Mongolia – a new concept for "buffer states" in the 21st Century

Map of Mongolia, geographically located between China and Russia, 
the 21st century regional powers in the former "buffer states" of Central Asia



Qing (Manchu) Dynasty

The 清朝Qing (Manchu) Dynasty (1644-1911) was China's last dynasty. The Manchus were Mongol-like horsemen turned merchants from Manchuria. They were of mixed Mongolian, Korean, Chinese and Jurchen stock. The Manchus sucessfully expanded the Chinese Qing empire far into Central and Southeast Asia and managed to bring Tibet and Mongolia under Chinese control through a system of buffer states. The Manchu success was attributed to their ability to marry Mongol military technique with Chinese administrative government.

Buffer states and Chinese territorial control up until 19^th century

For around 18 centuries, China's geographical position was protected in all directions by a system of buffer states. The aim was to carefully administer and rule a “China territorial core” (which roughly hadn't changed territorially since China's first unification under the Qin emperor in 221 BC) and then surround this with a group of buffer states or territories, ruled through different forms of agreements. This system granted security, trade and served to expand Chinese imperial virtue to the outside world.

In the 17th century the 清朝Qing dynasty conquered China, taking over the Ming Dynasty. At the same time Russian encroachment started into the once deserted and loosely controlled Siberia. The Russians started thinking of Siberia in terms of the European state, that is they wanted clear, limited frontier positions, not loosely ruled, buffer zones. This led to a series of treaties and wars marking the borders between Qing China and Russia for over two centuries, by which Russia took large parts of Siberia's frozen desert.

In the 19th and 20th centuries, the buffer states were increasingly encroached upon from all sides. While the Russians were coming from the north, the British were coming from the sea and from the south. The first opium war came in 1839-42, which led China to accept different rules of trade and administration of foreign merchants working in China, and in 1939-42 the first British-Afghan war saw British forces reaching the south west frontier of one territory which was loosely under China control - Tibet. In the same period the French conquered Indochina, a buffer state of the Qing dynasty, and the Japanese rejected Chinese patronage and conquered Korea, also a part of the Qing empire. The Qing dynasty eventually collapsed in 1911. But encroachment by foreign powers on all the sides of the Chinese border changed China's perception of its own territory and of the use of buffer states.

Mongolia today in 21^st century

Today the concept of buffer states for security and trade with Central Asia and other surrounding countries is no longer relevant. Instead Mongolia and other former buffer states in Central Asia are now the subject of intense commercial interest due to their immense mineral resouces and proximity to China. Mongolia has some of the largest coal mineral resources in the world as well as immense reserves of copper, gold and uranium.

China's national energy strategy is currently focused on securing increasingly scarce resources while diversifying away from the western world. Hence China is investing heavily in mineral resources from Mongolia. Since 2003, it has invested around $500m in FDI in Mongolia. This is because much of Mongolia's coal is the high-quality “coking” variety vital to steel production and it is located only 145km from the Chinese border. Interestingly, China now produces 50pc of the world's steel. Hence Mongolian coal is set to become a cornerstone of Chinese energy policy that will fuel Chinese economic growth in the 21^st century. 

Mongolia and other Central Asian States have long been intertwined with Chinese history and its system of "buffer state" territorial control. But today, China's investment in this former buffer zone, where a third of Mongolians are still nomadic or semi-nomadic in the 21st century, is beginning to open it up to the outside world. A further development is the beginning of a new wave of commercial relations between China and Russia that the US is unable to compete with.

So far, it appears, in the 21^st century, that neither China nor Russia sees Central Asia as its exclusive domain. In Mongolia, both Russia and China are treading carefully. Russia's influence in Central Asia combined with Chinese investment cash, together, is working to transform what were fragile buffer states into a transit corridor based on trade in energy and minerals. The Geo-Trade Blog believes that it is highly possible that this could give rise to trade in a whole range of goods and services in a flourishing new trading corridor through the former Central Asian buffer states which the European bloc countries could also tap into due to their geographical proximity. It is here where economic power is being exerted and the shape of the world in the 21st century is beginning to emerge.

Piracy on the high seas in the 21st Century – Somalia the new pirate base

Pirate Ship on the high seas

Far from the one-eyed barbarians and the Long John Silvers of folklore and fiction, pirates in the 17th and 18th centuries tended to come from highly skilled sailors who rebelled against the tyranny of their imperial masters. Once they had procured their own ship, articles were drawn up governing the conduct of the pirates. These articles were remarkably egalitarian. The captain of the ship was elected by the sailors and a quartermaster was elected to administer booty and to act as a counterweight in order to keep the captain’s power in check. Profits from shipping raids were distributed equally among all the sailors. When a pirate misbehaved, a meeting of all the sailors was called to determine the appropriate punishment. The pirates of the 17th and 18th centuries developed their own unique form of distributive justice.

New pirate base in Somalia in 21st century

Over the last decade Somalia has become synonymous with piracy. In 2010, alone nearly 1,200 people were taken hostage in the waters of Somalia. Rather than the more conventional 17th and 18th century "robbery at sea" piracy, Somali piracy takes the form of hijacking and extortion. This pattern evolved from so called "defensive" piracy that began early in the last decade as a response by local Somali tribal fishermen to unlicensed foreign trawlers and the dumping of toxic waste. These outsiders exploited the absence of a functioning Somali state capable of protecting its coastal waters.

The way the pirates operate is to take the commercial vessels usually by only firing warning shots before boarding the vessel. The goal is then to extract the highest possible cash ransom and to return the ship, its cargo and its crew in decent condition. So far this business model has proved very lucrative. It is estimated that Somali pirates may have earned around $238m last year alone.



Somali Pirate on board a hijacked commercial trade ship
know as a "mothership"

In 2008, almost all the attacks were in the Gulf of Aden – a passage for 20pc of the world's commercial shipping between Asia and Europe. But when international anti-piracy navy ships began to patrol these waters, the pirates modified their strategy to roam farther by using "mother ships" seized earlier as floating bases in the Indian Ocean. The below map sourced from The Economist shows the increased area of pirate operation in recent years:



Map of Somali Pirate Areas of Operation from 2008-2010


Piracy and ‘lawlessness’ in Somalia

A new study published in February 2011 shows that state failure is not necessarily a significant predictor of piracy. The study shows that for countries with very poor levels of governance, small improvements in such things as law enforcement, stability and security can actually lead to more piracy. 

Truly well-governed countries produce few pirates. However within Somalia– a so called "failed state", the report points out, most pirates originate from the relatively stable Puntland rather than the truly anarchic south and piracy is reduced when violent territorial conflict intensifies. The report argues that this is no coincidence: a basic level of law and order is necessary for pirates to ply their illegal trade.

The implications of this report are that Governments and multilateral organisations working on initiatives against Somali piracy in the region ought to focus on assisting Somalia and other neighbouring countries to truly enforce the rule of law. So far the EU has launched Operation Atalanta in 2008 and the UK has provided the Royal Navy's UK Maritime Trade Operations office in Dubai as a reporting hub for pirate activity. But much more needs to be done along the lines of Article 100 in the preamble to the UN Convention on the Law of the Sea:

"All states shall cooperate to the fullest possible extent in the repression of piracy on the high seas or in any place outside the jurisdiction of any state".

Until this happens, it is highly likely that the Somali pirates will continue with their devastatingly effective business model.

From the Spanish dollar to the US dollar – a new international world currency for the 21st Century?

 

Printing press making US dollars, the world's currency reserve at present

In the 18^th century, the Spanish dollar (real de a ocho or the piece of eight in English) became the first ever, truly, world currency. It was used in Europe, the Americas, the Middle East and throughout Asia. It was minted in the Spanish Empire in the Americas from 1497.

Spanish-American silver was used for the world currency. Mints set up in the new world produced silver coins, mostly for export to Spain. Trade and Spanish Government spending spread the Spanish dollar coins into the rest of Europe. They were carried by merchants into the Middle East and beyond by the new sea routes to India and China. Spanish-American silver dollar coins crossed the Pacific to the Philippines and on into China and Greater Asia. Hence it was that the Spanish dollar was the first world currency and the real de a ocho coin became the coin upon which the US dollar was later based.

US dollar's reserve currency status

In the 21^st Century, the US dollar has the all important world reserve currency status. The bedrock of the dollar's reserve status is its role as the global petro-currency. This status often allows the dollar to defy gravity even though the US keeps borrowing and expanding its money supply.

At a Summit in April 2011 attended by the BRIC countries (Brazil, Russia, India and China) in China, a key topic on the agenda was the US dollar's reserve currency status. There have been rumblings for a while that the BRIC countries would like to see their economic power mirrored in the reserve currency. They view the advantages that the US gains from the dollar holding the reserve currency status to be unfair. As a result the BRIC countries have recently begun to offer each other loans in their own national currencies, not in US dollars. And the Chinese Development Bank has now formally offered 10bn yuan loans to other BRIC members for large oil and gas projects. Russia and China are now too trading oil in rubles, rather than dollars. This is of enormous Geo-Trade strategic importance as it could begin to weaken the dollar's role as the global reserve currency especially since a new Sino-Russian oil pipeline has recently opened that will pump 1bn barrels of oil a year from Russia to China.

Furthermore the BRICs are all creditors to the US – with the Chinese in particular holding vast amounts of US Treasury bonds. Due to this, it is unlikely that they will make moves to dislodge the dollar as this would harm the value of their own Treasury bond holdings. Instead, the BRIC countries are pushing for the IMF to overhaul the role of Special Drawing Rights (SDR), the international unit of account comprising the US dollar, euro, yen and sterling.

The BRICs would like the IMF to include the yuan and the ruble in the Special Drawing Rights (SDR), if that were to happen, then the SDR would be able to ultimately replace the US dollar as the global reserve currency. That would mean the end of US global hegemony and it would force the US to address its massive overseas debts.

The US dollar keeps on falling

The US dollar has been on the decline for some time but recently decline has taken it to new lows. The chart below sourced from The Economist shows the nominal exchange rate, in trade-weighted terms (ie, against the country’s trading partners). The index is now 30% below its level when the Bretton Woods System was abandoned in the early 1970s.



Chart of US Dollar Exchange Rates for the last 40 years

What does this all add up to?

At present the US' creditors (many of them BRIC countries) are having to cope with the unappealing combination of holding low-yielding Treasury bonds in a depreciating currency combined with their desire to begin to exert influence on the global economy in line with their economic weight. The 21^st century looks certain to see in a new era and a potential new international world currency emerging. It is wholly possible that a revised basket of currencies making up the Special Drawing Rights Reserve could take on this role.

América Latina – an Atlantic Side and a Pacific Side



 

América Latina with the Atlantic Ocean to the right and the Pacific Ocean to the left



The Atlantic Side

Latin America is a Continent that straddles the two big oceans of the world – the Atlantic and the Pacific. In the past two decades, the Atlantic side has led on regional integration initiatives. In the 1990s, Brazil and Argentina forged Mercosur, a four country group together with Uruguay and Paraguay. Mercosur was based on a vision of free trade and a quest to expand markets.

Talks even began for an even grander project to create a 34-country free trade area of the Americas. But free trade was not to the liking of the left-wing governments that came to power over the last decade. The former Brazilian President, Lula da Silva, ended the talks for the Americas Free Trade Area preferring a much scaled back forum for political cooperation known as the South American Union (UNASUL in Portuguese) which he sponsored.

Meanwhile Hugo Chavéz, Venezuela's president, formed ALBA, an anti-US bloc, with Cuba and Bolivia and other allies. Up until now, Latin America has seen endless talk of regional integration, but it has all added up to rather less action.

The Pacific Side

But in the 21st century, in May 2011, the Pacific facing countries Chile, Colombia and Perú are about to embark on a new Pacific Integration project that returns to the free trade vision of the 1990s. It is based on a growing affinity between the Pacific countries who are keen on using market economies, foreign investment and trade with Asia to achieve development.

After two years of negotiation, the Integrated Latin American Market or in Spanish, Mercado Integrado Latinoaméricano (MILA) is about to be born. It will mean that traders on the stock markets of Chile, Colombia and Perú will be able to buy and sell shares of companies listed on the other two. Operations of a joint stock market linking Chile, Colombia and Perú are scheduled to begin on 30 May 2011.

The new Integrated Latin American Bolsa (Stock Market) will have a market capitalisation of over $600 billion making it the second biggest after Brazil's BM&FBovespa. It will mark a new closeness in economic relations between these three Pacific Latin American countries and will be one of the first steps towards their aspiration to form a common market.

The idea of a new Pacific Common Market project was launched by Peruvian President Alan García, in 2010. At Chile's request, the original three countries will be joined by México at a series of meetings over the coming year aimed at exploring deeper economic integration with each other. All these countries already have free trade agreements with the others (except México and Perú, which are now negotiating one).

Chile, Perú and México are members of the Asia-Pacific Economic Cooperation organisation (APEC) which Colombia would also like to join.



Map of Asia-Pacific Economic Cooperation (APEC) members


Chile and Perú also have free trade agreements with China. The idea is that Chile, Colombia, Perú and perhaps México will join together to bundle products for export to achieve the scale that importers in China are looking for.

The three Pacific countries already trade closely together. For example, Chile's LAN airline has its main Latin American hub in Lima, Peru. Chilean retailers too have invested heavily in Perú and are now looking to Colombia. And Colombia already manages much of Perú's electricity grids. Through the new deeper Pacific integration, Colombia would like to integrate the electricity grids from México to Chile and to build the missing links.

What does the future hold

If the Pacific Countries economic integration precedes as planned, the Pacific side of Latin America could form an alternative pole of attraction to Brazil. The MILA stock market might also attract foreign investors looking for an alternative to Brazil's over brought markets. Recently, Brazil has shown more interest in becoming a global power than in deepening Latin American integration. So if the Pacific side project takes off, it may become attractive to other mid-sized Atlantic countries too. Eventually, the Pacific Integration Project could team up with the stock market of Brazil to become a big player on the world financial scene as a joint Latin American Bolsa.

Latin American governments have failed to advance the cause of integration despite much talk at regional summits. Maybe the Pacific region's stock exchanges will be able to start doing what politicians have failed to do for so many years. Whatever happens the Pacific side of Latin America looks set to play a prominent role in the 21st century.