Continental Drift hypothesis - the turning point?

About four years ago, after the disastrous US elections in 2004, a group of us meeting at 16 Beaver Street in New York launched the idea of Continental Drift. The hypothesis: a coming "tectonic" shift in the geopolitical system, precipitated by the mismanagement of neoliberal globalization under the Bush-Blair regime. What we saw on the horizon was some kind of collapse of dollar hegemony -- "hegemoney," as Arrighi puts it -- and the rise of a multipolar order, with new possibilities and challenges for grassroots egalitarian movements around the world. Now that the credit-fuelled Anglo-American Ponzi scheme lies in ruins, is the world finally witnessing the beginning of those realignments? Four very recent economic developments suggest the answer may be yes.

--In Bali, Indonesia, on May 3, the ASEAN+3 group (the three being China, Japan, South Korea) transformed an already existing system of bilateral currency-reserve swaps into "a single regional pooling arrangement, comprising at least $120 billion of reserves. 20% of the funds will be provided by the 10 Asean members and the remaining 80% by the Plus Three countries."
The effect is to create an Asian Monetary Fund, able to intervene in currency crises as the IMF does today, but without imposing its neoliberal conditionalities. At this point, only 20% of the funds are effectively decoupled from IMF interventions; but the countries involved expect that percentage to grow. Despite the historical enmity of Japan and China, a regional Asian economic system is slowly coming into being. See the article in the Far Eastern Economic Review:

--On May 8 in Buneos Aires, Argentina, final ministerial agreement was reached on the launch of the Bank of the South, BancoSur: "The Bank of the South, started at the end of 2007 (and the brainchild of Venezuela’s Hugo Chavez), will have an initial capital of 7 billion US dollars (originally it was planned 10 billion), of which Argentina, Brazil and Venezuela will supply 2 billion US dollars each; Ecuador and Uruguay 400 million US dollars each and Bolivia 200 million."
This is not exactly a Latin American IMF, and 7 billion sounds like peanuts compared to the sums that vanish in a financial crisis. But it's the beginning of a chance for a coordinated Latin American industrial development that could finally close the "bleeding veins of Latin America" and turn the continent's resources into new possibilities for autonomous development, instead of cheaply priced export commodities feeding an endless cycle of dependency on manufactured goods from the global North. See the article in MercoPress:

--Over the past 3 months, China has begun making good on its many proclamations of the need for a new international reserve currency, by setting up new trading agreements that involve payment, not in US dollars, but in the currencies of the countries involved, guaranteed against volatility by currency swap arrangements: "In the past few months, Beijing has concluded yuan swap agreements with a dozen countries. With some, like Russia and Brazil, China will pay yuan in return for a set amount of commodities. In this way, China will hedge future price fluctuations for commodities, which would influence its domestic industry, and these countries will receive payments in a currency that is bound to become more important. The swap agreements are still minimal. By the end of May, China's central bank had signed swap agreements totaling 650 billion yuan (US$95 billion) with a few countries, including South Korea, Malaysia, Indonesia and Belarus, as well as Hong Kong. Furthermore, in June, Beijing signaled it would be willing to purchase some $60 billion of International Monetary Fund bonds [an international bond based on a pool of currencies, rather than the US Treasury bonds in which China has massively parked its foreign-exchange reserves]."
There is no sign here that China or any other country is going to "pull out" of the dollar or of American bonds, which would mean losing an enormous stake and setting off an even deeper economic crisis. Nonetheless, this gradual move away from the dollar is a clear expression of the will to place future patterns of trade on a very different basis. See the article by Francesco Sisci in the Asia Times:

--On June 15-16, in Yekaterinburg, Russia (formerly Sverdlovsk), presidents Hu Jintao and Dmitry Medvedev attended a meeting of the Shanghai Cooperation Organization (SCO): "The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It will be joined on Tuesday by Brazil for trade discussions among the so-called BRIC nations -- Brazil, Russia, India and China. The attendees have assured American diplomats that it is not their aim to dismantle the financial and military empire of the United States. They simply want to discuss mutual aid – but in a way that has no role for the United States, for NATO or for the US dollar as a vehicle for trade."
What was being sketched out in Yekaterinburg is a full-scale Eurasian trading bloc associating the world's new manufacturing center, China, with the great resource peripheries of Central Asia. The frequent Counterpunch contributor Michael Hudson -- who is the progressive economist who immediately understood the implications of the collapse of the Bretton-Woods fixed-rate currency exchange system way back in 1971-73 -- has the most far-sighted analysis of this potentially major realignment:

--During this time, nothing of political-economic significance happened in the really existing regional bloc: the European Union. Except its continuing existence and its refusal to toe the Anglo-American line requiring massive debt-financing for "stimulus" on the backs of future generations. Or have I missed something?

The currency crisis of 1971-73 spelled the end of the postwar international system and set the stage for what would eventually be recognizable as the neoliberal period of 1982-2008. The end of dollar hegemony would mean that the period of neoliberal transnationalism ("Empire") is over. We're not there yet, but right now (the last two years) could well be the turning point. The new order, whenever and however it stabilizes, will not be engineered in Washington, New York and London, but will instead emerge from complex moves by a much wider range of actors, in a context of continuing economic, ecological and political crisis and seething social unrest. Not everything is going to be clear to the men and women in the street, and we will only really know what has happened to us a few years or even a decade from now, when and if the dust has settled. But in the meantime we may have the (dubious?) privilege of making history rather than just reading it!


global reserve currency

interestingly, in news reporting about the UN summit on the economic crisis Austrian and German media reported widely that Joseph Stiglitz demanded a global reserve currency to replace the dollar, yet nothing of that can be read in English media. Maybe it is considered a non-starter and, as the Guardian wrote, rich nations are not happy at all with this summit
As the old West doesnt seem to be able to learn, my worry is that those new rising powers are even less liberal and that anti-liberal stances get imported back into the so called west. while breaking the dollar hegemony may be a good thing it could have unintended side effects. best

international reserve currency or unintended consequences?

Nice to maintain a running dialogue, Armin.

Stiglitz's call for a new international reserve currency is common sense among central bankers and economists. It's to hold off any possible regionalization. The reason the dollar has remained the international reserve currency for so long, despite the obvious crisis-tendencies and predatory nature of what the late and regretted Peter Gowan called the "dollar-Wall Street regime," is indeed the fear of the unintended consequences that could follow on its disappearance. The international system founded in 1944-50 with the Bretton-Woods treaties and institutions, the United Nations, the Marshall Plan, NATO and Japanese reconstruction -- constituting the basis of the postwar world system and its core, the interlinked "Triad" of Dollar, Deutschmark and Yen -- had at its inception and continues to have as its core rationality the belief that some version of free trade and open financial flows is necessary to preserve world peace. Only when you realize that the world split up into five monetary and trading blocs during the crisis of the 1930s, ultimately leading to war between alliances of these blocs, can you understand why the Western diplomatic establishment recoils from the mere thought of an Asian Regional Bank or an Asian bond market, or a Latin American Regional Bank, or a Euro decoupled from US hegemony and from Nato. Even the Asians have long shied away from the idea, despite the tremendous harm done by the Asian Crisis of 1997. So of course we understand this too. When we debated the possibilities of Continental Drift at Beaver, the perspective was never one of simply welcoming or celebrating this trend. But in the face of the USA's inability to maintain a credible world economic system and guarantee of world peace we wanted to look the future in the eye and see what it may hold, so as to get ready for it, maybe even influence it in some unimaginable way.

Obviously we were not the only ones... We were carrying on this discussion at our level, as artists-activists. The best single discussion I have read of why and how the balances of the contemporary world system are changing is in David Harvey's book The New Imperialism, followed by a running debate in the New Left Review between Harvey and the late and equally regretted Giovanni Arrighi. Absolutely fascinating reading. To understand why the Dollar-Wall Street regime became untenable, I recommend Gowan's book, The Global Gamble, and his recent text in the New Left Review, "Crisis in the Heartland." The key text from the Global Gamble can be downloaded at:

So, yes, of course I recognize and share your concerns....

best, BH