Catastrophic waves of the Covid pandemic would never cease to rise, if the World Health Organisation is to be believed. Continuing Covid waves will make the coming global depression the longest one in living memory. The looming depression will break the backs of global supply chains, setting in motion dramatic changes in the global financial order.

Banking systems will crumble, financial players will go broke, the American dollar will decline and monetary funds will dissolve into inaction. One cannot imagine the sheer spread of the resulting monetary jungle, a gory metaphor for monetary lawlessness.

Prognosis of Doom and Gloom

Why, crypto-currencies will not be able to salvage the crumbling global financial order. Everywhere, governments will be seen clamouring for debt-cancellations, moratoriums and monetary relief packages from their central banks.

These gloomy prognoses about the impending financial doom may tempt you, for a change, to believe the Cassandras. If the Cassandras are to be believed, it may become difficult for the American Dollar to continue as the world’s reserve currency. If not, at the least, the preeminence of the American dollar in the global monetary system will be questioned and debated.

Moreover, banks outside America will begin looking at offshore dollar creations done through issuances of dollar-denominated loans, with much suspicion. Add to this the menace of shadow banks which will continue to spin innovative instruments of finance, the decline of the dollar would be nearly complete.

The New Global Financial Order

Finance policies will become self-centred, as in other sectors of global economies. Inward-looking states and introverted central banks will mould with alacrity equally inward-looking monetary policies. Corporate entities will be encouraged to invest locally. As a result, an irrational phobia of multinational companies will spread through the system. These shocks will begin to chisel a new global financial order.

Such a new global financial order will pivot on how soon Eastern-South Eastern Asia and Europe rise to the occasion. Nation-states of Japan, South Korea, France and Germany, and city-states of Singapore will call the shots in the new global financial order.

Autonomous special administrative region of Hong Kong, which is an offshore financial centre, will see the spirit of nationalism soar in their economies. This will enable, for instance, Hong Kong to snap the Chinese umbilical cord and morph into a major financial destination for global investments. Economies with the ability to manage both the supply and the demand sides of their economies, efficiently and democratically, will decide the contours and the colours of the new global financial order.’s_city-state_theory

Sinking Companies and Shadow Banks

In this new global financial order where companies will go bust regularly, governments will set aside the tenets of prudent governance to enable efficient management of serial relief programmes. These programmes may not work the way they should. This will push state-owned banks to play second fiddles to shadow banks and their promoters.

Shadow banks will not be absolutely immune to infections inflicted by pandemics. They will be the first to fall during moments of crisis. Such crisis may happen post-Covid, triggering a cascade of failures in the global financial order. Political upheavals in Covid-hit economies will make the situation worse.

Every crisis comes with its own opportunities. Long after Covid, such an opportunity will arrive in various avatars. Monetary blocs, on the lines of trade blocs, will be one of those avatars. As monetary blocs vie with each other for the global financial cake, there will be demands for protection of monetary rights and privileges.

Turmoil and Turbulence

Precisely, such vociferous demands will midwife a new global financial generation marked by an international monetary federation. If such a federation is formed, it may see recurrent conflicts with the International Monetary Fund, throwing the global financial order into a vortex of long turmoil and turbulence, a whole lot of banks going bust in the process.

Such unmitigated turbulence will prevent global biggies America and China from becoming significant players. The turmoil will leave the global biggies, their incumbent governments, their ruling political dispensations and their pompous heads of state more muddled, with their monetary visions dissolving into a thick haze of an uncertain future.

Will this financial upheaval turn into a moment of reckoning for Europe? Will bank busts in biggie economies offer Europe enough time to emerge as the architect of the new global financial order? Europe will, when it gets its act together by chaperoning reforms waiting to be done.

A Dominant Euro Bloc

In such a Europe-centric new global financial order, shadow banks are likely to be regulated to ensure shadow finance gets gradually eclipsed by a globalised Euro. As a result, monetary globalisation would hasten the creation of monetary blocs in the world. There could be a dominant Euro Bloc, with the Dollar Bloc and the Renminbi Bloc tiptoeing behind.

This could well turn out to be a Eureka moment for the European Monetary Union, which may go ahead and double up as a viable alternative to the US Federal Reserve or the Bank of England or the People’s Bank of China. This European Monetary Union could well prove to be a guardian angel for dark continents, besides for pandemic-hit regions craving for monetary support.

Such role enhancements and functional enrichments of the European Monetary Union will enable Europe to rally under the Union’s banner. Rally for what? To create digital behemoths and bring together constituent nations to leverage the togetherness to blast the obstacles in the way of European unity. What a sunrise moment this would be for Europe!

In Conclusion

Finally, the Marshalls will be out. The Molotovs will be out. The Comecons will be out. Paragons of Europen monetary unity will be in. Effective handling of pandemics, epidemiological and financial, will be in. This will signal the beginning of a new Europe-centric global financial order.

This feature was written when Covid-19 was raging at its deadliest high. WHO had declared the outbreak as a public health emergency of global concern on 30 January 2020 and as a pandemic on 11 March 2020. Looking back, this feature confirms the belief breakthroughs in healthcare can avert financial disasters.