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05.10.2016Nikiforova Kristina, Moscow

Nikiforova Kristina, Financial power and financial security as the new factors of assuring state's power on the international arena.

Nikiforova Kristina Alexandrovna,
Lomonosov Moscow State University,
Department of the World Politics, 4th year student,
Moscow

Financial power and financial security
as the new factors of assuring state's power on the international arena

1. Why financial aspect became so important on the global arena.

Geopolitical approaches had been dominating the foreign policy conceptions of the Great Powers for about the whole XXth century. Geopolitics is a science which concentrates on the control over the territories and spaces and deals with a distribution of the spheres of influence on the global arena. [1] At that time states were using politico-military and force methods while the economy played a subordinate role, complying the needs of geopolitics. [2]

But in the last decade of the XXth century everything had changed dramatically. A single global system was formed, the process of globalization became universal, and integration associations got an impetus for development. Owing to these changes the spirit of the international relations became different as well. It came that it was not enough to possess military power. The states started to use economic methods to pursue their political goals.

That means: geo-economics started to replace geopolitics. The term ‘geo-economics’ was introduced by an American scientist Edward Luttwak. According to him, it is the best name for a notion which “describes the admixture of the logic of conflict with the methods of commerce — or, as Clausewitz would have written, the logic of war in the grammar of commerce.” [3] At that time economy started to determine policy and economic interests came to the fore.

In fact, the first step in rethinking the world policy through the prism of the world economy and national economic interests was made by the 39th president of the USA – Jimmy Carter. Influenced by the ideas of the Trilateral Commission formed in 1973, he changed the focus of the USA’s governance. [4] Since this time the United States’ logic concerning the way they influenced the world arena became different. They started to give priority to economic issues, as they have understood that it could lead to assuring state’s power in a more effective way. In his Presidential directive #18 Carter expresses the following thought: “In that competition, military aspects aside the United States continues to enjoy a number of critical advantages: it has a more creative technological and economic system…” [5]

Then, at the beginning of the XXIst century capitalism has reached financialization. [6] On the one hand, it acted like a forceful trigger for economic development of states thanks to a quick money circulation, accessible investments and credits. On the other hand, there appeared a possibility to raise money without producing any product, but simply playing on the market volatility and market expectations.  What is more, a great variety of the new economic threats appeared: speculative bubbles, capital outflow, offshore problem, rapid response and complex government capacity of financial market. [7]

Therefore, we can notice that the logic of geopolitics and geo-economics now, with the beginning of the era of financialization, has spread on the financial systems of states. Nowadays developed countries tend to use financial tools in order to influence the policy conducted by the other states. This financial influence is made to satisfy geopolitical interests of the country that possesses financial power.

That is why the “financial security” as one of the main aspects of national security has become extremely popular. Financial security is a scope of measures implemented to withstand the threats and dangers, internal and external, in financial sphere. [8] If effectively implemented it gives a government a chance to resist against financial influence of another country, assure the realization of the independent policy and even make it possible to influence countries with a weaker financial system.

2. New ways of influence on the world arena.

If we look at the events that are taking place on the world arena, we will notice increasing tendencies towards regulating political crises and influencing political courses of the other states trough financial tools. The country that has particularly succeeded in implementing this kind of tactics is the USA due to their highly developed financial market. This country has been recognized for a few years as the world’s economic and financial center.

The USA widely practices the implementation of financial sanctions for actualization of their geopolitical interests. That kind of sanctions was imposed on Belorussia, Cote d’Ivoire, Yemen, North Korea, Cuba, Iran, Iraq, Libya, Syria, Myanmar and the others. [9] For example in 1997 financial sanctions  were introduced against Myanmar, a country  which is a highway to the energy supplies of the Indian ocean for China. Creating a pipeline through its territory could  have settled one of the major problems of PRC. [10] That is why Myanmar was an object of the USA’s geopolitical interests: as a factor of Chinese containment.

We should specially concentrate on the influence of sanctions on the financial system of Russia. According to financial sanctions introduced by the USA in 2014, to some banks and companies the access to the western markets of long-term debt financing was blocked to some banks and companies. What is more, some of them had to change the very geography of their business, as they were forbidden to conduct currency payments. [11]

Russia is still being classified as a country with economic system in transition [12], the country has been trying to follow an entrepreneurial way of life for only 25 years. That is why distinct rules and elaborated schemes of capitalistic management have not been formed yet.

Thereby, possessing a highly developed financial system and trying to contain its former rival, the USA chose the easiest way: to strike immature financial market of Russia, this way slowing down the country’s development. The USA’s attempts to contain Russia have been noticed by many Russian political experts. [13]

It was not very difficult enough to initiate a conflict that will touch directly Russian geopolitical interests. That is the rout of the Ukrainian crisis, which Russia could not leave without attention, because national or geopolitical interests come first. Financial tools act as a means of implementing them, not as a goal in itself.

Then the US who had mastered policy of fulfillment of their geopolitical ambitions by the means of geo-economics, or financial influence to be precise, easily implement this tactics. Russia is not able to answer in the same manner: its financial market is still weak. But it cannot stop defending its national interests, that’s why it has to use its own methods: Russia utilizes so-called “hybrid methods”, which pose a mixture of hard and soft power. [14]

It arrives, that Russia has been involved in a geopolitical conflict for the settlement of which the sides use different methods. At the same time the whole civilized world calls Russian methods savage, as they suppose direct influence and actions. For their part, the Western countries with their methods affect the conflict indirectly, in a collateral way, so the results of their influence are not evident.

Then the aggravation of the political situation provoked capital outflow connected with investors’ anxiety and expectations of political instability, as a result the demand for domestic currency – ruble – has been diminished.

In such a manner, all these factors resulted in the weakening of the Russian financial system, uncovered the problems and gaps of financial security and pointed out its topicality.

But on the world arena financial instruments are used not only the way they have been previously mentioned. Apart from punitive and regulatory, let us call it a negative employment, there is a positive way of applying financial tools. It is often used for demonstrating or obtaining its power on the world arena.

This kind of behavior, for example, is typical of India nowadays, which desires to enter a “club of the great powers”. That is why it had changed its policy from the 1990th and started to give credits to the developing countries and render them financial aid. [15]

Especially this tendency is appropriate of China, which has decided to create an international banking system, which is regarded to become an alternative to IMF and WB. As an example, there is the Asian Infrastructure Investment Bank, where China is going to play the first violin. [16]

3. Conclusions we can make.

On the basis of everything we have examined, we can make a conclusion, that it is impossible to assure financial security in isolation from the country’s policy, as well as it is impossible nowadays to assure state’s power on the international arena without paying attention to its financial power and financial security. That happens because financial tools are often used to bring pressure on a country’s policy, while a county’s policy itself broadly influences its financial system. What is more, financial factor acts a decisive part in the development of the other indices important to guarantee country’s national security, to which refer a developed defense industry, scientific and industrial potential of the state and so on.

All in all, we can come up with the following ideas:

1. States are using measures of financial influence for realizing their geopolitical interests.

2. To assure its geopolitical interests a state should possess a developed system of financial security.

3. Financial security is assured by virtue of creating a stable and developed financial market, which has a high volume and political stability as essential factors for its formation.

4. It follows the second and the third points that the more developed financial system the country has, the higher volume its market possess, the easier it is for it to implement its geopolitical interests under otherwise equal conditions.

5. It is necessary to create favorable political conditions for a financial system to be stable.

References:

  1. Haushofer K. Geopolitik. – München, 1924.
  2. Jones E. The European miracle: environments, economies and geopolitics in the history of Europe and Asia. – Cambridge University Press, 2003.
  3. LUTTWAK, Edward N. From geopolitics to geo-economics: logic of conflict, grammar of commerce. The National Interest, 1990, no 20, p. 17-23.
  4. Gill S. American hegemony and the Trilateral Commission. – CUP Archive, 1991. – Т. 5.
  5. U.S. National Strategy. – Presidential Directive/NSC-18. – PD/NSC-18, 30 August 1977, Top Secret.
  6. PALLEY, Thomas I. Financialization: what it is and why it matters. 2007.
  7. Soros G. The crisis of global capitalism: Open society endangered. – PublicAffairs, 1998.
  8. СЕНЧАГОВ В. Экономическая безопасность России. Эко [serial online]. 2007;(5):1. Available from: ELibrary.RU, Ipswich, MA.
  9. Двадцать стран, против которых США воюют санкциями//Вести. Экономика. URL: http://www.vestifinance.ru/articles/42079
  10.  Матвеева Дарья Владимировна ОТНОШЕНИЯ МЕЖДУ КИТАЕМ И МЬЯНМОЙ В КОНТЕКСТЕ ЭНЕРГЕТИЧЕСКОЙ ДИПЛОМАТИИ КНР // Вестн. Том. гос. ун-та . 2012. №356. URL: http://cyberleninka.ru/article/n/otnosheniya-mezhdu-kitaem-i-myanmoy-v-kontekste-energeticheskoy-diplomatii-knr
  11.  ОРЛОВА, Н. В. Финансовые санкции против России: влияние на экономику и экономическую политику. Вопросы экономики, 2014, vol. 12, p. 54-66.
  12.  Распопов, Н, & Царьков, А 2013, 'РЕГИОНАЛЬНОЕ РАЗВИТИЕ РОССИИ: ПРОБЛЕМЫ, СТРАТЕГИИ, ПЕРСПЕКТИВЫ / Regional Development in Russia: Problems, Strategies, Prospects', Россия И Современный Мир, 2, p. 83, ELibrary.RU, EBSCOhost.
  13. Фененко А. СТРАТЕГИЧЕСКИЕ СОПЕРНИКИ ВАШИНГТОНА // Россия в глобальной политике. — 2010. — Т. 8, № 5. — С. 60–79.
  14. САВИН, Л. Гибридная война. Об истоках концепции [Электронный ресурс]/Л.Савин.––Режим доступа: http://communitarian.ru/publikacii/setevye_voyny_i_ tekhnologii/gibridnaya_voyna_28022, 2015, vol. 15.
  15.  Галищева Н. ИНДИЯ - НОВЫЙ ФИНАНСОВЫЙ ДОНОР / INDIA AS A NEW FINANCIAL DONOR. Азия И Африка Сегодня [serial online]. 2011;(8):16. Available from: ELibrary.RU, Ipswich, MA
  16.  3rd LD-Writethru-China Focus: AIIB opens to lay down milestone for global economic governance." Xinhua News Agency, 2016.
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