The COVID-19 pandemic has inflamed at least three other global risks: rising global debt, growing technological vulnerability, and increasing great power tensions.
All three pose potential threats to individuals, as well as to the existing liberal international order.
Though heavy on rhetoric, recent global diplomacy has missed the opportunity to address these with meaningful initiatives, despite the stated goal of building back a better world.
The first risk made worse by the pandemic comes from ballooning global debt.
To survive the economic effects of the health crisis, governments everywhere have been understandably focused on support programs. In this, they had little choice.
But, because of unprecedented stimulus, total world government debt reached an all-time high of $281 trillion by the end of 2020.
That’s 355% of total global GDP, which stands at $81 trillion.
The U.S. alone is carrying a national debt of $28 trillion, with cumulating $3 trillion budget deficits and more to flow in 2021-22.
This does not count unfunded obligations exceeding $150 trillion, nor state, local and household debt.
Though the quantitative easing process of increasing the money supply had been gaining momentum since the 2008 financial crisis, no less than 25% of all cumulative U.S. debt has been created in the last 12 months.
In Canada, on a smaller but no less alarming scale, the federal deficit and debt are forecast to reach $380 billion and $1.4 trillion respectively, exceeding 50% of GDP.
Adding in provincial, local, and household debt, the level well exceeds 100%.
Despite this, costly new social programs are still being announced.
In pushing Keynesian economics and Modern Monetary Theory to extremes, scant regard has been paid to the value of money, the inflationary consequences, the increasing costs of servicing higher debt to GDP levels, or the reality that such debts are unlikely ever actually to be repaid.
It also sends the wrong moral message to individuals, that spending is good and debt doesn’t matter.
Adding to the debt trap problem are the mounting costs of perpetuating the low interest rate economic growth model, while mitigating the countervailing global forces of climate change and projected demographic decline.
The resulting wealth gap has real socio-economic consequences.
As a result, like canaries in a coal mine, the rise of unregulated cryptocurrencies such as Bitcoin, Ethereum and even the whimsical Dogecoin, signals that trust in traditional national currencies is fragile.
Digital payments and accounting have, of course, been a ubiquitous and welcome fact of life for years.
But non-state cryptocurrencies, of which there are now over 10,000 versions, represent computational advances that challenge the entire system for conducting global financial transactions, with the U.S. dollar and the SWIFT transfer system at its heart.
The objective of cryptocurrencies is no less than the elimination of traditional banks and government oversight.
While that sounds tantalizing in some respects, it is also a clever new way of dividing the haves from the have nots, with a cap, for example, of only 21 million Bitcoins that will ever be produced.
It’s also a recipe for financial anarchy.
Tellingly, ransomware attacks typically demand payment in cryptocurrencies.
The reality is that commercial banks drive domestic economic growth through the allocation of capital to enterprises and individuals.
There are already numerous virtual online banks that offer alternative digital services, but they too are regulated.
Governments normally protect individuals from malfeasance to some extent by backing deposits and transactions with an albeit imperfect mix of regulatory rules and deposit insurance.
Contrary to their marketing pitches, the more that unregulated, inefficient and energy intensive private currencies are permitted to rise unchecked, the more threatened will be, not only individual financial security, but also the ability of governments to set effective monetary policy.
With this goes the existing global system of exchange and, potentially, geopolitical stability.
G7 Finance Ministers have been addressing the debt problem, but mainly in the context of suspending payments for the poorest and most vulnerable countries, as if they themselves aren’t over leveraged on an even larger scale.
On creating their own digital currencies, the G7 group has referenced the need for further study.
In fact, G7 central banks have already been studying this for quite some time.
The International Monetary Fund has also been studying the creation of a basket of digital currencies to serve as a new global reserve currency and replace Special Drawing Rights (SDRs).
While western nations ponder the idea, China is already moving ahead.
Alarmed by the rapid adoption of Alipay’s digital payment system, the Chinese government has moved to block private currencies, including Bitcoin, and created its own trial digital yuan.
It has also cracked down on energy intensive crypto mining activities, as well as monopolistic corporations.
A national digital currency is different from an anonymous cryptocurrency.
But China’s moves highlight precisely the hornet’s nest of security and privacy issues that arise with such new technologies.
Unless we prefer chaos, the goal should be to preserve and modernize the post-WW II Bretton Woods international economic order.
There are those who dismiss the importance of the dollar’s ongoing role in this, not fully grasping the geopolitical consequences of its potential replacement.
It currently accounts for no less than 60% of all global transactions, with the Euro a distant second at 20%.
Not incidentally, sanctions’ effectiveness depends on dollar dominance.
As unsavoury as this sometimes is, replacing the dollar with, for example, the digital yuan as the main reserve currency would position China to impose sanctions to enforce compliance with its objectives instead.
As remote a possibility as that seems, it is nevertheless worth resisting.
The G7/G20 nations should also be at the forefront of a counter-narrative against the anti-globalization movement.
Build back better is a nice slogan.
But the World Economic Forum’s advocacy of a great global reset in answer to the pandemic and climate change runs the risk of inadvertently damaging the highly complex and beneficial system of globalized trade.
Meaningful actions that could be taken to defend the international economic system include:
• The G7/G20 should champion an all-inclusive global debt reduction initiative that seeks to shore up their own currencies and the current system of international exchange.
• Major western economies should signal their determination to preserve the U.S. dollar as the main global reserve currency, with the Euro, Yen, Pound, and others continuing in smaller roles.
• The 63-member Bank for International Settlements should develop common rules for digitization of national currencies, along with a model for seamless international exchange.
• A clear signal should be sent to crypto holders that national, not private digital currencies, will prevail.
• All digital currency systems should have redundant backup systems to protect against both cyber-attacks and electricity supply failures.
• While some strategic supply lines can be shortened, leading nations should advocate the preservation of integrated global trade and the benefits of comparative advantage.
The author is a three-time Canadian ambassador and former VP of BlackBerry, who also served as Director for Foreign Policy and DG for Asia.
He currently heads MankGlobal Inc. and serves as a Fellow of the Canadian Global Affairs Institute and the Balsillie School of International Affairs.
He is co-author of a forthcoming book: Crisis and Pandemic Planning: Quarantine, Evacuation and Back Again.
The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of CEIM. Any content provided by our bloggers or authors are of their opinion. The content on this site does not constitute endorsement of any political affiliation and does not reflect opinions from members of the staff and board.
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