OBELA Analysis

The divorce between the real economy and the financial economy began when the exchange markets were liberalised in 1973, and became more pronounced from 1994 onwards. This phenomenon was intensified in 2020 by the US decline with the stock market rising. What is new about the first week of January 2021 is that the relationship between politics and rational expectations in the stock markets has also been broken. Everything points to the fact that, in the third decade of the 21st century, political instability is not synonymous with economic or financial instability, contrary to the major crises.

What does seem to be correlated is the size of the economic impact with the protests. There is no margin between economic contractions and radical protests.  This speaks of social saturation and social pressure that was built up before the pandemic in a long list of countries beyond Latin America.

The COVID crisis19 exposes the problem in employment, production and health. Usually, crises are overcome by economic theories that are different from those that induced them. This time, the only successful economic performance is that of China and its Asian neighbours. 

After 2018 and 2019, complicated by the United States' trade war with China, Britain's separation from the European Union and the fall in the United States' growth rate as the stock market index rises, 2020 broke all expectations.

The pandemic brought growth, employment and health problems to the economies. Raw material prices and international trade recovered rapidly. The financial boom and the fiscal problems of governments are remarkable.

We reiterate what we wrote a year ago, the general trend of the world economy is expected to continue its slow pace in most economies, with the clear contrast of the Asian economies that will continue to grow. This dynamic will change the economic axes from the Atlantic to the Pacific in a stable manner from now on.

The Regional Comprehensive Economic Partnership (RCEP) reflects the polarisation of world trade that accelerated with the trade war between the United States and China. It reinforces Asian regional integration and offers China the opportunity to increase the influence of the Renminbi (RMB). Since 2009, China has developed a monetary strategy that promotes its currency as a medium of international exchange. 

According to Swift, in October 2020, Chinese money accounted for a meagre 1.66% of transactions as a global currency. We have seen that the opportunity for the influence of the renminbi in Asia and in the world economy has grown, and the open question is why it is not yet a major currency. 

China's participation in global trade and investment builds confidence in the WBN, particularly in parts of Asia and Africa. However, even China uses the dollar in business and holds a high proportion of dollar assets, so it is unlikely to replace the dollar as the world currency in the short term.