How can US go on leading the world?

Moreover, the social unrest that often accompanies economic strife could cause countries to fragment into smaller units that fight one another over values or resources. To some extent, this is already occurring, with Iraq and Syria splintering into sectarian or tribal units.

The final key risk facing the world concerns currency. Since the global economic crisis, the expansionary monetary policies that advanced economies' central banks have pursued have caused large-scale, volatile capital flows across emerging economies' borders, generating significant instability for these countries and fueling accusations of "currency wars".

The extra-territorial use of regulatory and tax powers - particularly by the US, which has the added advantage of issuing the world's preeminent reserve currency - is reinforcing the view that currencies can be wielded as weapons. For example, the US has effectively balkanized global banking by requiring all foreign banks operating there to become subsidiary companies and requiring international banks with US-dollar clearing accounts to comply fully with US tax, regulatory and even, to some degree, foreign policy (for example, refraining from trading with US "enemies").

Hefty fines imposed by US regulators for breaching the rules - notably, the recent $8.9-billion settlement by BNP Paribas - are already causing European banks to re-think their compliance costs and the profitability of operating in the US. Besides, American courts have forced Argentina into another national default.

But perhaps the strongest message is being sent via targeted sanctions on Russia's oil, finance, defense and technology industries, as well as on Russian officials. With this approach, the US and its allies are sending a clear message to anyone who may disagree with US policies: avoid using the dollar and dollar-denominated bank accounts. Some financial activity has already been driven into the shadows, reflected in the use of Bitcoin and other currencies that are beyond the reach of US regulators.

A recent example of the disaffected seeking an alternative to US leadership is the establishment of a New Development Bank and a contingent reserve arrangement by BRICS (Brazil, Russia, India, China and South Africa). The problem for the US is that, in this case, the disaffected are five of the world's major emerging economies, wielding combined resources that exceed those of the Bretton Woods institutions. It is highly unlikely that BRICS bank transactions will be denominated in US dollars.

In a recent speech, US President Barack Obama declared that the question is not whether the US will lead, but how it will lead. But, as creed, clan, culture, climate and currency cause the world to become increasingly alienated from the US-centric international order, such declarations may be excessively optimistic. Indeed, in the coming "class war", no one seems quite sure whom to follow.

The author is distinguished fellow at the Fung Global Institute and a member of the UNEP Advisory Council on Sustainable Finance.

Project Syndicate

(China Daily 08/26/2014 page9)