The world turned a corner in 2019. The problem is that the world order didn't turn with it. This disconnect could have disastrous consequences. The biggest global change has been the start of the "Asian century".
Today, Asia is home to three of the world's top four economic powers (in purchasing power parity terms): China, India and Japan. The region's combined GDP exceeds that of the United States and of the European Union.
The US is no longer even the most globalized power; that title now goes to China. Already a larger trading partner to more countries than the US, China is signing more free trade agreements as well, including potentially the largest in history, the Regional Comprehensive Economic Partnership. The US, by contrast, has abandoned or is abandoning FTAs such as the Trans-Pacific Partnership, which Japanese Prime Minister Shinzo Abe has kept alive without the US with a new name: Comprehensive and Progressive Agreement for Trans-Pacific Partnership. And the US' share of global trade continues to shrink.
The world order has not kept pace with these shifting economic dynamics. On the contrary, the US dollar remains the predominant currency for settling international trade. The US and the EU retain control of the two leading global economic organizations: the International Monetary Fund and the World Bank. And the United Nations Security Council－the only body that can issue binding decisions for the UN's 193 member states－is dominated by just a few, largely declining powers.
In theory, the easiest of these incongruities to address should be the inadequate influence of emerging powers such as China in the IMF and the World Bank. After all, the US and Europe have already acknowledged－including in the 2006 and 2007 G20 communiqués－that "the selection of senior management of the IMF and World Bank should be based on merit", ensuring "broad representation of all member countries".
Yet the anachronistic "gentlemen's agreement" that has kept an American at the head of the World Bank and a European leading the IMF has proved stubbornly resilient. In 2007, Dominique Strauss-Kahn became IMF managing director, succeeded by another French citizen, Christine Lagarde, in 2011.
Six years later, Lagarde declared that the IMF could be based in Beijing by 2027, if growth trends continue and are reflected in the IMF's voting structure. After all, she noted, the IMF's bylaws call for the institution's head office to be located in the largest member economy.
Yet when Lagarde resigned from her post this year to become president of the European Central Bank, it was another European who took her place: Bulgarian economist Kristalina Georgieva. Likewise, the World Bank presidency passed from Robert Zoellick to Jim Yong Kim in 2012, and then to David Malpass this year. Future historians will marvel at the imprudence of the old powers' shameless refusal to share control of global institutions.
And yet the IMF and the World Bank are not the only institutions that need reform. The UN Security Council, too, needs to be reformed. If the Security Council's composition is not updated, the body could lose its credibility and moral authority.
To avert such an outcome, perhaps the Security Council could adopt a 7-7-7 formula. The first seven countries/economies would be permanent members, each representing a different region. The second seven would be semi-permanent members, a rotating selection of 28 countries, based on population and GNP. The remaining 160 countries would rotate into the remaining seven seats.
The most difficult incongruity to resolve will be that between the US' declining leadership and its currency's role as the leading international reserve currency. Today, more than 40 percent of cross-border payments and 90 percent of foreign exchange trading is settled in US dollars. This reflects decades of trust: the US had deep markets, strong institutions－including efficient courts and an independent central bank－and it did not use the dollar as a tool to advance its own interests.
But, since 2017, the US administration has been aggressively undermining the international community's trust in the dollar. The White House has pressured the US Federal Reserve to lower interest rates in order to deliver short-term economic growth. In fact, the White House has weaponized the dollar, labeling China a "currency manipulator" and instructing the US Treasury to put more countries－including close Asian and European allies－under surveillance.
The US administration's actions have raised the hackles not only of traditional adversaries (Russia leads a new de-dollarization trend), but also of key allies. Jean-Claude Juncker, the former European Commission president, has pledged that the euro would become an "active instrument" of EU sovereignty. It is also telling that France, Germany, and the United Kingdom－in collaboration with China and Russia－have created the Instrument in Support of Trade Exchanges to bypass US sanctions on Iran.
But, in a sense, the US administration has done the world a favor by making undeniable what was already obvious. If world leaders do not start addressing the contradictions plaguing the world order soon, the likely result is crisis－and even more dangerous contradictions.
The writer, a professor in the Practice of Public Policy at the National University of Singapore, is the author of Has the West Lost It?
The views don't necessarily reflect those of China Daily.