AS the government considers a Foreign Policy White Paper recently completed by a team of eminent persons led by Sir Charles Lepani, it needs to consider for inclusion the global economic compass which is shifting ever so slightly.
The United States mighty dollar is coming under pressure from a group of nations calling itself BRICS.
BRICS stands for the original members Brazil, Russia, India, China and South Africa.
The association membership had already increased to include Saudi Arabia, Eygpt, United Arab Emirates, Iran and Ethiopia.
Another 23 countries have shown interest to join in 2025, it has been reported.
The combined population of BRICS at present is 3.5 billion, or 45 per cent of the world’s inhabitants, and their combined economies are worth more than US$28.5 trillion or 28 per cent of the global economy.
According to an analyst quoted by CNBC, the US dollar still dominates global currencies by a whopping 58 per cent while the Euro is a distant 20 per cent with the Japanese Yen at 5.8 per cent and the Chinese Yuan a lowly 2.5 per cent.
Still nations, especially developing nations such as PNG, are clearly struggling against the dominance of the US$28 at the exchange table.
The PNG Kina, at K0.2459 to US$1, has strangled the economy for nearly a decade.
There seems to be no end in sight and now, with an IMF-driven devaluation agenda to “allow the Kina to find its true worth”, the Forex issue is not likely to be resolved any time soon.
While there is economic sense of a low Kina to dollar rate favouring the nation’s export industries, the reality is that the economy is small, open and heavily import-dependent. Even export industries are heavily dependent on imports for their inputs.
The cost of fuel alone, which needs to be imported in US dollars, for operations at the Ok Tedi mine is stupendous and increasing at this time of fuel shortage.
All towns and cities in PNG are heavily dependent on fuel for energy needs and that, too, has added its share to the cost of living and doing business.
It will take a while yet to grow import replacement industries to anywhere the kind of scenario where the country can truly benefit from a low Kina-dollar parity.
The dollar dominance began shortly after the Bretton Woods dialogue in a Washington DC hotel which created the World Bank and the International Monetary Fund in 1947. The value of foreign currencies was fixed in relation to the US dollar whose value was in turn set in gold at US$35 per ounce.
This set in place the Bretton Woods system where gold became the standard.
This system came under threat through the 1960s by an excess of US dollars caused by foreign aid, foreign investment and military spending.
In August 1971, US president Richard Nixon unpegged the dollar from the Gold Standard. This ended an era of fixed exchange rates tied to the US pegged at a set price of gold and began the era of a floating exchange rate which is still in force today.
One president on the other side of the world affected the economic fortunes of all countries, including PNG, and such will continue to be the case into the far future.
One virus released in Wuhan, China, in December 2019 raced around the world in weeks and killed tens of millions and closed borders and caused trillion-dollar damages worldwide.
Russia’s invasion of the Ukraine in 2022 has affected the economic fortunes of PNG and continues to do so.
And so will the effects of associations such as BRICS, if it were to take shape tomorrow and challenge the dominance of the US dollar in global trade.
Already BRICS member countries such as Russia and China are settling cross-border trade using their own currencies.
While the era of de-dollarisation is some way off, it pays for nations such as PNG, which is currently suffering from over-dependence on the US dollar, to engage its economic experts and take a deep look at what is transpiring around the world and recommend intelligent policy responses.
Such concerns and considerations must also enter the country’s economic as well as foreign policy stances.
