy
Since the 1970s, the US dollar has been the undisputed reserve currency around the globe. Agreements with Saudi Arabia (and...
Chinese Maritime Strategy: Further Expansion and Progress
The Belt and Road Initiative represents a shift in China’s global perspective as well as an update to its role...
World’s richest countries damaging child health worldwide
Over-consumption in the world’s richest countries is creating unhealthy, dangerous, and toxic conditions for children globally, according to a new...
Defense3 days ago
What makes India’s participation in the Quad intrinsically unique?
East Asia4 days ago
What China Does Not Know about India
Tech News3 days ago
New Initiative to Build An Equitable, Interoperable and Safe Metaverse
Middle East3 days ago
India-UAE tourism and education linkages
Americas3 days ago
The WW III that Biden and All Other Neocons Are Leading U.S. Toward
Tech News4 days ago
Growing Intra-Africa Trade through Digital Transformation of Customs and Borders
Environment4 days ago
Global Food Crisis Must Be Solved Alongside Climate Crisis
Russia2 days ago
Why We Need to Acknowledge Russia’s Security Concerns