From Mighty Dollar to Multipolar

A changing global economic landscape, and how might the land lie in the future.

This is the first of two blogs looking at the challenges facing the global economy now.  The second blog will present a scenario set indicating possible future directions in what is an unstable and unpredictable world.

A Disrupted World

The end of the “New World Order” has been apparent now for more than a decade.  A look back over this period reminds us of just how much disruption there has been in a short space of time to the apparent rules-based order that had followed the collapse of the Soviet Union.  2014 saw Russia’s invasion and annexation of Crimea and increased paramilitary activity by Russia’s “little green men” in the Donbass. While “the West” condemned the invasion, Presidents Putin and Xi Jinping declared an unbreakable friendship between their countries. 

2016 saw the first election of Donald Trump as US President, who argued that the USA should move away from the post-war Atlanticist focus and treaty-based relationship with its allies.  He called loudly on other members of NATO to “pay their bills” and threatened them with the withdrawal of US support for mutual defence.  2016 also saw the UK vote to leave the European Union.   

2020 brought the Covid-19 pandemic, and massive disruption to international trade. Russia’s all-out invasion of Ukraine in 2022 saw sanctions imposed on the Russian Government and businesses, and further redrawing of international relations and economic links in response.

The re-election of Donald Trump in 2024 has seen a further tangible shift in US policy towards a more transactional and unstructured world, in which US policy can change by the day, and old alliances can be repudiated, and allies spurned.  America’s decision to attack Iran, which was taken without consultation with NATO partners, has led to the closure of the Strait of Hormuz – we do not yet know for how long this may continue, or the extent of the economic fall-out and the cost of reconstruction. 

Nothing exemplifies the change of tone in international relations more than the state of global trade, with key trade routes disrupted, constantly changing tariffs, and as-yet unknown effects on national and regional economies.  These are extraordinary times.

 

Diffusion of Global Power

International trade

Alongside the disruptions described above, the geometry of the global economy has been changing to reflect the rise of China, India and Asian countries in Asia and elsewhere. According to International Monetary Fund (IMF) data, the Asia and Pacific Region accounted for 46.85% of the world’s GDP (based on purchasing power parity, PPP) and developing economies accounted for 61.45% of world GDP compared with 38.54 for the world’s advanced economies.  In international trade, UNCTAD reports that trade between developing economies rose to 57%, up from 338% in 1995.  These changes clearly demonstrate a widening range of economic relationships through which developing countries not only are increasing their economic power, but also gaining influence and a wider network of relationships that go beyond the developed economies of the G7.  The diffusion of economic power alone has triggered the desire for countries and regions outside the G7 to have more influence in the governance of global trade.

Autonomy and Security

The demand for greater influence has been strengthened by the degree of power and leverage that the current system gives to developed economies – mostly, but not only – the USA.  The West has shown itself prepared to utilise this leverage, for example by the use of sanctions against other states.  Full disconnection from the SWIFT system for international settlements has been imposed on Iran and North Korea and on the economic infrastructure of Russia and Syria.  Partial restrictions have been used more widely, for example against Afghanistan, Belarus, Cuba, Sudan, Venezuela and Zimbabwe.

In response, there has been a rising demand from outside the G7 for alternatives to dollar-based trade, and the SWIFT System.  The aim is to allow economies to reduce the risk of sanctions being imposed on them. One of the major motivations of BRICS has been to build an alternative to what its members see as the dominance of the Western viewpoint in international groupings such as the G7 and the World Bank.

 

Dissension in The West

Geopolitical developments mean that the economic architecture of the global economy cannot now be pigeonholed as “North v South” or “West v the Rest”.  As noted at the start of this blog, the election of the second Trump administration in November 2024 has led to a state of challenge and confrontation between members of the G7, as the USA has openly criticised its allies for trading unfairly with the USA, for failing properly to fund their own defence, and for failing to support the USA in its geopolitical strategy, most recently in Iran.

Even the USA’s closest allies are asking themselves whether American friendship can be taken for granted any more. This is causing other G7 countries not only to rebase their arrangements for security and defence, but to look at the global economic and financial system. In his speech at the World Economic Forum in January 2026, Canadian Prime Minister Mark Carney described how countries like Canada prospered under the rules-based international order, safely living under its protection, whilst knowing that the rules were enforced asymmetrically, because the system, under US hegemony, “helped provide public goods, open sea lanes, a stable financial system, collective security and support for frameworks for resolving disputes”. Carney went on to say, “This bargain no longer works. Let me direct. We are in the midst of a rupture, not a transition”.

Dedollarisation

The combination of the rise of the BRICS countries and other developing economies, alongside the deterioration in trust and the hostile rhetoric between the USA and its allies in the G7 – spanning Canada, Europe and East Asia – has led to inevitable speculation about the future of the dollar, as the cornerstone of international trade. 

Since the Bretton Woods agreement of 1944, and even after its demise in 1971 the US dollar has been the only currency with the necessary scale trust, and market share to facilitate global trade.  The market in oil has been conducted almost entirely in dollars, the US Treasury Market is the largest such market: no others – not the Yen, the Euro or the Yuan/Renminbi – are large enough to absorb the trillions of dollars held by central banks globally, and alternative currencies are not yet sufficiently developed to offer a potential alternative.

The dollar has also been seen as a safe haven, for example in the aftermath of the credit crunch of 2008, and the Covid-19 pandemic.  It exists within the context of a US legal system that has been trusted, and an explicit commitment by the Federal Reserve to maintaining market stability.  The dominance of the dollar is, or has been, reinforced by the fact that it is the default option across the world.  There is no rush for the exits, because it is not clear whether those exits would be sufficient to allow the West to escape a calamity were the stature of the dollar to collapse.   On the other hand we see that developing alternatives to reliance on dollar based trade is s strategic goal of the BRICS countries and their allies, we hear Mark Carney and other leaders of G7 nations wondering how their relations with the USA will change under the current US administration, and we see and hear the US Government professing its willingness to nullify old alliances and agreements if it judges it expedient (and in its own interests) to do so.

To add to the geopolitics, the global economy faces a very difficult short-term future as a result of the closure of the Strait of Hormuz, affecting not only oil and gas production and distribution, but also petrochemicals, chemicals, affecting products as diverse as fertilisers, components of microchips and aluminium.  No-one knows when or how the stand off in the Strait will end, and how long it will take to return to what could be seen as normality.  It is possible that there will be no return to the status quo that existed before the war began.  The war is impacting global supply chains, and the USA’s ability to offer security and protection to its allies, thus calling into question at least part of the role of the USA and the US dollar in the post-Bretton Woods world.

The impact of the closure of the Strait of Hormuz has also triggered a renewed focus on developing and expanding the use of renewable energy as an alternative to fossil fuels.  This is not a new discussion. Last year’s Climate Africa Conference focused on the need to accelerate the spread or renewable energy, an acceleration which China – as the world’s dominant manufacturer and supplier of renewable energy technology – is happy to support. The contrast with the USA’s focus on fossil fuels, and hostility to climate science will add to the tensions between competing trading nations and blocs.

To Be Continued

The economic effects of the current crisis will not only affect poor nations and people, although they certainly will do that.  G7 countries, BRICS members and other groupings, such as ASEAN will all be affected by the crisis, and will be more deeply affected the longer it lasts.  This in itself will have geopolitical consequences, which is why this is a “blog of two halves”.  This half has summarised some of the key elements of the problem.  But is not possible to predict how this will play out. Under the circumstances it is far more sensible to think about the next part of the crisis in terms of scenarios - “what might happen” – rather than trying to predict a single outcome from such a confused and disrupted situation.  So in the second half of this blog, we will look at the main factors that will drive change, especially the most uncertain ones, and offer a set of scenarios for what could come next.

Written by David Lye, SAMI Fellow

The views expressed are those of the author(s) and not necessarily of SAMI Consulting.

Achieve more by understanding what the future may bring. We bring skills developed over thirty years of international and national projects to create actionable, transformative strategy. Futures, foresight and scenario planning to make robust decisions in uncertain times. Find out more at www.samiconsulting.co.uk

Image by Mohamed Hassan from Pixabay