Geopolitics meets geoeconomics

“THE fragmentation of capital flows along geopolitical fault-lines and the potential emergence of regional geopolitical blocs could have large negative spillovers to the global economy,” International Monetary Fund (IMF) researchers concluded in a paper issued on the eve of the IMF-World Bank spring meetings last week (Apr 10-16).

Indeed, as finance ministers and central bank heads gathered in Washington, DC, it was becoming clear against the backdrop of a growing Sino-American rift how difficult it would be to stabilise the global economy at a time when the pressure to decouple their economies affects key industries, such as high technology.

At the same time, cross-border investment flows now seem to reflect geopolitical alignments. Rival economic blocs have emerged to replace the integrated global market of the post-Cold War era of globalisation, which was rooted in turn in the Bretton Woods system, established after World War II. The goal of Bretton Woods was to establish macroeconomic stability on the basis of Western capitalist principles.