In Geopolitics Today - Tuesday, April 12th
A Potential Future of Financial Multipolarity, Political Control of Yemen During Truce, Sri Lanka Defaults on Foreign Debt
A Potential Future of Financial Multipolarity
While the ongoing war in Ukraine is being fought with kinetic weapons and traditional power projection capabilities, the domain of money has come to play a significant role in the conflict as well. With Russian foreign currency reserves frozen by the United States, the European Union, and other US-aligned powers, other states may seek to diversify away from the US dollar or the Euro in the future after witnessing the potential counterparty risk posed to their own reserves should Washington sanction them in the future.
The domain of money has become a fierce arena of global strategic competition. In this international domain, currencies, monetary assets and financial vehicles can be used as weapons, shields and targets by states embroiled in a geopolitical contest. In an attempt to protect its assets, Russia has sought to turn away from these currencies by investing heavily in gold. Although the move is mostly defensive, the path followed by Moscow may work to seriously undermine the dollar’s hegemonic position and unravel Washington’s control of international financial networks should other states follow suit. If more states ditch the US dollar or the euro as their reserve currencies, it would serve as a powerful catalyst of structural change, potentially leading to a fragmentation of international finance.
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Political Control of Yemen During Truce
As the warring sides in Yemen’s long-running war agreed on a UN-brokered truce that will last two-months, control over Yemeni territory is expected to see no changes in the coming weeks. The deal between the Saudi-led coalition and the Houthi rebel group is the most significant step towards ending the conflict since war broke out in 2015. Under the terms of the agreed truce, the parties will halt all offensive military air, ground, and maritime operations both inside Yemeni territory and across its borders.
Prior to the truce, the armed forces of Yemen's Houthi government rolled back the gains made by the Saudi-led coalition at the start of this year, though the rebels have not been able to take the strategically-important city of Marib. As a stalemate developed into a UN-brokered truce, an end to the war is becoming a possibility. In the last few years of the war, Houthi forces have demonstrated an ability to consistently damage Saudi Arabian energy infrastructure on Saudi territory, thereby changing the strategic calculus of Saudi Arabia in the conflict. Similarly, the UAE — which is also fighting as part of the Saudi-led coalition — has likely come to similar conclusions about the rising threat that Houthi drones pose after multiple strikes hit Abu Dhabi earlier in the year. Even though both countries field more advanced weapons systems, neither Saudi Arabia or the UAE have been able to counter the threat that Houthi missiles and drones continue to pose.
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Sri Lanka Defaults on Foreign Debt
Sri Lanka has announced that the country has defaulted on its foreign debt estimated at $51 billion. As the Indian Ocean island nation grapples with an economic crisis and escalating protests, the newly appointed Sri Lankan central bank governor, Nandalal Weerasinghe, announced that Sri Lanka’s remaining dollar-denominated currency reserves are desperately needed to buy food and fuel and so the central bank will stop all payments on its foreign debt.
The decision comes ahead of negotiations over an International Monetary Fund (IMF) bailout, with the South Asian country’s foreign debt now suspended at least until talks with the IMF have concluded. According to Sri Lankan Ministry of Finance, the island nation’s creditors were now free to capitalize any due interest payments or opt for payback in Sri Lankan rupees. China is Sri Lanka’s largest lender, and owns an estimated 10 percent of the island’s entire foreign debt, closely followed by Japan and India. In light of the news however, Chinese foreign ministry spokesman Zhao Lijian said Sri Lanka’s default would not stop Beijing from lending further support. Sri Lanka was expected to to make repay $4 billion in foreign debt this year, but its foreign reserves are reported to currently be around $1.93 billion.
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