Sunday, 28 August 2022 23:40

Playing with fire

Many countries build up reserves of gold and foreign exchange to hedge against sudden adverse events. As the currencies such as the US dollar and the Euro are not linked to any physical asset (as e.g., gold), their value is based on trust (called fiat money). However, the increasing politicization of the international financial system is eroding this trust. This may have far-reaching repercussions as some countries are now looking for alternatives.

It looks as if sanctions haven’t had the expected disastrous consequences for Russia compared to say Iran, Venezuela and Cuba, at least in the short term. But what about the longer perspective? Will the Russian economy implode or stagnate? Or will it be able to survive and perhaps even prosper? History tells us that both scenarios are possible and that the outcome to a high degree depends on how well the situation is managed and the legitimacy of the political leadership.

The new catch-word in international politics is “Rule Based International Order”. The narrative is that this order is being challenged from outside by rogue revisionist countries, principally China, Russia and Iran, and from inside by nationalist and populist politicians (Trump, Brexiters, Orban, Marie Le Pen and the like). There is a call to arms to defend/re-establish this threatened Rule-Based Order. However, if we take a closer look, it becomes obvious that the rules are bent or invented to fit the wanted narrative to the extent that you start doubting whether there are any rules at all.

Why should we care about whom the US elects as president? It is an internal US affair, and the American electorate is free to choose whoever they want. There is however a cacth. As the US possesses an enormous world-wide military power and dominates the international financial system, it affects all us non-Americans how they are going to use their power. In this sense, both candidates are absolutely unappetizing. Even so, for some countries it may matter who wins: Cuba, Iran, Yemen and Russia. For these four countries Biden may be the better outcome. And for some global issues also: first of all nuclear arms control and climate change.

It has been common to say that the main strength of the US political system is its checks and balances. The three branches of Government are balancing each other out, and the free press and civil society in its many forms contribute with more checks on the system. Sometimes this is still true. But in many cases the result is dead-lock and a non-functional system. Most worrying is that in the fundamental case of war and peace, it simply does not work. This puts the whole world in danger.