At a time when the global economy is suffering from a crisis of confidence, structural imbalances, and subdued growth prospects, looking ahead ten years to predict the course of development requires careful modeling and something beyond sagacity. What is needed is a multifaceted approach that combines a sense of history with careful analysis of current forces such as the shift in the balance of global growth toward the emerging world.
Such forecasting also requires an understanding of how advanced economies are coming to grips with that shift, and how the international monetary system will adjust as a result. Having studied these factors, we believe that the world economy is on the verge of a transformative change--the transition to a multipolar world economic order.
Throughout history, paradigms of economic power have been drawn and redrawn according to the rise and fall of those countries best equipped to drive global growth and provide stimulus to the global economy. Multipolarity, meaning more than two dominant growth poles, has at times been a key feature of the world economy. But at no time in modern history have developing countries been at the forefront of a multipolar economic system.
This pattern is set to change. By 2025, six emerging economies---Brazil, China, India, Indonesia, South Korea, and Russia--will collectively account for about one-half of global growth. The international monetary system is likely to cease being dominated by a single currency over the same years. As they pursue growth opportunities abroad and are encouraged by improved policies at home, emerging-market corporations will play an increasingly prominent role in global business and cross-border investment, while large pools of capital within their borders will allow emerging economies to become key players in financial markets.
As dynamic emerging economies evolve to take their place at the helm of the world economy, a rethink of the conventional approach to global economic governance is needed. The current approach rests on three premises: the link between concentrated economic power and stability; the North-South axis of capital flows; and the centrality of the U.S. dollar.
Since the end of World War II, the U.S.-centered global economic order has been built on a complementary set of tacit economic and security arrangements between the United States and its core partners, with emerging economies playing a peripheral role. In exchange for the United...