The Decline of the US and Russia and the Rise of Global South

Lucio Levi
Member of UEF Federal Committee, former President of UEF Italy

Unlike the previous cycles of world politics, when the international order was ensured by the hegemonic stability of one single great power – first the Pax Britannica, then the Pax Americana –today a power redistribution between global actors is underway, but none owns the necessary resources to aspire to world hegemony. If this trend is confirmed, it will be possible to assert that the Cold War was the last old-style conflict for world hegemony.

August 2023 marked a new step on the way of the decline of the great powers of the time of the Cold War. The West, which represents less than 10% of the world’s population, cannot think of maintaining the economic, technological, political and military hegemony permanently. Considering that the world’s population has more than tripled since the middle of last century and, meaningfully, did not grow in the North, the relative weights between the North and the South of the world have significantly changed. Demography is one of the most powerful forces which bring about change in our time. Over a large part of history human society was made up of a large number of young people and few elderly. What is new nowadays is the need to ensure development and welfare in a world in which new generations are becoming a scarce resource in comparison with a constant increase of aged people.

Another aspect of the decline of the West is the fact that Fitch, the American rating agency, downgraded US sovereign debt from AAA to AA+. The US debt has reached the record figure of 30.000 billion dollars. In the immediate future, nothing much should change. Already in 2011 S&P downgraded the US sovereign rating, but it did not have a meaningful impact on global markets. The high and rising US debt has been a well-known issue for a long time, but is generally ignored in spite of the country’s finances deteriorating, due to tax cuts, new spending initiatives, economic shocks and repeated political gridlocks. Paul Krugman, winner of the 2008 Nobel Prize in Economics, commenting on the downgrading of US debt, recently asserted that “most economists believe that there is some limit to how much debt the US government can take on … But history and experience of other countries suggest that we’re still a long way from that limit”. However, it is to be taken into account that the dollar does not enjoy unlimited trust any longer.

In August, the psychological threshold of 100 rubles for one dollar was crossed in Russia. This considerable depreciation of the ruble obliged the Russian Central Bank to raise interest rates. The ruble is at its lowest level. Since the beginning of the war in Ukraine, it has lost 27% of its value.

The summit meeting of BRICS (Brazil, Russia, India, China and South Africa) – a grouping of states that accounts for about 40% of the world’s population, a share that will increase next year when six new states (Saudi Arabia, Arab Emirates, Iran, Egypt, Ethiopia and Argentina) will join – announced the aim of the “Global South” to reduce the dominance of the US and the West on the rest of the world. It is worth adding that this grouping includes two permanent members of the UN Security Council and three nuclear powers, and the GDP of that alliance would amount to 32% of world GDP, while China and the US represent respectively 19% and 15% of world GDP. The meeting, held in Johannesburg last August, expressed the determination of its member states to free themselves from the hegemony of the dollar as world reserve currency. Brazilian President Luiz Inácio Lula da Silva called for the BRICS countries to create a common currency.

It is right to take this goal into consideration, being aware that so far the cohesion of the BRICS was not ensured by any structural or organizational setup. For the time being, they form a heterogeneous coalition of competing powers, whose common objective is to fight against the hegemonic pretension of the West. Their common objective is the defense of national sovereignty, based on the illusion that nationalism offers a protection against globalization and international disorder. Globalization has accelerated the movement of goods, services, people, capital and information in ways that hamper the states’ ability to regulate many activities on their territory. It promoted a spectacular growth in China and India and the other BRICS countries, allowing to lift one billion people out of poverty. And it is unrestricted and unregulated globalization that deepened economic and social inequalities in capitalist societies. Therefore, multinational corporations have gained the upper hand over states, even the most powerful, and global finance has prevailed over the real economy. 

The only way to let governments recover control over their economic and financial systems is to transfer the locus of legislative and enforcement authority to international organizations, and ultimately to a world government and a world federation. However, the dollar’s downgrade can mark the beginning of a new global trend. What most observers neglect to consider is the fact that Iran, Brazil and Saudi Arabia abandoned the US dollar as the world’s reserve currency and began using the Chinese yuan when trading oil. But it is the euro, the second most important currency in the international monetary system, that substantially changed the strength relations between currencies at world level. The most visible trend is towards the formation of a multipolar balance of power among regional blocs, like the Union of South American Nations (UNASUR), the Association of Southeast Asian Nations (ASEAN), the South Asian Association for Regional Cooperation (SAARC), the League of Arab States (LAS), China, the African Union (AU), etc. Among the world regions, Latin America seems closer to follow the line traced by the euro.

The de-dollarization process will not occur at once. It is a long-term process that has just begun. The defection of China from the G20 meeting held in New Delhi in September sheds light upon the tensions that divide the two Asian giants, which claim the leadership of the Global South, intended as an alternative world order to the American one.

The European Union represents the most advanced stage of development of the process that wipes out national borders and assigns state functions to international organizations, which manifest the tendency to transform themselves into federations of states. Federalists reject the idea of “Fortress Europe”, i.e. European nationalism. A victory of federalism in Europe can show to the world that it is possible to create a union of sovereign states divided for centuries by bloody wars and national hatred. European unification is a problem which does not concern only one region of the world. It is a pacification process between sovereign states that begins in one region of the world, but is destined to extend itself to the other great regions of the world and to the whole world. 

The experience of European unification showed that the integration of an international market requires a single currency. The formation of a multi-currency system, within which the euro and the renminbi occupy a prominent position, will create the necessary conditions to replace the dollar as world reserve currency. It was China that raised the issue in 2009, mentioning the Triffin dilemma, the theory of a federalist economist who pointed out the contradiction deriving from the use of a national currency (the dollar) as international reserve currency. In fact, it is impossible to defend the value of a reserve currency and provide at the same time the global market with a sufficient quantity of liquidity. Triffin proposed to resort to the Special Drawing Rights (SDR), a basket of the main currencies, as an international reserve currency, independent of the individual states, in order to create and control international liquidity. The centralized management of a part of the reserves of the member states of the International Monetary Fund could promote the extension of the role of the SDR as world reserve currency.