The changing world order refers to the shift in the balance of power among nations, when one empire collapses and a new one takes its place. This phenomenon has occurred throughout history, with an average cycle of approximately 250 years for major empires, the same factors ultimately leading to their downfall.
The current world order, commonly referred to as the American world order, was formed after the Allied victory in World War II, when the United States became the dominant global power. In 1944, the new global monetary order was defined in the Bretton Woods Agreements, which established the dollar as the world's primary reserve currency. Controlling the world's reserve currency plays a key role in a country's rise to become the wealthiest and most powerful empire.
Before the American empire and the US dollar achieved the status of the world's reserve currency, the empires that held the previous reserve currencies were the British Empire and the pound sterling in the 1800s, and before that, the Dutch Empire and the guilder in the 1600s. As you can see, all the reserve currencies of the past eventually gave way to new ones. Today, this question is relevant to investors, as some are beginning to wonder if, when, and why the dollar will lose its status as the world's primary reserve currency, what might replace it, and how that would change the world. To answer these questions, it is helpful to examine what has happened in the past.
What causes these great global empires to eventually lose their power?
In his research, Ray identified eight key indicators for measuring the power of an empire.
These eight indicators are: education, inventiveness and technological development, competitiveness in global markets, economic output, share of world trade, military power, the strength of their financial center for capital markets, and the strength of their currency as a global reserve currency.
Since each of these factors is measurable, we can use them to assess each country's current power relative to its past power and determine whether it is on the rise or in decline. This is important for understanding the evolving balance of power, because by observing the stage countries are at, we can identify and anticipate future rises and falls of nations.
As an example, Ray notes that "for the first time in its history, the United States is facing a true rival power. China has become a rival power to the United States in almost every respect and is growing stronger than the US in most areas." If this trend continues, China will become stronger than the United States in the most important areas that allow an empire to exert its dominance. At the very least, it will be a formidable competitor.