Putin’s Ukraine blunders could herald a major change in global finance

During Russia’s Brief Rise Like BRIC, the acronym I coined in 2001 to describe the world’s largest potential emerging economies – Brazil, Russia, India and China – I have traveled to Russia reasonably frequently.

In 2008, the organizers asked me to give a special presentation on the possible state of the Russian economy in 2020, at the Saint Petersburg Summit, the Russian version of the Davos Forum. To my slight embarrassment, I didn’t really realize that they would be completely upset. If he does not indicate that Russia could be among the five largest economies in the world in 2020something I realized later, when my presentation and comments caused quite a stir in the coffee grounds after the event and in the media.

Basically, I suggested that given Russia’s difficult demographic situation and the fact that oil prices are unlikely to continue rising as they did in that decade, Russia’s potential growth rate would probably not exceed 2%. If They really wanted to achieve strong economic growth What they experienced in (those) past years, they needed to introduce important reforms to boost productivity.

The reaction to my presentation among officials was my first real suspicion that Russia might face challenges in the future, which of course occurred without realizing the extent of the chaos that was about to explode in the global financial system and the subsequent economic collapse of much of the world. This combination of circumstances contributed to a significant increase in oil prices for several years.and much of what has happened since, which for Russia has been an ongoing economic disappointment.

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I’m not much of an expert in geopolitics, but over the past decade I’ve widely assumed that Vladimir Putin decided his massive national popularity would decline because he couldn’t achieve the growth he saw before the crisis. Nor could he carry out the reform, because a large part of his personal economic benefits and those of some of his relatives depended on the status quo.so he had to switch platforms, which were loosely based on the idea of ​​making Russia great.

During those years, I got to know many high-ranking technocrats in the world of politics, especially from the Central Bank And the Ministry of Finance, already prominent economic influencers, were very surprised by how widespread belief in Putin’s excellence as a strategist was.

For several years I had hoped that an era of great reform would be unleashed by these views, but unfortunately, They never arrived, instead the game play was dominated by their awareness of Western weakness His clear strategic thinking.

Now, after the weekend just passed, and the announced Western financial sanctions, It seems to me that Putin is not a good strategist After all.

“I don’t know where the idea of ​​freezing the foreign exchange reserves of the central bank came from, but whoever came up with it came up with something very exciting, Together with the bold move of the major countries Approval of the withdrawal of major Russian banks from the SWIFT network of the financial system.

In one fell swoop, this announcement nearly wiped out the importance of Russia’s vast official foreign exchange reserves, thus sowing the seeds of major trouble for the Russian economy. Over the past few weeks, I’ve been pondering: How can a country that is no longer among the top ten in the global economy (barely 2% of global GDP today) It has obvious military significance all over the world? In the wake of the new currency crash, Russia’s ability to remain so globally important is rapidly eroding. Judging by the exchange rate on Monday, by the end of 2022, Russia cannot take 15th place.

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Although the background to the recent horrific events has included a vision of a growing rapprochement between Beijing and Moscow, I suspect that Chinese leaders may be critical of what Putin has elicited in response from the West. Currently, Which country would consider using its supposed military power to pick out a small neighbour Much to the chagrin of the Western Democratic Alliance, it will have to calculate the consequences of excluding its central bank from the system, and thus use economic warfare just as quickly as the more powerful method of influence.

Of course, there are many other aspects being developed in parallel, including exceptional ones A change in German policy regarding its defense spending, and its decision to pay for some weapons to Ukraine And of course his sudden opposition to a previously agreed pipeline deal to get more Russian gas. With this, there was a unified and solid political response from the European Union.

It is now possible that some thinkers in the major emerging economies will have to rethink, once again, their happy dependence on the Western-dominated financial system, and it is not impossible that current events sow the seeds of a major reform of the global economy. financial system. There is no possibility of that happening unless these countriess, including China, are changing their approach to the use of their currency, and with it, many aspects of economic and related systems. As for Russia, the big thought in its leadership is sure to come soon.

Jim O’Neill is a former Chairman of Goldman Sachs Asset Management, a former UK Treasurer and Senior Adviser to Chatham House..

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