COLOMBO, SRI LANKA – Last year was a memorable one for the global economy. Not only was overall performance disappointing, but profound changes – both for better and for worse – occurred in the global economic system.
Most notable was the Paris climate agreement reached last month. By itself, the agreement is far from enough to limit the increase in global warming to the target of 2º Celsius above the pre-industrial level. But it did put everyone on notice: The world is moving, inexorably, toward a green economy. One day not too far off, fossil fuels will be largely a thing of the past. So anyone who invests in coal now does so at his or her peril. With more green investments coming to the fore, those financing them will, we should hope, counterbalance powerful lobbying by the coal industry, which is willing to put the world at risk to advance its shortsighted interests.
Indeed, the move away from a high-carbon economy, where coal, gas, and oil interests often dominate, is just one of several major changes in the global geo-economic order. Many others are inevitable, given China’s soaring share of global output and demand. The New Development Bank, established by the BRICS (Brazil, Russia, India, China, and South Africa), was launched during the year, becoming the first major international financial institution led by emerging countries. And, despite US President Barack Obama’s resistance, the China-led Asian Infrastructure Investment Bank was established as well, and is to start operation this month.
The US did act with greater wisdom where China’s currency was concerned. It did not obstruct the renminbi’s admission to the basket of currencies that constitute the International Monetary Fund’s reserve asset, Special Drawing Rights (SDRs). In addition, a half-decade after the Obama administration agreed to modest changes in the voting rights of China and other emerging markets at the IMF – a small nod to the new economic realities – the US Congress finally approved the reforms.