The tensions underlying international exchange are indicative of the importance of cultural factors in economic warfare and oblige companies to be aware of the scientific progress if they intend to continue developing.
It took France a long time to define a culture of its own in the field of intelligence, and until the previous century, the French word renseignement had a negative connotation. The political elite considered this activity to be degrading and comparable to dirty police work.
The French government felt the need to launch certain reforms in both its external and internal services only after the First Gulf War, thanks also to constructive political consensus. This reform process focused on security that did not give due consideration to the decisive role that finance and markets have come to assume today in determining a people’s and a nation’s future, in an offensive context in which Western countries are not the only protagonists.
The main concerns of the French political elite regarded the use of renseignement in increasing the nation’s power and the ways that the offensive practices, typical of the information warfare, could be used while maintaining respect for the rules of democracy.
The management of conflicts linked to information has now become more complex due to the lack of strategies capable of managing and controlling virtual markets, the immaterial world represented by Internet, and the presence of new weapons capable of influencing public opinion.
With his interdisciplinary point of view, Christian Harbulot offers a reflection to understand the nature of the relations of power existing between national economies by juxtaposing strictly economic factors with historical, geopolitical, or cultural factors that affect economic warfare.
The reason why the elite were so unable to formulate a clear doctrine in this regard is perhaps due to previous historical factors. For three times in little less than a century – in 1815 with the succession of King Louis the 18th to Napoleon, in 1870, with the support of Bismarck against the Paris Commune, and in 1940, with the collaboration between Pétain and Nazi Germany – a national force interested in taking power created an alliance with a country that had defeated France on the military level. This contributed to the beginning of a certain wariness in public opinion of patriotism, which became devoid of substance when the enemy was presented as an indispensable ally. The Colonial Wars and the Cold War, with their ideological view of power as an act of domination and the substitution of national idealism by solidarity for struggling peoples, reduced the dimensions of patriotism to a minimum. The Cold War imposed ideology as the dominant key to the reading of events and the unity of the Western world assumed top priority against the threat from the Soviets, thus re-dimensioning the balance of power between the economies of the Western nations.
Only the arrival of General De Gaulle at the head of the fifth Republic produced an attempt at redefining the challenge posed by relations based on power in an economic perspective.
General De Gaulle tried to ensure a homogenous approach to the strategy of power and a better positioning of France on the international scene in 1958, but encountered great difficulty in having this approach accepted by civil society. He proposed an alternative to the Cold War based on an equilibrium between East and West and a conciliation between the world’s North and South, but this attempt at compromise failed, due to the lack of international support (the United States opposed this pursuit of strategic autonomy) and also the scarce interest shown by the French elite.
De Gaulle had a wide and articulated vision of France’s power also on the economic level, with its positive foreign trade balance; on the military level, with the advantages derived from the growth of its power; on the diplomatic level, with a permanent seat on the UN Security Council. The main concern in managing the territory was the modernization of the infrastructure to attract foreign investment.
This one-way vision did not permit the assessment of the intentions of these foreign investors or the drawing of a balance of failures or unfair business practices.
If the existence of the USSR served the purpose of uniting the Western world, its demise as an ideological empire and potential nemesis restored the previous relations of power between nations – in other words, the pursuit of supremacy over markets and resources and the creation of long-lasting relationships of dependence.
The evolution of the international situation continued demonstrating the exacerbation of the balance of economic power between the dominant nations on the international scene and in the areas contested for energy and mining resources.
After De Gaulle, no reflection on the growth of power ever completed the defensive approach conceived in the wake of the Second World War.
History shows, however, that up until the Restoration, the elite had had a clear perception of the contribution made by the economy in the growth of a nation’s power, the symbol of which was the model of development based on trade adopted by the United Kingdom. The clarity of French vision about the reality of the relationships between economic forces faded after 1815 when the resistance structure applied by Napoleon to contrast Britain’s commercial offensive was dismantled. London’s strategy of influence based on the propaganda of free trade bore fruits with the rise to power of the future Napoleon the 3rd,: he would sign the free trade agreement with England in 1860 despite opposition from French industrialists. Liberalism as the fundamental basis of the market economy came to replace a realistic vision of the balance of economic power for nearly a century afterwards.
This tendency for the conceptualization of economic warfare during peacetime has legitimized the numerous works created since 1997 by the Paris School of Economic War. Furthermore, by the end of 1988, the continuing lack of competence in the matter of France led Thierry Gaudin, Director of the Ministry of Research’s Prospects and Evaluation (CPE) and Jean-Pierre Quignaux, Secretary General of the Association for the Diffusion of Technological Information (ADITECH) to fund a study on economic warfare at a time when the international economic situation fully warranted its legitimacy.
Harbulot decided to publish Techniques offensives et guerre économique for the first time at the end of 1988, when all the international analyses existed in the conceptual shelter of the Berlin Wall, and talking about economic warfare seemed like an abuse of language. The Wall that had delayed the spread of new technology in the industrial fabric succeeded in disguising the history of certain peoples, the rootedness of their cultures and their national peculiarities for more than thirty years. With the fall of the Berlin Wall, the binocular vision of our world was abruptly clouded over. Its geopolitics and the analysis of its economic clashes had to be reconsidered, and it is from this point of view that the retrospective assessment of Christian Harbulot assumes particular significance, with its emphasis on the need for a resumption of research in this field in order to evaluate the consequences of current events and permit a reading of the future sufficient to prevent certain events from occurring.
Harbulot urges to become aware of the threat: in the international market, with competition in every direction, no one can afford the luxury of fighting a war of reaction.
Yet even in France, Harbulot claims, a certain desire for non-aggressive competition still prevails that is certainly not favorable in terms of competitiveness or creating jobs, due also to the mostly verbal and improvised ways in which awareness of economic warfare is transmitted.
The globalization of exchange is changing the very nature of economic warfare. This new state of affairs gives intelligence culture an extraordinary strategic importance, even more so in light of the fact that information is a capital with a long-term return. In addition to being a production factor, it is also an offensive and dissuasive weapon, and the absence of information engineering has become a strategic problem at the level of SMI. Even if, as Harbulot explained, this weakness in regard to foreign competition is not necessarily synonymous with defeat, the French companies’ ability to take action remained insufficient for a long time.
The opening of national markets to foreign exchange has multiplied the difficulty in interpreting phenomena related to competitors and competitiveness. Faced with this revolution in the world market, the approach adopted by French companies remains one of merely “sailing by sight” that has no place in a dynamic national industrial policy.
Active economic aggression measures are a source of concern primarily for the strategic sectors of armament or atomic energy, whereas most other economic actors perceive this type of risk too passively.
Proposals for action in the Martre Report: the third way for French industrial policy
The expression “economic intelligence” officially entered the public debate on national competiveness together with the request for public intervention in regard between 1992 and 1994.
Merit must go to Jean-Louis Levet, Chief of the technological and industrial development service at the Plan’s General Commissariat since 1992 for the possibility to transform the thoughts of Harbulot and Baumard into an official Report. He was convinced on one hand of the need for a radical review of the relationship between the State and industry allowing to seize the new opportunities offered by technological evolution and globalization and on the other of the need for France to implement a new policy of offensive competition on three fronts: the use of natural resources; the use of new strategies for new forms of protectionism, and new ways for the State to intervene in the economy, all of which in the context of a concerted long-term strategy.
Harbulot and Baumard defined the issues to be addressed:
-reflections on the way to encourage economic intelligence at company level;
-the study of foreign economic intelligence systems;
-the development of written knowledge on economic intelligence;
-the development of educational content addressed to higher level university professors and the encouragement of the sharing of experiences between operators in the sector;
-lastly, the launching of a national reflection by public administrations utilizing governmental economic intelligence measures.
The collaboration between Harbulot and Baumard resulted in a joint effort in defining the major working areas for the Plan’s work group, with an objective of methodological nature, namely, uniting the disciplines of information engineering and political nature, or in other words, remedying the absence of a French economic intelligence structure.
Furthermore, the integration of Harbulot into the Plan’s various work groups enabled the reinforcement of ADITECH, which if up until then had been a mere association, since then became the ADIT (Technological Information Diffusion Agency) through Ministerial Decree in May, 1992, under the control of the Ministry of Foreign Affairs and the Aerospace and Research Ministry.
In the context of the Report, under the leadership of Henry Martre, a previous Chief Executive Officer for Armament, a work group specifically dedicated to questions of economic intelligence was set up: Baumard would work with Harbulot, the former on the comparative analysis of the world’s economic intelligence systems, the latter on national reflection on the issue.
The Report, which was published in 1994 in La Documentation Française, documented the degree to which French companies were obliged to operate under increasingly more complex circumstances and unpredictable dynamics that demanded the implementation of economic intelligence systems capable of further developing the strategic management of information, economic potential, and the number of jobs. The Report reiterated the meaning of economic intelligence intended as the coordinated research, processing and distribution of information, which can be useful to economic actors. These actions need to be conducted with guarantees of the protection necessary for the preservation of the nation’s business assets in the best conditions of quality, terms, and costs
It was through the work of Harbulot that the term and the definition of economic intelligence first appeared in an official document.
The Report clearly shows Harbulot’s vision: describing economic intelligence as an activity, not another type of information, involving the leading economic players, the companies.
The sources remain open, disproving the argument that paints economic intelligence as being involved in actions at the limits of legality.
However, it is precisely in regard to the greater availability of open sources that certain problems linked to economic intelligence emerge, such as the data distribution and protection: the circulation of data inside the company assumes fundamental importance whenever it transforms into a news leak, a constantly increasing risk in today’s ever more interconnected world.
The Report urged the State to take rapid action, and provided four embracing proposals:
-Involving companies in the practise of economic intelligence
-optimizing the flows of information between the public and private sectors;
-the creation of databases;
-getting the world of education and training involved.
The Report is permeated with the awareness that the problem is primarily political and that reasoning through the dictates of economic intelligence means changing our ways of perceiving the economy:
“Economic intelligence, together with the intention to impose an enlarged horizon of comprehension including companies, agencies and nations, provides a response to the urgent need of understanding the economy in other terms than those of mere and overly simplistic competitiveness. The question is political and requires the directors of the organizations above to enter into awareness because it regards a view of the economy that is not neutral”.
The Report issued by the group led by Henry Martre developed a summary of the thought of C. Harbulot and P. Baumard and provided keys to the comprehension of the world. It gave official form to a particular description of the relations between states on the international panorama in which the latter compete with no legal holds barred: the end justifies the means, and above all else, justifies the marshalling of actions in favour of the economy by intelligence services.
Conceived in terms of systems, networks of protagonists, intentions, and influence, and the coordination of decision-making centres, this view gains leverage from the fears derived from the invisibility of the threats. The central position of the State, the guarantor of national cohesion, is confirmed, as is the accent on the importance of unity and national cohesion, taking Japan and Sweden as examples. France can take control of its future only in a collective perspective, therefore must remedy the absence of interaction between the public and private sectors and overcome the usual priority given to maintaining a defensive position, with the objective of mobilizing the political class in regard to the importance of controlling and using information as an arm of domination.
Harbulot accuses both France to be unprepared for “economic warfare” and its policies to continue believing that a united Europe would provide a fertile field for French economic patriotism.
Harbulot defined economic patriotism as a three-dimensional value system, consisting of a cultural dimension that looks to the roots of the productive system; a dimension of conflict based on the relationships between the competing forces, and a temporal dimension influenced by the evolution of technological progress.
In order to promote the passage from an information culture that is closed and individual to one that is open and collective, he suggested creating an economic intelligence instrument through the concerted effort of public and private parties.
For Harbulot, economic intelligence is the systematic search and interpretation of the information available to everyone for the purpose of understanding the intentions and capabilities of the protagonists. Economic intelligence incorporates all the capacity of surveillance of the competitive environment (protection, vigilance, influence) and is distinguished from traditional intelligence by the nature of its field of application (open information), the nature of its actors (inserted in a collective information culture context), and its cultural specificities (each nation’s economy generates its own specific model of economic intelligence). This is represented by means of an economic intelligence diagram with three levels: the companies, the nation, and the world.
Overall, the Report would be judged faint-hearted in the measures it proposed, but more innovative in the vocabulary it employed, by officially introducing, in fact, both the new term “economic intelligence” and a different vision of reality, with the objective of generating a shift in mentality that justified the urgent implementation of a government action plan.
The proposed scope of the Report was the improvement of the offensive and defensive capacities of both national and corporate economic intelligence.
For the purpose of providing these recommendations with a follow-up, Martre promoted the creation of the Comité pour la Compétitivité et la Sécurité Economique (Economic Competitiveness and Security Committee) in 1995 with tasks similar to those of the US National Economic Council. The establishment of the CCSE significantly empowered French economic intelligence, which could already vaunt the fact of having promptly supplied the French government with news regarding the abandoning of the gold standard and the devaluation of the dollar received from US Treasury Department sources at the start of the Seventies. Furthermore, being characterized by close cooperation and trust between the public and private sectors, French economic intelligence also has a highly centralized structure that enables quick reaction times and a noteworthy ease in acquiring confidential information.
The system’s flexibility is achieved through the involvement in the “Economic intelligence structure” at territorial levels.
C. Harbulot was, together with P. Baumard, one of the protagonists between 1990 and 1992 of the construction of French economic intelligence, supported in his conviction that the international context would play a determinant role in the creation of new relationships between the State and businesses business. The discussions about security – promoted on the other side of the Atlantic – along with the political and economic uncertainties linked to the building process of the EU, had already prepared the ground for change.
Christian Harbulot and the creation of “Economic Intelligence”
Christian Harbulot was the first French author to address the topic of economic intelligence, presenting ideas that sparked the debate on its importance, given that the gaining of consciousness of the changes on the international scene could no longer be postponed, and recognizing the priority of economic questions over military ones.
The writings of C. Harbulot are authentic essays on the nature of economic confrontation written with the objective of convincing the political elite that an offensive use of information is a key factor in ensuring a Nation’s success.
Through comparative cultural analysis, Harbulot explained why certain peoples had mobilized and addressed the conflictual aspects of the market economy while others had not, and advanced his reasoning by which information capital is at the same time a leading factor in production but also an offensive weapon, in addition to being an arm of dissuasion.
Harbulot demonstrated how Japan’s economy was further ahead than America’s, and naturally France’s, precisely because it was capable of exploiting all the potential of intelligence activity in the sector. The United Kingdom, the United States, Germany, France, and Japan developed their own cultural model of market economy. In particular, Harbulot believed that Germany and Japan had gained remarkable economic leverage from their information and intelligence assets and had implemented more offensive and more effective economic policies because they were based on concerted strategies between private or public companies, between administrations and bank networks. Businesses in these two countries optimized their profitability by reducing the gap between information and intelligence, between open practices and closed practices, between what is available to the entire world and what instead must remain secret, moving from information – the mere awareness of information – to action, or rather information that can be useful for intelligence.
Harbulot often accused French political power of not giving the right amount of importance to “economic warfare”, thus remaining vulnerable to the risk of losing the control of its own economic information independence when faced with the massive growth of the Asian economies, all of which are – as opposed to those in the West – founded on unspoken rules of economic warfare.
For France, instead, the complete ignorance of the offensive potential of information engineering would be the cause of the scarce competitiveness of its companies.
Furthermore, the concept of “economic defence” – intended solely in a military perspective – is equally invalid.
This can be summarized by quoting Luttwak:
A nation’s cohesion is no longer born from the fear of a military threat but an economic threat instead, in a context in which the importance given to military alliances decreases and geo-economic priorities prevail instead.
In short, the elite in power in France still needed to be convinced of the existence and the importance of “economic warfare”.
The term “economic warfare” appeared too strong and radical right from the start, especially when used by authors like Bernard Esambert, who compared a nation’s loss of jobs and wealth and the lowering of its standard of living tout court to the disasters of war. Yet for this author, as well as Harbulot, the underlying idea is that a nation’s economic success is based on the concept of “culture” considered as a weapon that some nations use better than others: Japan’s economic dynamism can be explained by the strength of its cultural power, as might be Germany’s economic power as well. The French economy was playing a defensive game, instead.
However, the vocabulary suggested by Harbulot and terms regarding concepts like “combat culture”, “economic confrontation” and “economic warfare” were seen as scarcely convincing and overly radical. Thanks to the work conducted together with Philippe Baumard, the terms “confrontation” and “warfare” were replaced with that of “intelligence”. The use of the term intelligence derived from a combination of the French definitions of “surveillance” and “veille” and the Anglo-Saxon and Swedish definitions of the concept of intelligence intended as reasoning, planning, and ability to establish relations between various elements, or more simply, active information gathering activities. However, the term economic intelligence invokes an entirely new category in the field of economic geopolitics that expresses new needs for cooperation between the public and private sector.
P. Baumard proposed a methodology for the creation of a business intelligence system before constructing together with Harbulot a common reading of the stakes at risk linked to the new forms of competition based on offensive approaches to information. The ideas of Harbulot that were given most credence and which best describe the French situation are based on the use of subversive cultural elements in economic warfare.
The analyses of Philippe Baumard are very similar to those of Harbulot, especially concerning changes in terminology: from the concept of “surveillance of the environment”, “intelligence” came to signify the “intelligence of the environment” reflecting the prospect of greater tactical and strategic interaction of information.
Various other authors have considered the ambiguity of the term intelligence. The British give it a wider range of significance than the Americans did, for one thing. To make matters worse, difficulties in translation contribute to the confusion. The French word “intelligence”, for example, refers nearly exclusively to a human faculty, the intelligence of an individual, but not the activity of by which a government agency or a private company collects information. The French word renseignement is applied to the activities of national security agencies and not those of private companies or a particular social group: it expresses the product, the information that was collected in the environment, and makes tacit reference to the secret services.
Philippe Baumard focused his work on semantic problems and the difficulties of understanding and using the term in France in regard to the terms “veille” and “renseignment”. Baumard would attempt to renew the image of “vigilance” and “surveillance” in the perception of companies by exploiting the Anglo-Saxon concept of intelligence. However, his meeting with C. Harbulot – whom he even criticized for his use of the French term renseignment, declaring his preference for intelligence, as well as for the expression “intelligence économique” which he preferred to indicate with “economic confrontation” – would lead to the integration of the expression “intelligence économique” in the debate on the adaptation of public actions in regard to the problems posed by the management of information in 1992.
In this way, both style and terminology would become more moderate and closer to the vocabulary used by government administrations.
The progressive development of semantics for the topic contributed to a comprehension of the facts that was more appropriate to the changing times. The function of “vigilance” was very useful to the French contributors, and enabled the shift to the successive concept of economic intelligence intended as information assessed, interpreted, and put to use, also in terms of offence, by companies.
P. Baumard underlined the progress made by the United States in the topic in many ways: with an intense proliferation of texts, with an American economic intelligence community structured around the former members of intelligence services working together in the SCIP association, and with the renewed interest being taken by universities on this issue and journalists who make less confusion between “business intelligence” and spying. In France as well, the reasoning advanced by C. Harbulot proved to be decisive in the implementation of plans for action that would be submitted at the highest levels of government.
Synchronicity in Economic Policy amid the Pandemic
Synchronicity is an ever present reality for those who have eyes to see. –Carl Jung
The Covid pandemic has elicited a number of deficiencies in the current global governance framework, most notably its weaknesses in mustering a coordinated response to the global economic downturn. A global economy is not fully “global” if it is devoid of the capability to conduct coordinated and effective responses to a global economic crisis. What may be needed is a more flexible governance structure in the world economy that is capable of exhibiting greater synchronicity in economic policies across countries and regions. Such a governance structure should accord greater weight to regional integration arrangements and their development institutions at the level of key G20 decisions concerning international economic policy coordination.
The need for greater synchronicity in the global economy arises across several trajectories:
· Greater synchronicity in the anti-crisis response across countries and regions – according to the IMF it is a coordinated response that renders economic stimulus more efficacious in countering the global downturn
· Synchronicity in the withdrawal of stimulus across the largest economies – absent such coordination the timing of policy normalization could be postponed with negative implications for macroeconomic stability
· Greater synchronicity in opening borders, lifting lockdowns and other policy measures related to responding to the pandemic: such synchronicity provides more scope for cross-country and cross-regional value-added chains to boost production
· Greater synchronicity in ensuring a recovery in migration and the movement of people across borders.
Of course such greater synchronicity in economic policy should not undermine the autonomy of national economic policy – it is rather about the capability of national and regional economies to exhibit greater coordination during downturns rather than a progression towards a uniform pattern of economic policy across countries. Synchronicity is not only about policy coordination per se, but also about creating the infrastructure that facilitates such joint actions. This includes the conclusion of digital accords/agreements that raise significantly the potential for economic policy coordination. Another area is the development of physical infrastructure, most notably in the transportation sphere. Such measures serve to improve regional and inter-regional connectivity and provide a firmer foundation for regional economic integration.
The paradox in which the world economy finds itself is that even as the current crisis is leading to fragmentation and isolationism there is a greater need for more policy coordination and synchronicity to overcome the economic downturn. This need for synchronicity may well increase in the future given the widening array of global risks such as risks to cyber-security as well as energy security and climate change. There is also the risk of the depletion of reserves to counter the Covid crisis that has been accompanied by a rise in debt levels across developed and developing economies. Also, the speed of the propagation of crisis impulses (that effectively increases with technological advances and globalization) is not matched by the capability of economic policy coordination and efficiency of anti-crisis policies.
There may be several modes of advancing greater synchronicity across borders in international relations. One possible option is a major superpower using its clout in a largely unipolar setting to facilitate greater policy coordination. Another possibility is for such coordination to be supported by global international institutions such as the UN, the WTO, Bretton Woods institutions, etc. Other options include coordination across the multiplicity of all countries of the global economy as well as across regional integration arrangements and institutions.
Attaining greater synchronicity across countries will necessitate changes in the global governance framework, which currently is characterized by weak multilateral institutions at the top level and a fragmented framework of governance at the level of countries. What may be needed is a greater scope accorded to regional integration arrangements that may facilitate greater coordination of synchronicity at the regional level as well as across regions. The advantage of providing greater weight to the regional institutions in dealing with global economic downturns emanates from their greater efficiency in coordinating an anti-crisis response at the regional level via investment/infrastructure projects as well as macroeconomic policy coordination. Regional development institutions also have a comparative advantage in leveraging regional interdependencies to promote economic recovery.
In conclusion, the global economy has arguably become more fragmented as a result of the Covid pandemic. The multiplicity of country models of dealing with the pandemic, the “vaccine competition”, the breaking up of global value chains and their nationalization and regionalization all point in the direction of greater localization and self-sufficiency. At the same time there is a need from greater synchronicity across countries particularly in the context of the current pandemic crisis. Regional integration arrangements and institutions could serve to facilitate such coordination in economic policy within and across the major regions of the world economy.
From our partner RIAC
A New Strategy for Ukraine
Authors: Anna Bjerde and Novoye Vremia
Four years ago, the World Bank prepared a multi-year strategy to support Ukraine’s development goals. This was a period of recovery from the economic crisis of 2014-2015, when GDP declined by a cumulative 16 percentage points, the banking sector collapsed, and poverty and other measures of insecurity spiked. Indeed, we noted at the time that Ukraine was at a turning point.
Four years later, despite daunting internal and external challenges, including an ongoing pandemic, Ukraine is a stronger country. It has proved more resilient to unpredictable challenges and is better positioned to achieve its long-term development vision. This increased capacity is first and foremost the result of the determination of the Ukrainian people.
The World Bank is proud to have joined the international community in supporting Ukraine during this period. I am here in Kyiv this week to launch a new program of assistance. In doing this, we look back to what worked and how to apply those lessons going forward. In Ukraine—as in many countries—the chief lesson is that development assistance is most effective when it supports policies and projects which the government and citizens really want.
This doesn’t mean only easy or even non-controversial measures; rather, it means we engage closely with government authorities, business, local leaders, and civil society to understand where policy reforms may be most effective in removing obstacles to growth and human development and where specific projects can be most successful in delivering social services, particularly to the poorest.
Looking back over the past four years in Ukraine, a few examples stand out. First, agricultural land reform. For the past two decades, Ukraine was one of the few countries in the world where farmers were not free to sell their land.
The prohibition on allowing farmers to leverage their most valuable asset contributed to underinvestment in one of Ukraine’s most important sources of growth, hurt individual landowners, led to high levels of rural unemployment and poverty, and undermined the country’s long-term competitiveness.
The determination by the President and the actions by the government to open the market on July 1 required courage. This was not an easy decision. Powerful and well-connected interests benefited from the status quo; but it was the right one for Ukrainian citizens.
A second area where we have been closely involved is governance, both with respect to public institutions and the rule of law, as well as the corporate governance of state-owned banks and enterprises. Poll after poll in Ukraine going back more than a decade revealed that strengthening public institutions and creating a level playing field for business was a top priority.
World Bank technical assistance and policy financing have supported measures to restore liability for illicit enrichment of public officials, to strengthen existing anticorruption agencies such as NABU and NACP, and to create new institutions, including the independent High-Anticorruption Court.
We are also working with government to ensure the integrity of state-owned enterprises. Our support to the government’s unbundling of Naftogaz is a good example; assistance in establishing supervisory boards in state-owned banks is another. We hope our early dialogue on modernizing the operations of Ukrzaliznytsia will be equally beneficial.
As we begin preparation of a new strategy, the issues which have guided our ongoing work—strengthening markets, stabilizing Ukraine’s fiscal and financial accounts; and providing inclusive social services more efficiently—remain as pressing today as they were in 2017. Indeed, the progress which has been achieved needs to continue to be supported as they frequently come under assault from powerful interests.
At the same time, recent years have highlighted emerging challenges where we hope to deepen and expand our engagement. First, COVID-19 has underscored the importance of our long partnership in health reform and strengthening social protection programs.
The changes to the provision of health care in Ukraine over recent years has helped mitigate the effects of COVID-19 and will continue to make Ukrainians healthier. Government efforts to better target social spending to the poor has also made a difference. We look forward to continuing our support in both areas, including over the near term through further support to purchase COVID-19 vaccines.
Looking ahead, the challenge confronting us all is climate change. Here again, our dialogue with the government has positioned us to help, including to achieve Ukraine’s ambitious commitment to reduce carbon emissions. During President Zelenskyy’s visit to Washington in early September we discussed operations to strengthen the electricity sector; a program to transition from coal power to renewables; municipal energy efficiency investments; and how to tap into Ukraine’s unique capacity to produce and store hydrogen energy. This is a bold agenda, but one that can be realized.
I have been gratified by my visit to Kyiv to see first-hand what has been achieved in recent years. I look forward to our partnership with Ukraine to help realize this courageous vision of the future.
Originally published in Ukrainian language in Novoye Vremia, via World Bank
Russia, China and EU are pushing towards de-dollarization: Will India follow?
Authors: Divyanshu Jindal and Mahek Bhanu Marwaha*
The USD (United States Dollar) has been the world’s dominant currency since the conclusion of the second world war. Dollar has also been the most sought reserve currency for decades, which means it is held by central banks across the globe in significant quantities. Dollar is also primarily used in cross-border transactions by nations and businesses. Without a doubt, US dollar’s dominance is a major reason for the US’ influence over public and private entities operating around the world. This unique position not only makes US the leader in the financial and monetary system, but also provides incomparable leverage when it comes to coercive ability to shape decisions taken by governments, businesses, and institutions.
However, this dynamic is undergoing gradual and visible changes with the emergence of China, slowdown in the US economy, European Union’s independent policy assertion, Russia-US detachment, and increasing voices from across the world to create a polycentric world and financial system in which hegemonic capacities can be muted. The world is witnessing de-dollarisation attempts and ambitions, as well as the rise of digital or cryptocurrencies at an increasing pace today.
With Russia, China and EU leading the way in the process of de-dollarisation, it needs to be argued whether India, currently among the most dollarized countries (in invoicing), will take cue from the global trends and push towards de-dollarisation as well.
The dominant role of dollar in the global economy provides US disproportionate amount of influence over other economies. As international trade needs a payment and financial system to take place, any nation in position to dictate the terms and policies over these systems can create disturbances in trade between other players in the system. This is how imposition of sanctions work in theory.
The US has for long used imposition of sanctions as a tool to achieve foreign policy and goals, which entails restricting access to US-led services in payment and financial transaction processing domains.
In recent years, several nations have started opposing the unilateral decisions taken by the US, a trend which accelerated under the former president Donald Trump’s tenure. He withdrew US from the JCPOA deal between Iran and US, aimed at Iran’s compliance with nuclear discipline and non-proliferation. Albeit US withdrawal, other signatories like EU, Russia, and China expressed discontent towards the unilateral stance by the US and stayed committed towards the deal and have desired for continued engagements with Iran in trade and aid.
Similarly, the sanctions imposed on Russia in the aftermath of the Crimean conflict in 2014 did not find the reverberations among allies to the extent that US had wanted. While EU members had switched to INSTEX (Instrument in Support of Trade Exchanges) which acts as a special-purpose vehicle to facilitate non-USD trade with Iran to avoid US sanctions, EU nations like Germany continue to have deep trade ties with Russia, and EU remains the largest investor as well the biggest trade partner for Russia, with trade taking place in euros, instead of dollars.
Further, despite the close US-EU relations, EU has started its own de-dollarization push. This became more explicit when earlier this year, EU announced plans to prioritize the euro as an international and reserved currency, in direct competition with dollar.
Trajectories of Russia, China, and EU’s de-dollarisation push
Russia has emerged as the nation with the most vigorous policies oriented towards de-dollarization. In 2019, the then Russian Prime Minister Dmitry Medvedev had invited Russia’s partners to cooperate towards a mechanism for switching to use of national currencies when it comes to transactions between the countries of the Shanghai Cooperation Organization (SCO). It must be noted that in Eurasian Economic Union (EAEU), which functions as a Russian-led trade bloc, more than 70 percent of the settlements are happening in national currencies. Further, in recent years, Russia has also switched to settlements in national currencies with India (for arms contracts) and the two traditionally strong defence partners are aiming at exploring technology as means for payment in national currencies.
Russia’s push to detach itself from the US currency can also be seen in the transforming nature of Russia’s foreign exchange reserves where Russia for the first time had more gold reserves than dollars according to the 2018 data (22 percent dollars, 23 percent gold, 33 percent Euros, 12 percent Yuan). As per the statement by Russian Finance Minister in 2021, Russia aims to hold 40 percent euro, 30 percent yuan, 20 percent gold and 5 percent each of Japanese yen and British pound. In comparison, China holds a significant amount of dollar denominated assets as forex reserves (50 to 60 percent) and has the US as its top export market with which trade takes place mostly in US dollars. Moreover, Russia has also led the push by creating its own financial messaging system- SPFS (The System for Transfer of Financial Messages) and a new national electronic payment system – Mir, which has witnessed an exponential rise in its use.
While China-Russia trade significantly depends on euros instead of their own national currencies (even though use of national currencies is slowly rising), instead of pushing the Chinese national currency Renminbi (RMB), Beijing is aiming towards establishing itself as the first nation to issue a sovereign digital currency, which would help China to engage in cross border payments without depending on the US financial systems. Thus, for China, digital currency seems to be the route towards countering the dollar dominance as well as to increase its own clout by leading the way for an alternate global financial system operating in digital currencies. It needs to be noted here that EU has succeeded in internationalizing the euro and this can be seen in the fact that EU-Russia trade as well as Russia-China trade occurs predominately in euros now.
Will India follow suit?
Indian economy’s dynamic with dollar is different than other major economies in the world today. Unlike China or Russia (or EU and Japan), which hold dollars in significant amounts, India’s reserve is not resulted by an export surplus. While others accumulate dollars from their earnings of trade surplus, India maintains a large forex reserve even though India imports less than it exports. In India’s case, the dollar reserves come through infusion of Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), which reflects the confidence of foreign investors in India’s growth prospects. However, accumulation of dollar reserves through this route (which helps in offsetting the current deficit faced in trade), India remains vulnerable to policy changes by other nations’ monetary policies which are beyond India’s own control. For instance, it has been often highlighted that a tightening of the US monetary policy leads to capital outflows (capital flight) from India, thus impacting India adversely.
New Dehi has resisted a de-dollarization push for long. Back in 2009, when Russia and China had started the push via BRIC mechanism (Brazil, Russia, India, China grouping), it was argued that New Delhi would not like to upset Washington, especially after the historic US-India civil nuclear agreement was signed just a year before in 2008 -for full civil nuclear cooperation between the two nations.
Further, currency convertibility is an important part of global commerce as it opens trade with other countries and allows a government to pay for goods and services in a currency that may not be the buyer’s own. Non-convertible currency creates difficulties for participating in international market as the transactions take longer routes for processing (which in case of dollar transactions, is controlled by US systems).
Just like Chinese renminbi, Indian rupee is also not yet fully convertible at the exchange markets. While this means that India can control its burden of foreign debt, and inflow of capital for investment purposes in its economy, it also means an uneasy access to capital, less liquidity in financial market, and less business opportunities.
It can be argued that just like the case of China and Russia, India can also look towards having a digital currency in the near future, and some signs for this are already visible. India can also look towards having an increased share of euros and gold in its foreign exchange reserves, a method currently being used by both China and Russia.
An increasing number of voices are today pointing towards the arrival of the Asian age (or century). With China now being the leading economic power in the world, US economy on a slowdown, and emergence of an increasing polycentric structure in world economy, the dominance of dollar is bound to witness a shake-up. In order for global systems to remain in sync with the transforming economic order, structural changes like control over leading economic organisations (like IMF and World Bank) will become increasingly desirable.
With an increasing number of nations now looking towards digital currencies and considering a change in the mix of their foreign exchange reserves, a general trend is now visible even if it would not mean an end to dollar’s dominance in the immediate future. As the oil and gas trade in international markets also start shifting from dollar, geopolitical balance of power is expected to witness a shift after decades of US dominance.
Major geopolitical players like China, Russia and EU have already started their journey to counter the dominance of dollar, and the strings of US influence on political decisions that come with it. According to Chinese media, Afghanistan’s reconstruction after US-withdrawal can also accelerate the global de-dollarization push as nations like Saudi Arabia might look for establishing funds for assisting Afghanistan in non-dollar currencies. So, conflict areas highlight another avenue where de-dollarization push will find a testing arena in coming times.
India has several options for initiating its de-dollarization process. Starting from Russia-India transactions, trade with Iran, EAEU, BRICS and SCO members in national or digital currencies can also become a reality in near future. Considering India’s present dollar dependence, whether US sees India’s move towards de-dollarisation as a direct challenge to US-India relations, or accepts it as a shift in the global realities, has to be seen.
*Mahek Bhanu Marwaha is a master’s student in Diplomacy, Law and Business program at the OP Jindal Global University, India. Her research interests revolve around Indian and Chinese foreign policies and trade relations.
Japanese firms’ slow and steady exit is sounding alarm bells in Beijing
Last year in March, former Prime Minister Shinzo Abe had indicated Japan would initiate measures to reduce the country heavily...
Bringing People Together with Easy to make Russian Comfort Food
Russia has a long history of droughts and famines. Although there have been no famines since 1947, the former Soviet...
UNGA76: Giant eco-friendly artwork set to inspire world leaders
A new 11,000 square metre ‘ephemeral fresco’ created by Swiss artist Saype, has set the stage at UN Headquarters in New...
The Anandamahidol Foundation and the Legacy of Rama the Ninth of Thailand
Founded in 1955 by the late King Bhumibol Adulyadej, Rama the Ninth of Thailand, the Ananda Mahidol Foundation has supported...
Presidential Irrationality and Wrongdoing in US Nuclear Command Authority
Abstract: In post-World War II memory, no greater political danger has confronted the United States than the presidency of Donald...
American Weaponry in the Hands of the Taliban
The hasty withdrawal of the U.S. forces from Afghanistan attests to both the indifference of the U.S. administration as regards...
Deloitte reports FY2021 revenue
Deloitte today reported aggregate global revenue of US$50.2 billion for the fiscal year ending 31 May 2021 (FY2021), a 5.5%...
Economy3 days ago
Russia, China and EU are pushing towards de-dollarization: Will India follow?
Finance4 days ago
Instagram: Why It Is the Best Social Media Platform for Marketing
Middle East1 day ago
Turkey’s Destruction of Cultural Heritage in Cyprus, Turkey, Artsakh
South Asia4 days ago
Panjshir – the last stronghold of democracy in Afghanistan
Americas4 days ago
Biden’s worrisome construct of security and self-defense in the first year of his term
Defense3 days ago
Developments on Korean Peninsula risk accelerating regional arms race
Economy3 days ago
Today’s World Demands Sustainability
South Asia3 days ago
Opposing Hindutava: US conference raises troubling questions