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Clash of Empires: Currencies and Power in a Multipolar World

Empires usually start off as road-building exercises. Which explains why, in Europe, everyone says that “all roads lead to Rome”. And when they don’t build roads, empires build canals: the French built the Suez Canal (only to see the British buy Egypt’s stake once the hard work had been done), the Americans built the Panama Canal and, less happily, the Soviets built the Aral Sea Canals (which ended up triggering one of the greatest ecological disasters of all time).
by Charles Gave & Louis-Vincent Gave Gavekal, March 2019

The reason empires like to build such arteries is to pull in commodities cheaply to the heart of the empire, and push out, at minimal cost, higher value-added finished goods to the empire’s periphery.

As the Persians used to say, “Darius was a tradesman”.

With this analogy in mind, the world seems to be splitting along lines dictated by three empires:

  • The United States, whose president seems keen to use the fact that the US consumer is the “consumer of last resort” to negotiate better trade deals for US workers.

  • Europe, whose territorial expansion now seems to have stalled at the borders of Russia.

  • China, whose president never misses an opportunity to discuss China’s “Belt and Road” ambitions—a thinly disguised plan to tie most of Asia, Africa and even parts of Europe into China’s economic orbit.

Clearly, Xi Jinping is on an imperial kick and, for the Chinese president, in the 21st century, all roads must lead to Beijing.

But building roads (or canals, dams, power plants, telecom lines, etc.) is the easy part of any imperial roll-out. The complicated part is to ensure, once the road has been built, the safety of the goods and people travelling upon it. And to do so without creating resentment.

Having built the road, the other important question for a budding imperial power is: in which currency should the trade taking place along the road be denominated? For China, does it make sense to build an arterial network into Central Asia, Africa and the Middle-East if the trade taking place along these new roads is conducted in US dollars?

If this were the case, China would remain dependent on the willingness and ability of American banks, and the American government, to fund its imperial ambitions. Yet in recent decades American banks have shown themselves to be unreliable partners when it came to funding Asian trade (Asian crisis of 1997, Mortgage Crisis of 2008, Taper Tantrum of 2013). More importantly, building an empire on someone else’s dime makes little sense. To be credible, an empire must control a strong currency that is a means of exchange, a unit of account and a store of value right through to its outer realms, and even beyond.

The aim of this latest Gavekal book, Clash of Empires, is to think through the consequences of a world which increasingly seems to be splitting up into three separate zones, each with its own reserve currency, its own fiscal policy, its own imperial ambitions and perhaps even its own supply chains.

The book is now for sale on for USD20 a copy, including shipping. Of course, we will be distributing the book at upcoming Gavekal seminars. We will also run a live Q&A section on the book’s dedicated website: