Change of Guard
Indonesia is ASEAN Chair, Chinese boost SEA, XBB.1.5 fatal for US, London-Tokyo revisit 1902 as Japan militarises, AUKUS sinking, BRICS gold & de-dollarisation, Crypto crashes
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UPDATE: Cambodia’s success as ASEAN Chair gives Indonesia a good start to non-interference and non-proliferation push. Southeast Asia is predicted to be big winner from renewed Chinese tourist visits. US death rate from Covid-19 is an emergency. Tokyo and London revisit the 1902 military alliance that strengthened Japanese imperial ambition. AUKUS was always in troubled waters and non-proliferation is sinking that boat. The BRICS turns to GOLD as the US dollar looks increasingly volatile and Crypto crashes.
Relaying the ASEAN baton from Cambodia to Indonesia
Indonesia will take over chairing a regional grouping that is navigating through an increasingly complex geopolitical environment. Cambodia assumed the ASEAN chair in 2022 with the theme ASEAN ACT: Addressing Challenges Together.
Act, it certainly did. The chair started with Cambodian Prime Minister Hun Sen’s high-profile visit to Myanmar’s capital Naypyidaw in January. But Myanmar’s problems proved difficult to crack - even with a leader typically sympathetic to enforcing state control.
2022 quickly spiralled with challenging international crises beyond ASEAN’s control. To Cambodia’s credit, ASEAN deftly steered itself through politically turbulent waters. The war in Ukraine saw divergent positions of member states as ASEAN came under intense pressure for its weak stance on Ukraine.
ASEAN eventually released the ASEAN-EU commemorative statement - in which "most members strongly condemned the war in Ukraine". Despite its perceived closeness with Russia and China, Cambodia’s national position evolved from refusing to take sides to Hun Sen taking a phone call with Ukrainian President Volodymyr Zelenskyy.
The issue of Taiwan was a new litmus test for ASEAN unity on an issue that the group would prefer never to discuss openly. Yet again, Cambodia persuaded its fellow members to agree to a standalone statement that firmly reiterated support for member states’ respective one-China policies.
Timor Leste’s provisional admission to ASEAN - an issue debated within the group for over a decade - can be counted as a feather in Cambodia’s cap. Though many expected that Indonesia would be the chair to announce admission for Timor Leste, Cambodia’s tenacity in pushing for a resolution helped clear the way.
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Could Singapore and Southeast Asia tourism win big in China’s Great Reopening?
Southeast Asia needs Chinese travellers for its post-pandemic economic recovery but staying open to China is a huge gamble with equally big returns. Having pined for a return of Chinese tourists, the global tourism industry must now deal with the headaches of having its wish come true.
Countries are now choosing whether to participate in the Great Reopening immediately, or wait to see how the risks of a fresh COVID-19 wave play out elsewhere. There is already a clear divide. Southeast Asia seems all for it, with most not imposing any measures. On Monday (Jan 9), Singapore Health Minister Ong Ye Kung affirmed no changes to Singapore’s border measures – all travellers are required to be fully vaccinated or have a negative pre-departure test (PDT) result.
Malaysia is an outlier, announcing on Tuesday it would operate special lanes for China travellers at its international entry points with on-arrival testing. Elsewhere, the United States and some European Union countries have imposed a PDT requirement from travellers from China.
Read more here.
Pandemic will push U.S. mortality up through 2023, new government report predicts.
The Biden administration has extended the Covid-19 public health emergency as the US death rate remains stubbornly higher than elsewhere. The highly transmissible omicron sub-variant XBB.1.5 is sweeping the US.
The impact of the coronavirus pandemic on Americans’ health and lives will not end anytime soon, Medicare and Social Security trustees say
The federal government expects U.S. mortality rates to be elevated by 15 percent over pre-pandemic norms in 2021 and not return to normal levels until 2023, according to a report released Tuesday by the trustees of the Social Security and Medicare programs.
The trustees concluded that these elevated mortality rates, along with lower immigration and depressed fertility rates, have had a significant effect.
“The COVID-19 Public Health Emergency remains in effect, and as HHS committed to earlier, we will provide a 60-day notice to states before any possible termination or expiration,” a spokesperson for the Health and Human Services Department said.
The U.S. has renewed the Covid public health emergency every 90 days since the Trump administration first issued the declaration in January 2020.
Access more data here.
Tokyo-London military pact raises tensions
Experts say deal risks exacerbating mistrust between Asia-Pacific nations. The Tokyo-London defense agreement signed on Wednesday, seen as "a bilateral version of NATO", will stir tensions in the Asia-Pacific and undermine regional peace and development, experts have warned.
The Reciprocal Access Agreement signed by British Prime Minister Rishi Sunak and Japanese Prime Minister Fumio Kishida creates a legal basis for the deployment of British and Japanese troops on each other's territory for training and other operations.
Zhou Yongsheng, a professor at the Institute of International Relations, China Foreign Affairs University, said the pact would exacerbate regional tensions and undermine stability.
"The deal is no doubt a bilateral version of NATO," he said, explaining that, according to the agreement, the UK, a NATO member, can send troops to Japan. This is tantamount to Japan bringing more NATO defense forces into East Asia, further mixing NATO forces with Japan's military presence in the region, and further building the US-Japan military alliance, he said.
Foreign Ministry spokesman Wang Wenbin said on Wednesday that the pact should be "conducive to enhancing mutual understanding, trust and cooperation between countries".
"It should not target any imaginary enemies, still less replicate the obsolete mindset of bloc confrontation in the Asia-Pacific," he said. "The Asia-Pacific is an anchor for peace and development, not a wrestling ground for geopolitical competition."
Read full story here.
Japan’s Shift to War Footing
Throughout the Cold War, the United States and Japan focused on the threat from the Soviet Union, but with tensions increasing around Taiwan, Tokyo has turned to its south, adopting principles that former Prime Minister Shinzo Abe pushed for before his death.
This week’s events are the latest in this trend, and Prime Minister Fumio Kishida’s visit to Washington marks a significant change in the U.S.-Japan alliance. For the first time in decades, Tokyo and Washington are seriously preparing for the possibility of a major conflict in the near term. As Japan’s new National Security Strategy warns: “The possibility cannot be precluded that a serious situation may arise in the future in the Indo-Pacific region, especially in East Asia.” Yesterday, alliance leaders announced a set of defense posture changes, updated command relationships, and new training arrangements. In short, the U.S.-Japan alliance is shifting to a war footing.
Japan is in a unique position to deter regional conflict. Tokyo commands the world’s third-largest economy, has been gradually increasing defense spending in recent years, and took major steps to modernize its alliance with the United States under Abe’s leadership. Japan is also home to more U.S. troops than any other country in the world. And Japanese leaders have been stepping up their contributions on a wide range of issues, from penalising Russia’s aggression in Ukraine and providing aid to Kyiv to cooperating on semiconductor supply chains and supporting the Biden administration’s Indo-Pacific Economic Framework.
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Australia’s ‘optimal pathway’ on AUKUS
Just in time, the fundamental faults of AUKUS are being exposed in Canberra and Washington. This development is not only due to the mounting concern among Australian civil society groups. The Australian mainstream media are now discussing the hitherto unmentionable drawbacks of AUKUS. But it’s because two US Senators, Democrat Jack Reed and Republican James Inhofe (since retired) warned President Biden that the US can’t meet its own submarine needs, let alone Australia’s. They also cautioned about American statutes and regulations that would have to be changed.
Their concern came just in time, for the AUKUS agreement between Australia, the US and the UK is promised for March. As any Australian who’s been asking the Morrison and Albanese governments for the details for the past year knows well, there are none. For the nuclear-powered submarines, we don’t know the cost of the weaponry, the dates of delivery, or the training, staffing and crewing requirements, and it’s a good guess that the government doesn’t either.
In a rare burst of candour, Peter Jennings, whose constant theme at ASPI was and remains to urge more Australian spending on American weapons directed at ‘deterring’ China, is now concerned that if Australia/China relations improve, that could compromise secret US nuclear technology to be shared with Australia. But he still wants the agreement. ‘What is AUKUS if not a means to deter China?’ he asks, adding that if AUKUS fails, so could ANZUS (Australian, 10 January 2023: 9). Jennings’ concerns may open the AUKUS can of worms, which as he implies, also contains a festering mass of unresolved problems for the ANZUS alliance.
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BRICS undermine dollar hegemony with gold purchases
Central banks have been accumulating the precious metal at a record rate.Just before the New Year, the Financial Times ran a piece noting that central banks were accumulating gold at a rate not seen in 55 years. In the third quarter of 2022, analysts estimate that almost 400 tonnes of gold were bought by central banks. That much gold would take around 16 semi-trailer trucks to transport.
In November, traders in the gold market noted that there was a huge buyer entering the market and purchasing very large volumes of gold — a so-called ‘whale’. In December it was revealed that this whale was the Chinese central bank. But it wasn’t just the Chinese buying gold. Other buyers include Turkey, India, Uzbekistan, Egypt, Qatar, and Iraq. It is worth noting that many of these countries have expressed an interest in joining the BRICS+ alliance.
Why are central banks snapping up gold? Most commentators recognise that it is due to geopolitical turmoil. Jonathan Guthrie at the FT, for example, argues that “gold is the currency of fear and mistrust,” and that “the democratic west and the authoritarian east are pulling apart amid mutual recriminations”. Guthrie is certainly correct that a geopolitical schism is taking place, but since when is gold the currency of mistrust? Throughout history gold-backing has been used to buttress trust in currencies — when sterling was the global reserve currency it was said to be “good as gold”.
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WHY THE BRICS BLOC WILL PLAY A CRUCIAL GLOBAL ECONOMIC ROLE IN 2023
One of the clearest trends the world witnessed in 2022 was the accelerating eastward shift in global economic power. Much of this migration was initially achieved through the continued strengthening of the Shanghai Cooperation Organisation (SCO). With significant progress being made by the BRICS group of five major emerging economies—Brazil, Russia, India, China and South Africa—in terms of joint policy coordination and with several other economies showing clear signs of interest in joining the increasingly influential bloc, 2023 looks set to be the BRICS bloc’s most impactful year within the global economic and geopolitical landscape.
One of the most significant objectives the BRICS nations appear to be working to achieve is a shift away from reliance on the US dollar. Even before the outbreak of war in Ukraine, which seems to have expedited de-dollarisation initiatives across much of the non-Western world, Russia and China had embarked on clear policies of local-currency promotion, invariably at the dollar’s expense, as their relationships with the United States continued to deteriorate. By the first quarter of 2020, for instance, the dollar’s share of bilateral trade between the two countries fell below 50 percent for the first time on record, having been almost 90 percent just five years earlier.
Read full article here.
Internationalization of the Currencies of BRICS Countries
The ongoing large-scale transformation of the global economy, caused primarily by the economic recovery of the leading developing countries, forms a multipolar map of the world with new centers of power—the BRICS countries (Brazil, Russia, India, China, and South Africa).
Thanks to their increased industrial and financial power, these countries are among the key players in the international markets for goods, services, and capital, exerting a significant, and sometimes decisive, impact on their functioning. However, it would be premature to say that in the coming years the representatives of this association will be able to achieve a balance of power in monetary and credit relations with the United States and the European Union, overcoming their long-term dominance in world finance. Achieving such a balance will become possible only as the monetary units of the BRICS countries turn into influential reserve assets that can squeeze the US dollar and euro in servicing world economic relations and create large international financial centres in them that can compete on equal terms with London or New York.
Download full article here.
Addressing the risks in crypto: laying out the options
After the failure of several major crypto firms, addressing the risks from crypto markets has become a more pressing policy issue. Cryptoasset markets have gone through booms and busts before, and so far, the busts have not led to wider contagion threatening financial stability. Yet the scale and prominence of recent failures heighten the urgency of addressing these risks before crypto markets become systemic.
The crypto ecosystem and the “shadow financial” functions it engages in, through centralised financial entities (CeFi) and decentralised finance (DeFi) protocols, share many of the vulnerabilities that are familiar from traditional finance (TradFi). But several factors exacerbate the standard risks. These relate to high leverage, liquidity and maturity mismatches and substantial information asymmetries. Policy responses should consider how to address these sources of risk appropriately, given the borderless nature of crypto. This bulletin briefly summarises the lessons of the 2022 turmoil. It then outlines three – non-mutually exclusive – lines of action to address the risks in crypto: a ban, containment and regulation, as well as their pros and cons. It also outlines complementary lines of policy action to address inefficiencies in TradFi and curb the demand for crypto. One key option would be to encourage sound innovation with CBDCs. An online appendix gives a selective overview of ongoing initiatives in crypto regulation.
Download the full report here.