The search for a new world economic order in which emerging forces have more weight

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Against the backdrop of increasing instability and uncertainty in the global economic recovery and severe challenges to global economic growth, discussing a new world economic order can become an important platform for promoting international economic cooperation and recovery.

In recent times, the profound impact of the international financial crisis has not been fundamentally eliminated. The growth rate of the world economy has slowed down. Economic growth in developed economies has been slow and the unemployment rate has remained high.

Major developed economies, however, have further implemented accommodative monetary policies and global liquidity has increased significantly. Increased volatility in commodity prices and exchange rates of major currencies has intensified speculative bubbles and inflationary pressures in emerging markets, thus increasing instability and uncertainty in the recovery of global economy.

In particular, the sovereign debt problems of the United States and European countries have caused hidden concerns in the world economy and have become one of the major risks threatening the stability and growth of the world economy today and in the coming years.

In this context, citizens are particularly concerned about how to solve the current global economic problems. People wonder if there are institutional and structural contradictions behind the series of economic and financial crises. With a view to solving contradictions and problems, we need to rethink the necessity and urgency of establishing a new international economic order. In recent decades we have witnessed new changes in the global economic situation, ranging from the great crisis of 2007-2008 to the Covid-19 pandemic and the Russian-Ukrainian war. The economic recovery of the major developed economies is slow and emerging economies are playing the role of economic growth engines. In the first decade of the 21st century, the average annual growth rate of emerging economies exceeded 6%. China records the highest growth rate of all the BRICS countries, with an average annual rate of over 10%. The BRICS countries account for 42% of the world’s total population; for about 30% of the world’s total earth surface; for 18% of the global gross domestic product; for 15% of the global trade volume and 75% of the world’s foreign exchange reserves.

Such huge-scale economic changes have traditionally altered the international economic landscape and balance of power. There is a strong demand for reforming the traditional international economic order that was mainly created in the era of US-European economic hegemony. Indeed, the BRICS countries’ economic influence has produced an unprecedented irradiation power, thus effectively promoting the development of the regional economy, and creating – in particular – a bridging effect between emerging market countries in the region.

Reform and development are the main demands and consensus of all countries and regions in the world. The President of the World Bank, the American Robert Zoellick (2007-2012), long ago stated that the current US-Europe debt crisis and the fragility of the global economic recovery have endangered the world economy, and that the international community should therefore strengthen multilateral cooperation to overcome difficulties. Christine Lagarde, who since 2019 has been the French President of the European Central Bank, has reaffirmed that the current global economy has entered a “new dangerous phase” and downside risks are still increasing.

The coordination of global economic policies is particularly important. In short, the US-Europe debt crisis calls on the international community to further promote the reform of the international economic system and develop the international economic order along a more just and reasonable direction. At present, world’s countries are interconnected, interdependent and their interests are closely interwoven to an unprecedented level. A country’s future and destiny are increasingly intertwined with future processes and it is in the common interest of all countries to work together and help each other since they are all in the same boat. In particular, the international community can cooperate on some issues in the future.

The first issue is to build an equitable and effective global development system; strengthen development institutions; increase resources for development and fully implement the UN Millennium Development Goals.

International financial crises have always triggered reflections, analyses and discussions among countries on the unbalanced development of the world economy. Basically speaking, the greatest imbalance in the world economy is the unbalanced development between North and South, and the world economy’s greatest contradiction lies in developing countries’ backwardness.

Without the economic development of Third and Fourth World countries, there will be no long-term stable development of the world economy. Promoting sustainable economic growth in developing countries is one of the main challenges facing the planet. Growth and development are key to eradicating poverty and achieving operational stability and peace both among hitherto disadvantaged countries and between the superpowers, which creep into them not for their well-being but for obtaining geopolitical advantages.

Developed countries should fulfil their international commitments as soon as possible and provide more support and assistance to developing countries in terms of capital, technology and political leeway. The latter has always been lacking, as the former colonising powers have always managed to run the newly independent States they had already owned.

The international community should keep on striving to promote development in developing countries, build an equitable and effective global partnership with shared responsibilities and benefits, as well as work together to fully achieve the Millennium Development Goals, as envisaged at least in theory.

The second issue is to build a fair, equitable, inclusive and orderly international monetary and financial system, support global economic development and increase the voice and representation of emerging markets and developing countries in the international monetary and financial system.

For historical reasons, since World War II the United States has had a dominant position in the international monetary and financial system, and assets denominated in US dollars, such as treasury bills, etc., have also become the main investment items in the world. This also makes the US domestic economic policy have a decisive impact on the world economy.

In the international financial crises, the structural depreciation trend of the US dollar has been more clearly visible. Some analysts even believe that the depth of the US debt crisis is a “crisis of confidence” in the dollar itself. Since the establishment of the dollar-dominated international monetary system, the dollar value has actually been guaranteed by the US national and military power. As the US national power diminishes, the ability to guarantee the dollar is inevitably and negatively affected.

Judging by the composition of the foreign exchange reserves of various countries in recent years, the share of assets denominated in US dollars has actually decreased year by year. Daisy Li, chief economist at Standard Chartered Bank in the UK, said that since the outbreak of the US debt crisis, the dollar “looks very fragile”. Akira Sugano, Japan’s Mizuho Research Institute, believes that in the long run the decline of the US dollar status as an international reference currency will be inevitable.

The crisis has exposed the flaws and shortcomings of the current international monetary and financial system, showing that the system needs to be reformed and improved and that a stable, reliable and far-reaching international reserve currency system needs to be established. Robert Zoellick believes that the world is undergoing a “reset of the global financial system” and that the economic centre of gravity is rapidly shifting towards developing countries and regions such as China, India, Brazil and South-East Asia. In the future, developing economies will have a more important position in the global monetary and financial regulatory system. Sonsoles Castillo Delgado, a Spanish researcher at Banco Bilbao Vizcaya Argentaria, has emphasised that it is not necessary for developed countries to insist on having a majority of voting rights in the IMF in order to maintain a favourable position, as their demand for increased representation is unwelcome, and therefore unacceptably blocked.

The international community should proactively implement the IMF reform goals set by various G20 Summits. The governance structure of international economic and financial institutions should reflect changes in the global economic model and increase the voice and representation of emerging economies and developing countries. While discussing the role of Special Drawing Rights in the current international monetary system – including the composition of the Special Drawing Rights basket of currencies – more attention should be paid to the risks of large cross-border capital inflows and outflows faced by emerging economies. International financial reform, enhanced policy coordination and regulatory cooperation between countries, should also be studied and improved in view of promoting the continued development of the global financial market and banking system.

The third issue is to build a fair and reasonable system of international free trade; oppose all forms of protectionism; strengthen the multilateral trading system and promote the fast achievement of the goals of the Doha Development Round of negotiations, which had already been advocated by the Doha Round, i.e. the 4th World Trade Organisation Ministerial Conference held in Doha in November 2001, which launched a round of negotiations that is still ongoing. The main goal of the Doha Round, known as the Doha Development Agenda, is to re-establish dialogue between industrialised and emerging economies after the interruption that followed the Seattle Intergovernmental Conference (1999), with the aim of outlining trade agreements that favour and stimulate the development of less advanced economies.

Against the backdrop of the debt crisis in the United States and the European Union, trade protectionism is back. Global Trade Alert, a research organisation for international trade issues, has published a report stating that the momentum of global trade protectionism is increasing and that ever more countries are gaining specific advantages for their economies by hindering competition and restricting imports. The new round of trade protectionism is mainly implemented by developed countries. To cope with the slow economic development of their countries, protect their domestic market and industry, as well as maintain their dominant position in international trade, these countries have adopted new and more covert measures such as green barriers, technical barriers, anti-dumping measures and intellectual property rights in the name of fair and equitable trade.

Yet protectionism simply cannot save any ailing economy. If trade protection measures are taken blindly, although they may increase the export of domestic products in the short term, they will certainly damage the cooperative relationship with trading partners and even cause trading partners to adopt the same countermeasures. The international community should therefore oppose all forms of trade protectionism, support a strong, open and rules-based multilateral trading system, represented by the World Trade Organisation, in order to support the current progress of the Doha Round negotiations, the aim of which is to promote the first positive, comprehensive and balanced results of the negotiations and build a fair and reasonable international free trade system.

Giancarlo Elia Valori
Giancarlo Elia Valori
Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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