Global multilateral economic system and emerging scenario
The rule based international order emerged in the early 1990s under the shadow of the liberal international order, a term widely used during the cold war period to describe the order that liberal democratic ( read Western countries) states created between them. These two terms are now often used interchangeably.
Therefore, the term "rule based international order" is the US led post-cold war world order. Western countries led by the US have taken it for granted that they are the world's norm-setters, influencing other countries policies, especially countries of the Global South through the "Washington Consensus" (a consensus reached among the World Bank, the IMF and the US Department of Treasury) which refers to market-based economic policies and a limited role of the state.
While the rule based system was able to create a unique international order, it contains at its core instruments of force and coercion. It was shaped by the outcome of the Second World War (WW II) in which the US together with its allies came up victorious. In fact, US President Woodrow Wilson articulated the instruments of force and coercion following the First World War (WW I), when he said, "Apply this economic, peaceful, silent, deadly remedy and there will be no need for force". He used these words to describe the impact of sanctions.
Europe is a geopolitical space that since the 16th century has lived off the resources of countries in Asia, Africa and Latin America directly or indirectly through unequal exchange. But with the emergence of the US as the dominant economic power in the early 20th century, Europe has been relegated to the secondary position as a backup force for the US, especially since the end of the WW II as reflected in the power relationships in NATO.
The US also retains its role as the world's financial leader. The US dollar is used as a convenient and efficient instrument of international payments. The dollar as the international currency of economic transactions allows the US to monitor financial transactions around the world. The US can, therefore, restrict any financial transactions that are in conflict with Washington's interest.
Since the end of the WW II, the dollar has become also the world's reserve currency. As the reserve currency, the US dollar has been intrinsic to functioning of the global economy. This enables the US to print and spend as much money as it wants without any repercussions. For example, if a state wishes to cash in on its US dollar denominated financial assets like the US treasury bonds, the US simply can resort to the printing press to pay up. This enables the US to afford an endless supply of money to maintain its unlimited power over other countries. The dollar as the global reserve currency is, therefore, an instrument of US hegemonic power.
The costs of sustaining the US hegemonic power will become very apparent to its citizens only when these costs become very clear to them. In fact, the dollar hegemony is the soft underbelly of the US global economic power or as some would like to say the "US empire". This will happen when the dollar loses its role as the globally accepted reserve currency, or more precisely when other nation stop subsidising the US military adventures around the world by ditching the dollar as the reserve currency.
US backed by Europe (more precisely Western European countries) has also created an ideological façade to reinforce its economic power to attain legitimacy. That ideology is based on the idea that the Western political organisation that they have created is superior to others because such a political organisation guarantees equality of rights ( but not necessarily equitable share of wealth and income) as well as the freedom of citizens within the social contract. Such a political structure is to be supported and reinforced by the supremacy of the capitalist market based economic system which, they argue, provides freedom of choice.
But within that Western framework of democratic system, inequality and hierarchy exist and does not preclude coercive relations between them, let alone with other states. From their perspective, "the others" are considered as despotic or autocratic. Therefore, the US backed by its European allies is on constant "democratic nation building missions" to the Middle-Eastern and other countries around the world using their military might. However, when the use of force was applied, it was directed to militarily weaker countries like Afghanistan and Iraq but not against militarily more powerful country like Iran. Therefore, for a country like Iran Wilsonian economic measures in the form of sanctions made sense.
Therefore, multilateralism in the context of global economic system can only be understood within the context in which it exists and the context is the historical structure of world order. In fact, multilateralism is best understood within the global power structure. International economic systems evolve when there is a concentration of power such as under Britain in the 19th century and the US in the 20th century. The hegemon has an interest in developing a system ensuring predictability and enforceability to safeguard its hegemonic economic and political capabilities.
In the context of the international economic order, it is important to understand what is the rule based international order that the US put in place in the post-cold war period and how it functions. The Western liberal approach underpins the work of the three major global multilateral institutions World Bank, the IMF and the WTO where the former two are controlled by the US and on the latter exerts very considerable influence. Then there is the ADB a regional institution under the control of the US where its client state Japan also plays an important role. Overall, the World Bank, IMF and ADB are strategic assets of the US used to maintain the its global hegemony.
In fact, the US led rule based international order was conceived in far more ambitious terms to enable the US to remain the only super-power in the world or more precisely a unipolar world where the US remains the only hegemon. Therefore, the rule based international order is centred around the US and directed by whatever US foreign, global and domestic policies are at the time. In short, the US sits at the apex of the system, exercising control over the sovereignty of many countries.
No wonder the US led NATO sees more assertive China and Russia presenting systemic challenge to the rule based international order, in particular China. That view was echoed by US Secretary of State Antony Blinken. Also, NATO secretary General Jens Stoltenberg said, "for the first time, we will address China and challenge it poses to our interests, security and values".
As the world economy is undergoing major transformations in recent years on the back of increasing geopolitical divisions, the vision of economic development and globalisation is also changing as well. In a time of change, new perspectives seem to be more necessary than ever. China is the second largest global economy. Therefore, that also calls for reform of global financial institutions such as the World Bank and the IMF based in Washington D.C as well other global institutions to accommodate China.
As China's economic and political influence grows and its numbers and range of global interests increase, China naturally sees a larger role for itself in writing the rules for the world. Accompanying this growing role is a conscientious effort by China to reshape the global debate and the interpretation of key issues that face the global economy now.
The Russia-Ukraine conflict has been turned by the US into the US led NATO proxy war against Russia. The US in its war against Russia also imposed large-scale sanctions against Russia including freezing the Russian Central Bank funds. In fact, there are talks in Europe of permanently confiscating the funds and if that happens that could become the largest bank heist in history. But the proxy war against Russia has also effectively locked up the raw materials and food exports from Russia.
Furthermore, the US and EU banned several Russian banks from the SWIFT (The Society for Worldwide Interbank Financial Telecommunication) payment messaging network. A SWIFT ban on Russian banks essentially prevents them from conducting cross-border transactions. Now Russia has developed its own domestic alternative to SWIFT, known as the System for Transfer of Financial Messages (SPFS). It is likely that the SPFS could get integrated with China's much larger payment system, the Cross Border Interbank system (CIPS). Russia is also moving towards increased use of the Chinese renminbi for international payment purposes.
CIPS was launched in 2015 in order to assist the internationalisation of RMB. CIPS is still far away from replacing SWIFT. CIPS was processed around US$12.68 trillion worth of transactions in 2021. CIPS reported that 1280 financial institutions in 103 countries and regions are connected to the system.
Now a series of overlapping and mutually reinforcing crises is also assailing the global rule based multilateral economic system including intensified geopolitical and geo-economics tensions, rising financial instability and continuing supply strains. The US and its European allies' attempt to weave an anti-Russian narrative couched in terms of imperialism has miserably failed as most countries in the Global South view the Russia-Ukraine conflict as a dispute between two countries.
In recent decades China has emerged as a lender in international development finance with the potential to provide the much needed funds to address major global developmental finance gaps. But the US corporate media and the mainstream media in India and Japan are spreading the bogey of the "Chinese debt trap diplomacy" a term originally coined by former US Vice President Mike Pence. This is a well told lie and a powerful one; and as the saying goes "a well told lie is worth a thousand facts".
The debt trap diplomacy narrative is trying to describe that China is burdening poorer countries with unsustainable debt in order to achieve its geo-strategic objectives. But developing countries owe the largest proportion of their debt to the US and its European and Asian allies and their financial institutions including the US controlled international institutions like the World Bank, IMF and ADB.
Now an increasingly assertive China and the return of Russia as new global power players have fundamentally shaken the very foundation of US designed rule based global multilateral economic system. The system has entered a state of crisis or even decline as reflected in the Wilsonian optimism on sanctions failed to apply to Russia. China also remains steadfast in economic progress despite the US' attempt to surround it by sentinel states like Australia, India, Japan and South Korea, notwithstanding massive ongoing economic and political coercions.
As such China and Russia pose a challenge to the US led rule based global multilateral economic system. The relevance of this challenge needs to be viewed in the context of, at a time, when Western democracies including the US are feared to be experiencing serious economic and political crisis.
In the 20th century, the US was indeed able to create a unique global order that could be called an empire. The pinnacle of that empire was the collapse of the Soviet Union. The costs of running that empire are increasingly becoming apparent now notwithstanding the challenges it faces from China and Russia. Both China and Russia are also sufficiently strong enough to wield influence and demand their interests be considered. The way forward for the US now would be to recognise that both China and Russia have legitimate interests both regionally and globally. China, in particular, is also capable of providing an effective alternative narrative of multilateralism.
The US is now experiencing a contraction of its power but not necessarily a decline. Meanwhile, trade and geopolitical rivalry between the US and China has now also taken centre stage. Therefore, the solution to global challenges in an emerging multipolar world require constructive multilateralism in accordance with the United Nations (UN) based international law that has been developed to promote economic and social development as well as advancing international peace and security.