Special Episode: Warwick Powell on How To Build A New Global Currency
Oct 31, 2024
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Warwick Powell, an adjunct professor and author on global payment systems, discusses the ambitious effort to create a new global currency post-BRICS meeting. He sheds light on the technical complexities in establishing a new payments system and the decline of the U.S. dollar's dominance. Powell emphasizes the interconnectedness of credit and trust in trade, explores how countries like China and Russia are adapting their currencies, and considers the socio-economic implications of these shifts on global autonomy and wealth inequality.
The BRICS nations are actively pursuing a new financial system to reduce dependence on the US dollar through national currencies.
Money is conceptualized as relationships of credit and debt, rather than mere physical assets, reshaping how we understand financial systems.
The establishment of a secure messaging platform is being explored by BRICS to mitigate vulnerabilities posed by the SWIFT system during geopolitical tensions.
Deep dives
The Rise of Multipolarity
The emergence of a new multipolar world order is becoming evident as countries strive to create an alternative to the existing US-led dollar financial system. The recent BRICS meeting set the stage for developing a global financial architecture that emphasizes the use of national currencies for trade among member nations. This shift aims to reduce dependency on third-party currencies, particularly the US dollar, and is driven by increasing demand for more secure and efficient transactions. Historical context reveals that the desire for alternative systems is not new but has been accelerated by geopolitical tensions and prior decisions made at past BRICS summits.
Understanding Money as a Relationship
Central to the discussion is the reinterpretation of how money functions, highlighting it as a relationship of credit and debt rather than a physical asset. The notion that money is a mere ‘thing’ overlooks its role as a unit of exchange with underlying values tied to promises and accountability. The understanding of money as entries in ledgers managed by central banks signifies the control and power inherent in financial systems. This perspective invites consideration of how new financial structures might be built to enable smoother transactions free from the influences of existing systems.
The Challenge of SWIFT and Ledger Control
The traditional interbank messaging system, SWIFT, while crucial for communication, has become a point of vulnerability for countries relying on it amid fears of manipulation by powerful actors. Recent events have underscored how access to this system can be used as a political weapon, restricting trade and financial interactions. In response, BRICS nations are exploring the creation of a new, secure messaging platform for peer-to-peer communication among member banks, reducing their exposure to outside interference. This initiative aims to formalize a stable alternative that supports their aspirations for independent, national currency transactions.
Transitioning Away from Dollar Dominance
The transition from US dollar dominance in global trade is viewed as a complex yet achievable goal, aided by growing complementary economic relationships among BRICS countries. Historical reliance on the US dollar is diminishing, as increasing amounts of trade between non-Western nations are being settled in local currencies. This shift is propelled by real economic needs rather than ideologies, suggesting a practical direction for geopolitical and economic relationships. The requirements for sufficient liquidity and balanced trade among nations are highlighted as crucial for the sustainable shift to alternative currency systems.
The Future of Global Trade Dynamics
As the world grapples with changing trade dynamics, the end of the dollar's preeminent role may unfold amid existing geopolitical tensions, leading to unpredictable outcomes for both Western and Eastern powers. The narrative of a shifting global balance reflects ongoing decolonization and economic liberation challenges faced by former colonial territories. Economic self-sufficiency and mutual trade relationships are becoming focal points for BRICS nations, whose internal efforts toward stability will influence their global positioning. The fluid nature of these interactions suggests a departure from linear changes, with the potential for both constructive cooperation and destructive conflict on the horizon.
After the BRICS meeting in Kazan, a picture of a bundle of fake BRICS banknotes began to circulate online. Right up to a picture of Putin holding one, like a mobster holds a cigar.
The intent was mocking. But while the end goal of the kind of paper that rappers shove into g-strings is still a long way off - in the background, the bureaucratic elves of BRICS were chipping away at the dense, dull, paperwork of a new payments system.
This was never going to be a big bang. More like popping the world’s biggest roll of bubble wrap.
After all, like the nuclear secrets themselves, the mechanism for making a new international method for the settlement of accounts is an obscure and technical thing. And it is eighty years since anyone tried to do it from scratch.
Few people are better placed to be the Robert Oppenheimer to this kind of project than Warwick Powell.
Powell is Adjunct Professor at Queensland University of Technology and the author of "China, Trust and Digital Supply Chains”, and "Dynamics of a Zero Trust World".
At his Substack, he blogs about China, trade, and the dense subterranean plumbing network that underlies the global payments system.
This week, he joins us… to explain how to make a new global currency.
