Background Guide 4

Context: This was the background guide that I wrote for my high school's Model UN conference. I was the youngest chair in our school's history to chair our school's MUN.

[Disclaimer: don't remember the exact agenda, but it was heavily related to de-dollarization so that's a great framework to work on]

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Introduction:

The Economic and Social Council is one of the 6 principal organs of the United Nations. Its primary duty is to coordinate the economic and social functions and responsibilities of the United Nations and is the central forum for all economic and social issues which issues non-binding policy recommendations to members states. It has 54 member states.

 

ECOSOC began with the UN Charter, and initially only consisted of 18 seats but it has expanded over time to fulfil the needs of greater representation for formerly colonized countries (particularly in Africa and Asia) and grew to today’s size of 54 seats, being split up between 6 regional groups that roughly correspond to their geographic location.

 

Some of the UN’s biggest feats have been orchestrated by ECOSOC. It is responsible for the implementation and monitoring the progress of SDGs across all member states and commissions under its jurisdiction (such as CSW) have had landmark roles in struggles such women’s rights and gender equality.

 

Introduction – Issue:

Search any monetary statistic online or random figures for your next class assignment. There’s a 99.99% chance that you’ll find you numbers in dollars (unless you actually search for any other currency.) Now, why is that? And should it continue to be that way? Those are the questions we’ll be answering at this conference.

 

To start with, how did the USA get their currency to rule the roost? Some primal factors that contribute to the USA continued dominance of their currency includes:

1)      Its stable value. Since the USA is one of the best performing economies in the world, it has a higher per-capita income than almost any other country, has better inflation rates and whatnot that contributed to it being one of the most stable currencies in the world, compared to a country like India which has a slightly more volatile economy and has a worse rupee-dollar exchange rate. That’s why dollars are more valuable than rupees (in this case) and that’s why it’s considered the benchmark.

 

2)      The size of the economy. Simply put, the USA has the highest GDP in the world and trying to trade with the USA as a smaller nation like trying to out-shoot Larry Bird, which is pretty much next to impossible. Due to the USA’s sheer size and geopolitical heft, they can easily crush any opposing currencies by sanctioning countries, placing tariffs, trade embargoes and a host of other measures to make any currency spiral into ruin.

 

And some countries are very comfortable with this equation, but other developing countries and rival superpowers aren’t very happy with the dollar’s dominance and have tried to circumvent this weakness, because the hand that feeds you could also choke you when you least expect it. Case in point: the Russo-Ukrainian war. The first strike to Russia’s economy was freezing foreign assets (which were mostly in dollars) and preventing Russia access to SWIFT whose primary currency of exchange is in dollars.

 

That’s why ‘de-dollarization’ is the hottest economical suggestion, which is aggressively marketed by rival superpowers such as Russia and China. In fact, the BRICS alliance could be the major focal point of this experiment with Russia and China holding huge clout in Eastern Europe and Asia, and India could take a slice of the pie being the voice of the global south (or so it claims.)

 

There are some bugs in the system, but many countries are pushing for a complete abolishment of the dollar in their economies and are willing to risk their country’s economic stability. The trouble is if the bread falls on the buttered side, it’s the people of those nations who must pay.

 

In short, this issue is primarily geopolitical in nature, with economic rationale being interpreted by each country. Your job as delegates is to defend your country’s position on this issue and to formulate solutions to either let business go on as usual or abolish the dollar completely. When politics and economics get amorphized, there’s no middle ground. There are no fence-sitters on this issue.

 

Propositions – Concern:

1)      How can de-dollarization redefine we way we think about economics in a nutshell? The US is considered to be the gold standard for most economical matrices, but if its universality is replaced, who is Mr. Perfect?

 

2)      How far will fiscal policy and the global economy be shaken by a transition from the dollar to another currency? Could it regurgitate an economic crisis similar to the 2008-09 crisis or could it be worse?

 

3)      Could a geopolitical standoff (or even in the worst-case scenario, a war) break out if massive de-dollarization takes place and how would countries react to this potential scenario?

 

Major Stakeholders:

1)      USA: Even from the agenda, you can infer how central the USA is to de-dollarization. But, even more so because of the Bretton Woods agreement, which was signed after the war, whereby major nations pegged the values of their currencies after the dollar (which were pegged to gold reserves that the US held.) The USA obviously opposes de-dollarization because why not? Why would you sacrifice leverage and political clout by renouncing the dollar? That’s why the USA has brutally responded to de-dollarization with economic sanctions and financial regulations from global financial institutions (which are usually funded and led by Americans.)

 

2)      China: They hold a diametrically opposite view to the USA’s, by actively promoting the yuan as an alternative to the dollar, especially in Belt & Road projects where they conduct transactions via the yuan. They’ve also strong-armed weaker nations like Pakistan (who has a huge amount of bad Chinese debt) to pay back/trade with China via the yuan as opposed to the dollar.

 

3)      The European Union: It’s interesting that the EU is suggesting these measures, considering that they are one of the strongest allies of the USA. But even the EU has pushed for a diversified global currency system and has put the euro in the proverbial boxing ring to try its luck against the dollar.

 

4)      Russia: Russia has increasingly distanced itself from the dollar, especially after the Russo-Ukrainian war which exposed how vulnerable they were to economic ruin after the freezing of Russian dollar-reserves in the foreign banks and the cancellation of SWIFT services for Russian entities. It has signed a host of FTAs with other countries in order to lessen the impact of sanctions.

 

Previous Actions:

1)      Bilateral Trade Agreements (BTAs): These kinds of agreements are like pacts between two nations which allow them to trade in currencies other than the dollar to prop up local currencies and encourage the development of selective industries alongside banning tariffs, import quotas and other such barriers to free trade. Some examples include BTAs include Chinese-Argentinian and Russo-Chinese BTAs which allow for the exchange of commodities in yuan or roubles (as the stronger economy usually has the final say in which currency would be used.) BTAs and FTAs are the same in principle, so you’ll often hear both terms being used interchangeably.

 

2)      The Euro’s Growing Dominance: The EU has actively promoted the usage of the euro as a reserve currency in global operations and financial transactions, and it has taken the world by storm, climbing up the financial ladder to become the second-largest used reserve currency in the world.

 

3)      PAPSS: The Pan-Africa Payment And Settlement System had been adopted by the African Union in early 2022 to solve the major issue of cross-border transactions which include unstable governments, hyper-inflation, fiscal mismanagement and a host of other problems by having a stable and secure middle-man (for transmitting money from payer to payee) in the form of PAPSS which is recognized by multiple national banks in Africa. If Africa can find a common currency which is strong enough to replace the dollar in Africa, this tool could be the backbone of an economic revolution for Africa.