Raw Patch in Global Economy
Today, economic growth and prosperity are hindered by the tense situation in the world – information wars, sanctions, an arms race. According to experts at RANEPA (Russian Presidential Academy of National Economy and Public Administration ), international organisations (G20, International Monetary Fund, BRICS) cannot cope with the current problems at hand including the growth of inequality, a digital development gap between countries, an increase in public and private debt, negative human impact on the environment and increased competition in energy and new technologies.
It would seem that there are already quite a lot of problems, but, countries continue to hamper global economic development, aggressively defending their national interests. Sanctions and counter-sanctions imposed by states against each other and their support by third countries, often contrary to their own national interests, lead to limited global economic growth.
Financial globalisation (interdependence) also remains a serious challenge. It leads to crisis phenomena occurring in large developed countries and rapidly spreading around the world. Thus, the leading position of the dollar in the international market led to the global financial and economic crisis in 2008 when US real estate prices plummeted.
Policy of Egoism
According to experts, productive cooperation is hindered by the economic policies of leading developed countries (primarily the United States), which introduce instability to the global economy. The United States has "excessive privilege" as an issuer of international currency, and is least vulnerable to crises.
Any economic actions by the United States, even within the country, will have an impact on the global community. Thus, US protectionist policy, restricting the import of goods to protect the interests of local producers, affects other countries' exports. Businesses lose major customers and profits, and this results in growing geopolitical tensions which complicate the process of bridging economic gaps between countries.
Protectionism is a policy of "egoism" in the global market. And this is not the best solution in the context of financial globalisation; we can recall the Great Depression and the global crisis of the 1930s when countries tried to solve their problems individually by closing borders and introducing duties on the import of goods.
"No country can overcome the accumulated problems on its own; there is no alternative to multilateralism. The G20 remains the main forum for international economic cooperation, the hub of global network governance, including key international organisations and members of informal institutions, (the G8/G7 and BRICS, the oldest club of developed industrial economies and the youngest club of the largest developing countries)", Marina Larionova, Director of the Center for International Institutions Research (CIIR), Russian Presidential Academy of National Economy and Public Administration (RANEPA), said.
Economic Balance: Utopia or Reality?
It's necessary to combine the efforts of economically developed and developing countries to solve problems.
Experts say it is crucial to complete the reform of the International Monetary Fund and develop a new formula for calculating quotas or member state votes. It is necessary to redistribute votes in favour of emerging markets and developing countries and implement a gradual transition from one reserve currency to several.
RANEPA researchers believe the proposal to create a supranational reserve currency is still relevant. The concentration of trade and financial transactions in several currencies make the world economy vulnerable to possible adverse scenarios in the economies of the states that issue these currencies.
Other tasks that demand a collective solution include; fighting against base erosion, developing tax rules to govern the digital economy, creating mechanisms and rules to regulate financial markets, accounting for the emergence of new technologies and digital currencies, and harmonising multilateral trade agreements in the field of electronic commerce.
Nevertheless, experts say that the growth of geopolitical tensions makes it extremely challenging to bridge the gap between the principle of national sovereignty and the need for a supranational institute to manage the global economy.
"The ideas of Keynes, Triffin, Camdessus and Stiglitz on the creation of a global (supranational) reserve centre/bank or empowering the IMF with such competencies will be considered utopic at least until the next global crisis. Hopefully, the G20, which still retains confidence, will be able to use its potential to transform the global economic management system, but to do this, developed and developing countries need to combine their efforts and abandon the principle of club loyalty", Marina Larionova noted.
This material has been prepared as part of the "Globalisation 4.0, the Changing World Order and the Future of Global Economic Management Conference", organised and held by RANEPA and the BRICS Research Group.