Clash of Empires: Currencies and Power in a Multipolar World

by Charles Gave & Louis-Vincent Gave

Empires usually start off as road-building exercises. Which explains why, in Europe, everyone says that “all roads lead to Rome”. 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 periphery. With this analogy in mind, the world seems to increasingly be splitting along three • The USA with its protectionist and isolationist president • Europe, whose territorial expansion seems to have stalled at the borders of Russia. • China, with its “One Belt, One Road” ambitions, a thinly disguised plan to tie Eurasia and Africa into China’s economic orbit. Clearly, Xi Jinping is on an imperial kick and, for him, in the 21st century, all roads must lead to Beijing. But building roads is the easy part of any imperial roll-out. Once the roads have been built, the safety of the goods and people travelling along them has to be ensured without creating resentment. Moreover, the empire must decide in which currency trade is taking place. Can China remain dependent on the willingness and ability of the American banks and government to fund its imperial ambitions ? Besides the fact that building an Empire on somebody else’s dime makes no sense, in the past couple of decades (Asian crisis of 1997, mortgage crisis of 2008, Taper Tantrum of 2013…), American banks have shown repeatedly that they were not reliable partners when it came to funding Asian trade. To be credible, an Empire must have its own reserve currency. The aim of this book is to think through the consequences of a world which increasingly seems to be splitting up into three zones, each with its own reserve currency, its own fiscal policy, its own ambitions and perhaps even its own supply chains. To go

Genres: Economics, China, Finance

Paperback

Published January 1, 2019

Reviews

[Athan Tolis · Rating 4 out of 5]

The underlying assumption behind this book (occasionally stated explicitly, as it is for example on the bottom of page 63) is that the Chinese government spends the whole time scheming like a James Bond villain, with the ultimate goal of world domination.

With not much exaggeration, I happen to think the Chinese communist party is chiefly made of people whose wives like Gucci and Prada and whose sons and daughters want to study in America and never come back, with only the hugest losers among them having any desire to ever return. My building in London is full of businesspeople who sold out, got out and are never going back. So I read this book the same way I catch up with spy movies on long-haul flights.

In other words, it was a lot of fun!

The authors have a solid knowledge of 19th century politics (Europe probably their biggest strength), which they have a lot of fun projecting onto today’s geopolitical picture. They sprinkle it all with awesome quotes from historical figures and, because it talks a lot about money (though unfortunately we do not benefit from the authors’ views on MMT, perhaps next time) and because it’s full of charts, the guys who spy you reading the book on the tube will think you’re doing some deep reading.

In practice, it’s chiefly the sweet nothings that Bannon and Leithitzer (sp?) have taken turns whispering into Trump’s ear: Halford Mackinder, Halford Mackinder and Halford Mackinder, basically, but with China as the big land-based monster, rather than Russia or the evil Teutons.

Belt-and-road is how they plan to undo us all on land, the renminbisation of trade (for gold and oil, in particular) is how they will undo us all on the money front and they have plans to hose us on the technology front as well.

The funny thing is that the authors explain bloody well how the West is done picking the low-hanging fruit pulling economic levers to deploy its own resources and now needs to leave it to the market to direct capital if we are to make any headway on the productivity front, yet fail to recognise that comfortably the biggest guy hitting precisely that wall is China (I swear, I only saw that after I wrote it)

But it was fun to read, I’ll buy the next one.

[Nikola Bakic · Rating 3 out of 5]

Short and concise read, feels more like a long form research report, rather than a full on book. This is why I couldn't give it more than 3 stars. I really respect the work that Gavekal guys put out. In this work they once again display vast knowledge of European affairs and history, political economy. The chapters concerning Europe and their unabashed euroscepticism resonated with me the most. Those were very well argued and point to the relatively well known flaws of EU/eurozone's design as possible reasons for what authors see as likely eventual demise of the European project in its current form.

But that's not the central tenet of the book. The main postulate relates to the "Thucydidies trap" dynamic that China and the US seem to be finding themselves as of recent years. They primarily focus on the unsustainability of US' twin deficits in the world where their main creditors are no longer the countries where US troops are stationed (Japan, Germany, Saudi Arabia, South Korea), but rather China. In author's view China's Xi has grand ambitions of world dominance (which is very un-Chinese, I would say). China no longer wishes to recycle its trade surpluses by buying US treasuries which in turn fund US profligacy and its populace's insatiable appetite for consumption. Other than world domination the key reason for this is reckless Keynesian monetary policy that the FED has been leading since at least Dotcom bubble burst. The authors details what steps the Chinese are taking to internationalise the reminbi and start pricing commodities they buy from around the world in their own currency, rather than US dollar.

I largely tend to agree with most of the postulates of the book and think that the road that the author describe is quite probable, although I don't think that the road will be that linear and that we won't have many twists and turns along the way. My main criticism of the book is that the authors do not expand enough on many of the very interesting points and contentions that they make. If the concept of their writing was different and more in-depth, this could be a very respectable and serious work. In any case, I would recommend this book to people interested in the future of the international monetary system in the context of great power struggle on the international stage, primarily between the US and China

[Jordi Costa · Rating 3 out of 5]

I highly respect and enjoy all of Gavekal's work and this is no different. An interesting and unique view into how geopolitical forces could shape the world's main currencies over the long term. I have yet to come across another book or report dealing with such wide scope in such few pages. I believe their main thesis, while outrageous to some, is highly plausible and likely. I don't agree with some of their sub theses (ex China will be a better bond market than equity market) which seem to be loosely conceived, but these do not detract from the main thesis in my view.

[Alexander Walsh · Rating 5 out of 5]

So long as you can put up with the Gave's peculiar sense of humor, the underlying message of the coming de-dollarization of the global economy has massive investment implications. In the book, they use a combination of charts, anecdotes, and logical reasoning to spell out the single largest theme at play in the world today. I'd highly recommend the book to anyone who has an interest in understanding the global economy.

[Pablo RV · Rating 4 out of 5]

I found it very interesting and enjoyable to read the book. It provides a very well-argumented framework to understand current events in geopolitics and financial markets. Notably, it addresses the clash between the U.S. and China ‘empires’ in different fronts (trade, currency and technology) and focuses on the currency front. The U.S. has an enormous advantage because of having the dollar as global reserve currency. All central banks save mainly in dollars and this allows the U.S. to run huge budget and current account deficits without much worry. The book explains why this is
increasingly being challenged by China as it tries to internationalize the Renminbi and settle Asian trade in its own currency and how this effort goes hand in hand with its Belt and Road initiative. The book provides very practical financial market consequences and asset allocation recommendations depending on evolution of events.