End of the Dollar?

In the aftermath of the global recession, serious questions have arisen about the future of the world's financial order. The over-exposure of the US dollar was central to the rapid downturn that engulfed the economies of the world. The role of the dollar as the effectively the base currency of global trade, in concert with the never before seen level of globalisation combined to create a situation highly vulnerable to an asymmetric shock like was seen when US finance went to the wall last year. The extensive level of external debt, mainly with China and the instability of the global energy market and the endemic weaknesses of the US regulatory system as epitomised by events like the Enron collapse, set the stage for an inevitable economic catastrophe. When it did happen, the shock rippled outward through the intricate web of financial networks, touching firms and national economies across the world. When it came it came suddenly and dramatically, bringing GDP growth rates to a standstill.

But as we adapt to the fallout and struggle to plug hemorrhaging public finances and arrest free-falling employment and growth rates, attention is being given to how can this unprecedented economic crisis be avoided in future. The core issue here is how do you balance a deeply globalised world economy and the incongruous economic performances of national economies within said economic order. Considering how actions in one economy can have unforeseen consequences in another, there are inherent and credible risks around having one national currency underwriting international trade.

The US dollar as the base currency is subject to all the domestic factors of any other national currency as well as the exceptional factors that go with its role in international trade. This puts a high degree of dependence on one currency and one economy. In America's case this is a particularly acute issue with a high level of foreign indebtedness, and poor regulatory history. Thus for many today the dollars position is no longer viable. China and Russia along with several East Asian economies have been the loudest in their demands for a new approach. The solution put forth has been the creation of a new currency, based around the ill-fated ECU(European Currency Unit) that predated the Euro. This would work by creating a basket of the worlds most important currencies, weighting them and averaging out a single value that would be used as a unit of account.

If this idea is to come to fruition it will require institutional organisation. Effectively a global regulatory body to provide oversight over the currency. This new international institution will have some serious implications for global politics. First off US economic dominance comes into question. To date as the base currency the dollar underwrites US economic influence abroad.Without it what are the implications for its foreign policy or even its position as the worlds only superpower. Who will ultimately be responsible for the management of this new international regulatory body? To whom will it be accountable? What adaptations will national economies have to make? How does this effect political and economic sovereignty? How will trade relations be affected? Will this represent a move towards a global government? There are undoubtedly a myriad of issues that this new prospect raises. It can be safely assumed however that this will have considerable consequences for the international order politically, economically and strategically.

Given the seriousness of the current economic crisis something must be done to ensure our global vulnerability to such problems is addressed. Global currency or not, greater international cooperation and coordination is going to be necessary moving forward. But equally if and when this is being considered serious thought must be given to it consequences. It is not simply the case that China and Russia are concerned about economic stability, in this day and age the traditional balance of power is in flux. The US has now to treat equally with the BRIC nations(Brazil, Russia, India and China) as they begin to out pace the West economically. The adoption of the global currency means a serious reordering of the hierarchy of the global powers. It is no coincidence that it is some of these very nations calling for change. Nonetheless change is coming because as we have witnessed in the last year the cost of the status quo is no longer viable.

Over-populated and Under-resourced: The true cost of the 21^st Century Lifestyle

Recently a study found that human civilisation is currently consuming enough resources to equal one and one third the capacity of the planet earth. Quiet an astounding fact, not to mention inherently unsustainable. The study estimated that by the time the readers of this article are hitting retirement age, humanity will require two planet earths to sustain current consumption trends. This is basically down to demographic growth which sees human population expand from its current level of 6.7 billion to around 9 billion by the 2040’s. The repercussions of this are equally astounding.

While certain regions, mostly in the developed West will see a decreasing birth rate, this will fail to balance the growth in the developing world. The culmination of which is poverty and famine as our planet’s resources dry up. The earth can only supply a fixed amount of raw materials, oil as the most recognisable example is running out yet its demand has never been higher. Oil based technologies underpin the global economy, in particular the structure of the global agricultural industry. With depleting oil reserves the cost of food will climb. The irony is that oil allowed us to boost food production globally to never before seen levels, this in turn has been the engine behind the incredible demographic explosion of the past century to where today it is estimated 50-75% of all the humans that ever lived are alive right now.

The reserves of oil along with all of our other fundamental natural resources cannot sustain our current population, let alone two or three extra billion mouths to feed. This leaves us in a precarious position.  Our current quality of life allows us to live alot longer than ever before. Ordinarily nature would intervene with diseases to check population growth, but with the advent of modern medicine, most people especially in the West can expect to live long into their sixties, seventies and eighties. Birth rates on average across the world are less than they were a few decades ago, however, the numbers of women of child-bearing age continues to rise and due to medicine are more likely to live longer and have children. This is a disastrous combination for demographics. With more people living longer because of better medicine and more people being born than ever before, the strain on the limited and scarce resources of the planet is ever worsening.

Add to this the impact of global warming. First of all there are the rising sea levels, eroding low-lying coastal land, which is home to much of the world’s agricultural base. Less land is available for cultivation, and then there is the land used to grow bio-fuels, again at the cost of food production. Changing climate renders regions unsuitable for specific crop types or at worst completely infertile, reducing supply of particular products. Unpredictable weather patterns destroy or damage harvests, as we saw here in Ireland last summer and autumn as upwards of 150 million Euros worth of produce was lost to torrential rain and flooding.

In truth we can only guess at the full repercussions of what is to come if current trends continue. But the harsh reality is that few governments in the world today are factoring in much of this into their policies. This is evidenced enough by the complete lack of preparation or planning. Even efforts to slow or reverse climate change have been hampered by political expediency and even denial. The recent economic problems have not helped either. But the costs of ambivalence today are too great to ignore. As resources dry up and populations expand the scope for violence and warfare expands. As such resource wars can be seen to get more common and increasingly dominate the international environment as powers struggle to monopolize ever-shrinking reserves.

9-11 billion are the estimates of the ceiling at which the population will collapse. This will either be the product of mass starvation, global war or catastrophic environmental destruction, either one is not something we want to endure. So this leaves us with a choice to make; carry on as we are or arrest the situation by taking remedic actions now, starting with reforming our relationship with nature. Otherwise nature will make that choice for us and it will come at an extremely high cost, with nothing less than the future of our very species at risk. We have to start prioritising the future over the here and now; to date each generation has never been able to see beyond its own welfare, we cannot afford to make that same mistake anymore.