Economy Global Banking Meltdown: Did Bangladesh receive the Aladdin’s Lamp? During times of economic downturn, it’s not uncommon for banks to face financial difficulties and even collapse.But, when US Banks collapse, the whole world goes through a financial crisis.However, it seems like a miracle is happening on the other side of the world.In one part of the world, where the banking industry of a developed economy, the US, is going through a difficult period, the banking sector of a small developing country Bangladesh is performing well.Has Bangladesh got its hand on the magical lamp of Aladdin? How is the economy sustaining well in the economic downturn, despite bank failures in the US is a mystery which needs to be solved.In the last decade, Bangladesh’s economy has become one of the economies that is expanding the quickest.
On one side, where the nation’s physical and strategic interest has grown, on the other side the nation has demonstrated its crucial capacity to create and enforce policies.This must have been the reason why; the developed countries are investing in Bangladesh.Starting from Japan, China, USA to even developing countries are interested to increase trade with the country.The country has been so engaged heavily in international trading that any international downfall could have affected the country severely.However, it seems like Bangladesh has developed the strength and strategies to deal with uncertainties.The country has been taking precautionary measures before any disaster could affect its economy: one of such steps examples is taking IMF’s stabilization package beforehand.
Had the country waited for a long time, it would have to pay a higher cost.Because of the timeliness of the policy makers, Bangladesh was able to take IMF loan at only 2.2% whereas Pakistan will have to pay 19% for IMF loan.Even after agreeing on such a high cost, IMF has yet not guaranteed loan to Pakistan.It proves, how a small country like Bangladesh, has made its economy robust.The country knows its weaknesses and this has been proved to be the strongest ability of the country.In 2014, where other countries were supporting crypto currencies, Bangladesh strictly banned trading of such currencies.
After 9 years, one of the reasons behind US bank fails was ignoring the high risk arising from the crypto industry.It seems like Bangladesh was able to foresee the risk and potential collapse and took policy beforehand to limit the risk.As a risk optimization tool, entities often use the principle of diversification.the central bank of the country, Bangladesh bank strictly monitors the activities of commercial banks in this aspect.It ensures banks have invested in a portfolio and has not centralized its deposits by giving loan to only one or two specific sectors.Then again, the banking structure of the country is not unitary.
Almost all the banks of the country have branches to effectively meet extended liquidity needs in case of bank run.Additionally, sudden rise in the market interest rate as a tool for dealing with high inflation has a lot to do with US bank failure.However, Bangladesh Bank did a commendable job in raising policy rate gradually in accordance with the needs of managing inflation, and giving “breathing space” for the banks since they did not have to face a shock of interest rates fluctuations.Even though, often a group of economists suggest that Bangladesh should promote the market-based liquidation like US, Bangladesh has not accepted that proposal yet.
As, the reason of difficulties in Bangladesh mostly arises from lack of corporate governance, the country, instead of promoting market-based liquidation, is taking every measure to improve the governance systems especially for the banking sector.On top of that, to safeguard depositors, the country has also insured depositors up to BDT 2 lakh deposits to build trust in the industry.Another reason, often ignored by policy makers is the informal economy.For Bangladesh, the informal economy has proved to be a solution to economic development.It is a significant part of the budget and acting an important part in job formation, production, and salary enhancement in the country.Even, researches have proved that in terms of GDP and employment, Bangladesh’s informal sectors are the most important economic activities.According to studies, about 35% to 88% of Bangladesh’s workforce is employed in the informal economy, and the informal economy contributes around 49% to 64% of the country’s GDP.
Among all of the sectors, the agricultural sector is the country’s largest informal sector.
Even though, it seems like Bangladesh has immune its economy from a banking collapse, it should not be undermined Rumour as it Rumours can lead to “bank runs”.So, the policy makers and the banking sector regulators of Bangladesh should focus more on building credible and efficient public relationship, especially on the social media platforms where the absence of formal channels create a vacuum and hence disinformation misguide the depositors, then to alter any ill-motived rumours that might create a panic among the general depositors.The hum of inflationary panic; the buzz of an impending recession has somewhat died down – at least in my quarters! Or maybe it is just my instinct, given how relatively pressing matters have recently replaced the fervor misting around the rate hikes by the Federal Reserve.But as the economy evidently slows down, these supplanting matters should be taken as an omen rather than a distraction from the object of the economic policymakers.
In late March, the Fed raised rates by a quarter percentage points between 4.75% to 5%.It was a step down from back-to-back half-a-percentage point hikes and was decidedly a hedge against the troubles emanating from the banking sector yet without the show of leniency in the fight against inflation.The signs of a slowing economy are already emerging.According to the data released by the Bureau of Labour Statistics ( BLS ), job openings dropped in February to 9.93 million .It was lower than the 10.4 million vacant positions expected by leading economists, as per Refinitiv.And it stands as the lowest number of jobs available since May 2021.Mark Hamrick, a senior economic analyst at Bankrate, stated in an interview with CNN that “some of the steam is starting to come out of the job market, and we [will] likely see that [in] hiring slowing down and probably a slower increase in [the] unemployment rate in coming months.” While the US unemployment rate edged slightly higher after dropping to historic levels, it is still holding tight at 3.6% – despite mass layoffs announced by major conglomerates across America.Nonetheless, certain mainstay areas of the economy have noticeably slowed down, including the housing and tech sector, due to a combination of factors ranging from higher interest rates to shifting consumer spending from goods to services.
It seems like all the pieces are falling into place, just like the Fed had hoped throughout the last 12 months.But why is there still apprehension? Perhaps because of the age-old adage that when the Fed tightens policy, something ought to break before it halts.And that something has manifested itself in the form of the banking system.The aggressive rate hikes by the Federal Reserve played a crucial role in faltering the valuations of the asset holdings of the Silicon Valley Bank (SVB), eventually leading to its colossal collapse.Admittedly, it was primarily the mismanagement at the executive level that gradually metastasized the demise of both SVB and Signature Bank.Yet the regulatory slack of the Fed cannot be discarded.I do not mean to proffer a dissenting narrative to the Fed’s tightening of short-term borrowing costs.It is the right path, albeit adopted a little later than befitting.
However, the Fed failed to stress test banks last year to ascertain whether they could weather the headwinds planned.The Fed recently published the macroeconomic scenarios for the 2023 stress tests of banks under the Dodd-Frank Act .The ‘severely adverse scenario’ tested in this round might not be relevant.Ironically, the scenario tested the banks in an ultra-low interest rate environment, counterintuitive to the reality of a sharp rise in policy rates over the last year – a pivotal factor that actually tripped the imperiled banks.Moreover, it is also worth noting that the stress tests may not be as potent as one would hope, particularly for smaller banks like SVB.In fact, due to Republican lobbying, banks of SVB’s size have been entirely excluded from the stress tests since 2018 .Even for the larger banks tested, there are questions about the efficacy of the stress tests.
For instance, the Fed has used the same deviant rubric for every severely adverse scenario since 2015, which raises doubts about the ability of the tests to capture the risks facing banks in hawkish environments.Ultimately, policymakers at the Federal Reserve have assured that the US banking system is resolute and resilient.And officials continue to religiously monitor any potential chinks in the financial stability of the broader banking system.
Assuming the storm is past us, the focus should naturally shift back to the inflation woes – as it still runs more than twice the targeted 2% .At the last policy meeting, the Fed officials penciled in at least another rate rise this year, pushing the Fed funds rate above 5% and driving the real policy rate into positive territory.Hopefully, it would be enough to flag a victory over inflation by the end of next year, with unemployment crawling modestly higher.But if the panic in the banking sector is any indication, it might not be as straightforward a ride as initially envisioned.Now, it is not just a balance between inflation and a recession; a trade-off between inflation and broader economic stability.When an Englishman wants something, George Bernard Shaw observes, he never admits to himself of wanting it.
Instead his will is expressed as a burning conviction that it is his moral and religious duty to conquer those possessing what he wants.“Then he conquers half the world and calls it Colonization.When he wants a new market for his adulterated Manchester goods, he sends a missionary to teach the natives the gospel of peace.
The natives kill the missionary: he flies to arms in defense of Christianity; fights for it and conquers it; and takes the market as a reward from heaven.
You will never find an Englishman in the wrong.” Introduction In the 1980s, the Brandt Line model showcased a novel geographical perspective of the world, as it showed how the world was divided into two halves; the relatively richer and poorer nations.According to this model, almost all of the richer countries are located in the Northern Hemisphere.Contrastingly, the relatively poorer countries are all located in the tropical regions of the Southern Hemisphere.Despite the significant development gains achieved globally due to globalization and industrialisation, lifting millions out of absolute poverty, there is substantial evidence to believe that the inequality between the richest and the poorest countries is widening.
As per an Oxfam report, the richest 85 people in the world own the same amount of wealth as the half poorest of the world, with the richest 1 percent grabbing nearly twice as much money as the bottom 99 percent of the world’s population.As the world is marred in multifaceted systemic risks and crises, the western political leadership deems the North-South framework an obsolete cause and find it irrational to argue in terms of North-South divide.Although new ways of reassessing the geopolitical relations have emerged, the historic injustices stemming out of decades of colonization cannot be erased.The revolutionary economic ascent of the countries in the South has been impeccable and undeniable, as they’re often claimed to be ‘catching up’ with the Global North countries.
However, the catching up solely depends upon one’s unit of measure.As a French methodologist aptly emphasized the political and cultural roots that ground the power of the West; unparalleled cohesion, the tact to present its ideas as the promotion of general interests of all nations and humanity, training the elite of the planet and leading scientific and technological innovations.In all of the aforesaid realms, the Global South is slower to catch up than its GDP.North’s economic appropriation of the Global South The advanced developed economies of the North have relied intensively on economic appropriation of the Global South through drain of valuable resources and cheap labor, including exploited raw materials, land use and energy.
A massive proportion of South’s resources and labor are organized in the servicing of capital accumulation in the North, resultantly being deficient to meet the human needs of education, healthcare, nutrition as they’re used to produce fast fashion and fancy gadgets for the richer countries.These mechanisms perpetuate long-standing cycles of deprivation and inequality in the South while propping up the wealth, income and consumption levels of the countries in the North.This highlights the fact that the phenomenon of ‘developing or Third World’ countries being attributed to the countries in the South has less to do with access to resources and levels of production but entirely to with the fact that countries in the South have been under-represented and integrated into the global financial system on fundamentally unequal terms.Revisiting facts from the colonial era recollects the often faded reality that the European countries grew richer and more industrialized at South’s backbone vis a vis the forced extraction of resources,raw materials and labor from the global South.
The imperialist European settler colonies were able to exercise their dominance and leverage to cheapen the prices of goods in the South whilst simultaneously heavily taxing the colonized.Unequal Economic Governance: The tale of deprivation has still continues to this day with the imperialist ambitions now being disguised as the ‘neoliberal’ policies and being presented as a new model of development to the world.The North has hegemonic dominance within all International Financial Institutions (IFIs) such as the International Monetary Fund (IMF), World Bank and organizations such as World Trade Organization (WTO).Northern states hold a majority of the votes in the IMF and World Bank that gives them direct access to mould the global financial mechanisms and economic policy decisions.
In the WTO, the bargaining power is determined by the market size, which enables only high income developed states to be in decision and policy making levels and set the rules in their own interests.The dominant narrative prevalent in academic and political discussion on North South divide is that the South is poor and deprived due to their own shortcomings and internal failings, not taking into account the structural inequalities set up to obstruct their integration into the world economy.Along the same logic, global poverty is suggested to be alleviated via increased globalization, when in reality globalization has siphoned away the resources and knowledge of the poor into the global marketplace.In truth, there is gross imbalance between the negotiating and bargaining capacities between the North and South due to the lack of representation of the latter and over-representation of neoliberal interests on the former.The disconnect between North-South development cooperation In development cooperation, the size and needs of each country, community varies massively in terms of their socio-economic development.We are far from bridging the gap between these inequalities.
The North-South Cooperation models are built around the domestic agenda of the developed country also known as the donor country then further applied to the receiving country through their foreign policy based on domestic policy.How efficient would it be when the needs and considerations of the receiving country are far from being prioritized by the developed donor countries.
The remodeling of such development models is the need of the hour, as to not build the assistance infrastructure and development agenda based and influenced from the domestic policies of the developed donor countries.
It is important to engage in a global multilateral discussion and build strategies tailored for the needs of the people through the right to development approach.The decision making and ideology of the North-led development implementation agencies commissioned with the task of assistance in the South are at times far from reality and utopic, partly because the developing receiving countries of the South lack the mechanism and modalities of leadership and not being given adequate representation to lead such assistance and development projects.Resultantly, the personnel involved in such projects, predominantly coming from powerful positions of authority in the North face a social and ideological disconnect to the needs and demands of the people in the South, furthering the inequality and under-representation.Lack of independent South-led agencies that could develop and implement development assistance projects with a South’s perspective and expertise, is a serious gap in human rights and development.The South also inherently lacks independent development agencies that could partner and collaborate with the Northern development agencies, in an effort to bridge the ever increasing North-South gap.
This also highlights the responsibility of countries in the South to enable a functioning and favorable environment for the establishment and growth of such South led development agencies.A true repair called for permanently curbing the unequal distribution of goods and resources between Global north and South, restoring damaged ecosystems, establishing regenerative economic infrastructures and shifting towards a sustainable and equitable approach to development.United Nations Declaration on the Right to Development (DRTD) The United Nations Declaration on the Right to Development (DRTD) , seemingly an ambitious document, sets the stage on the clarity and context for equitable development.It heralds a rights-based approach to development by establishing equality, equity and justice as determinants of development.
It states that, “ development theory and practice requires active, free and meaningful participation of the people in the process of development.It embodies the human rights principles of equality, non-discrimination, participation, transparency, accountability as well as international cooperation in an integrated manner..” Emphasizing the representation of all stakeholders involved in its approach to development, with their due considerations, right to self determination, sovereignty, DRTD promotes a people-centered approach to development, since they’re the beneficiaries and bearers of rights.DRTD further asserts that the human person above all, is at the heart of all economic, social and political activity and in this respect, should not merely be the object, but rather the central subject of the development processes based on the active and free participation of the people.Conclusion The burgeoning catastrophic crises the world is currently immersed in, therefore, make imperative the actualization and implementation of the right to development in letter and spirit.Identifying lacunae in existing socio economic policies and structures, mending the gap via alternative convergence policies would help reduce the gnawing disparities between the two regions.
A systematic overhaul of the current North-South development implementation mechanisms need to take place supported by the political will and acumen of the state governments with the cooperation of the multi stakeholders involved vis av vis an all-inclusive and participatory mechanism.A global cross-sectional reform is the way forward to truly adequately meet the needs of the people in the South and elsewhere, as it is high time to walk the talk of development justice.Power struggle is not an unfamiliar concept in the international political world order.The history has witnessed, how the actors have changed yet the struggle for power continues, heedless of time and space.In every era, political entities have always endeavored to gain maximum power to get other actors to do what they would not have done otherwise.As Hans Morgenthau (1960) derives this cliché from the supposition that the desire to dominate is a “constitutive element of all human associations.” [[1]](#_ftn1) Every independent entity is seeking to dominate other, irrespective of the aims and objectives, the upmost priority is either to obtain or if so, increase power.The maximisation of power proves the theoretical framework of structural realism.
[[2]](#_ftn2) Which underscores the behaviour of a state in the international system is simply because of the anarchic structure of the international order.The fact that states can never be certain ending up to a very powerful states with malign intentions, they tend to maximize power to protect their sovereignty and national security.Dynamic World Order Since the world order is very much dynamic in nature and not static.China’s economic rise changed the unipolar world order to multipolarity, challenging the United States decades long unipolar domination over the world, ever since the end of the cold war.At the same time, this led to an intensified geo economic and strategic nature of competition in international political system among the two great powers.Threatening the global peace and likewise provoking the unpredictable diplomatic directions.Considering the conventional and traditional warfare has lost its relevance in the modern-day world.
China and United States has been indulged in an economic, information, trade warfare.With its economic boom China became the sole practitioner of Geo-economics in the contemporary times – from a poor developing country to the world’s second prevalent economic power and the foremost trading state.
The hardcore practitioner of geopolitics i.e., United States and Russia are today, regarded as the major players of geo-economics.
As geopolitics, with the proxy wars, militancy bases, and the elite’s perception of broadening the sphere of influence to control other states land masses and expand territorial control by gaining control over other’s natural resources had deliver its dividends.The Era of Fifth Gen Warfare A relatively new concept, the fifth gen warfare refers to the use of non-traditional warfare tactics – economic warfare being one such.The use of economic instruments, trade restrictions, sanctions, financial pressure to accomplish strategic objectives.However, economic warfare helps mitigate the possibility of a direct military confrontation while achieving strategic objectives through non-military approach and without relying on traditional military force.
The logic of military competition into the spheres of international trade was highlighted by the end of the cold war era.Where geo-economics emerged as a new concept for understanding international relations and disputes, considering economic dimensions as element of power.Today understanding the nature of economic warfare and tactics has become gradually significant part of strategic thinking and planning for military and political leaders.Russia Ukraine crisis is a recent example, how United State unlike the usual did not send its troops but rather impose economic sanctions on Russia to defend and support Ukraine.
Geoeconomics Vs Geopolitics It is to be understood that geoeconomics derives from classic geopolitics.
Simply put, it’s the broader scope of geopolitics applied to international economic relations.From this perspective, geoeconomics is an unfolding of geopolitics.However, Geo economic policies cannot be instigated in a vacuum and consequently, must take in account geo political contemplations.For instance, a state’s trade policies may be subjective to its geopolitics in the specific region or by regional circumstances.Likewise, the foreign investments and assets are ultimately shaped by the security concerns of that particular country.
Making it evident, even when geo economic policies are swayed independently, they are eventually being moulded by geopolitical aspects.When integrated with broader geopolitical realities, geo economic policies will be fecund incorporating, regional dynamics, security apprehensions and international relations.When geopolitical factors are ignored or disregarded, they will ultimately lead towards overlooked economic opportunities and vulnerability to economic shocks.Geopolitics is substantial because it helps comprehends a state behaviour in the international system and explains the global distribution of power.Playing a crucial role in shaping the security, trade, diplomacy and global governance.Where geoeconomics is the use of economic resources to safeguard national interest of state and likewise achieving geopolitical results.
With a multifaced approach, challenges posed by geo politics can be overcome to mutually beneficial geoeconomics.Focusing on encouraging trade, building infrastructure, promote regional cooperation, fostering innovation, prioritizing sustainability and inclusive growth and building trust by initiating dialogues.In this era of economic warfare, changing emphasis towards geoeconomics with geostrategic vision through systematic inducement can help achieve the geopolitical objectives.[[1]](#_ftnref1) https://www.jstor.org/stable/3013644 [[2]](#_ftnref2) https://www.commackschools.org/Downloads/8_mearsheimer-_structural_realism.pdf Publications Latest Economy27 seconds ago Global Banking Meltdown: Did Bangladesh receive the Aladdin’s Lamp? During times of economic downturn, it’s not uncommon for banks to face financial difficulties and even collapse.
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