For many years, emerging economies in the east have been quietly and modestly taking up a bigger share of the world's GDP. For a long time, China has sought to downplay its role, reluctant to flex its large economic muscle. It is still America who dominates global institutions such as the IMF and the World Bank and it is the dollar that currently remains the global reserve currency. But, the recent economic crisis has accelerated the slow and steady shift in economic influence. It is the Anglo Saxon economies that have been hit hardest by the global credit crunch and recession, which is perhaps deserved given the fact the crisis originated there. Amidst unprecedented falls in output and increases in unemployment, there is frequent talk of the US dollar being replaced as the world's reserve currency.
It is not as if, the US is going to disappear from the economic map and sink into obscurity. The US is still the most influential economy in the world, and it will remain one of the most influential be for the foreseeable future, but, it is no longer the undisputed powerhouse it was once. Emerging markets in China, India and Latin America will take a greater share of world GDP and trade. It is only inevitable that these changes will have to lead to changes in the composition of world bodies like the IMF and World Bank. There may be some resistance, but demographics and the seemingly unstoppable economic progress is firmly with the East / south. Whether we like it or not, sooner or later, we could be looking at the Chinese Reminbi and Indian Rupee with the same focus as we currently look at the fortunes of the US dollar and US economy.
Who Wins Who Loses?
The shift in economic power and influence is by no means all a bad thing. The old saying ' When America sneezes the rest of the world catches a cold' may soon become a thing of the past.
How can it be good for the world economy to be so reliant on the whims of the American consumer and American banks? The rise of a new consumer class in the East and Latin America will help create a more diversified world economy. The next time a property bubble and bust occurs in Florida, it may be that it no longer brings the world's financial system to its knees. This is surely no bad thing.
We may have to give up our seats on the IMF (or at least share them with more emerging economies). But, the growth of China and India could have some benefits for our economies in terms of greater trade and a rebalancing of our persistent current account deficits.
The real unknown factor is how the booming Asian economies will effect the global economy in terms of oil shortages, food shortages and the continued impact on global warming. These problems all have the potential to make this credit crisis look limited in impact.