Chatham House, The Royal Institute of International Affairs

While a new Bretton Woods-style agreement is highly unlikely, the US and Europe should help update the existing monetary system with a new set of best practices and norms.
Many of the seemingly ‘established’ norms of monetary policy are in fact quite recent, having emerged since the breakdown of the Bretton Woods system in the 1970s. These norms include inflation targeting, central bank independence from political authority, and the separation of monetary policy from regulatory activity such as bank supervision. Central bank orthodoxy has also, until recently, largely ignored the international ‘spillover’ effects of monetary policy.
The 2008–09 financial crisis and its aftermath changed the picture. Monetary policy was recruited to assist governments in stabilizing financial markets and restoring liquidity. And conventional assumptions about the primacy of central banks’ responsibility for price stability were challenged as quantitative easing (QE) proved less inflationary than feared. Indeed, eight years after the crisis, the inflation rate – the most significant driver of monetary policy under the old regime – remains consistently low in most major economies.
In this context, the United States faces some unique challenges. The dollar’s status as the global reserve currency means that the US Federal Reserve’s decisions often have international ramifications. Emerging markets are becoming more exposed to spillovers from US policy, as globalization renders their economies and financial systems more interdependent and as finance becomes increasingly important relative to other economic activity.
In Europe, the euro’s problems reflect similar shortcomings to those that undermined the 1944 Bretton Woods system. Launched in 1999, the euro was in effect an attempt to maintain fixed exchange rates between member states. However, the single currency’s designers underestimated the difficulty of maintaining such a system across multiple national economies, each with different growth profiles and fiscal policies. The euro’s structural problems have been exacerbated by the secular shift from a world of politically ‘subservient’ central banks, as existed before the creation of the European Central Bank (ECB), to the current system in which the ECB is highly independent.
Despite the current strains on the monetary system, consensus on a formalized new international framework in the mould of Bretton Woods is unlikely. A more plausible outcome is the organic development of a new set of norms articulating principles both for the mechanisms by which central banks pursue price stability and for the governance of central banks themselves. The United States and Europe are likely to be at the forefront of this process. They should proactively shape the new norms to ensure that they meet the challenges of today’s evolving economic landscape.

The world is embracing a truly digital future. Upwards of one billion new users and 20 billion devices are forecast to be online within five years. However, for this future to deliver its promise of greater digital freedom, security, trustworthiness and accessibility for all, governance of the Internet across all its dimensions must be an obvious priority around the world.
In only a few decades, the Internet has grown to be a truly transformative phenomenon, with the capacity to touch nearly every aspect of life. The Internet now connects almost half of the world’s population and connectivity rates continue to expand apace, empowering users for both good and ill. The Internet is unquestionably the most powerful information system the world has yet seen, but the digital world is only just past its infancy. As the digital world evolves, the Internet is poised to be the superstructure underlying all other infrastructures.
The Internet has become such a part of our lives that we take it, and our access to it, for granted. Maintaining and preserving its open and accessible qualities — the very qualities that encourage creativity and connectivity — present a challenge. It is vital that the rules and safeguards of Internet governance keep up with the pace of digital innovation, particularly in the sphere of the IoT. At the same time, the process of governance must not inadvertently slow down the spread of the Internet’s benefits, reduce creativity or inhibit its global reach.

Today’s global challenges are developing faster than ever as the world grows more interdependent. Advanced technologies are empowering individuals and organizations in new and unpredictable ways, creating new partnerships but also enabling the rise of new adversaries. A wide array of actors – from non-state groups to rogue states to revisionist powers – are testing these new tools. In parallel, the international system built in the second half of the 20th century is being challenged by emerging regional and global powers, while environmental and other transnational issues have become a determining factor in geopolitics. The resulting complexity and growing number of challenges have made the global security environment more difficult to navigate. It is in this context that the transatlantic relationship is evolving.

Domestic political backlashes against inequality, corporate malfeasance and the stagnation of real incomes over the past decade are being reinforced by uncertainties about the durability of the post-Cold War international order. Russia’s military intervention in Ukraine, China’s strategic and territorial claims in the South China and East China seas, the rise of Islamic State of Iraq and Syria (ISIS) and the Syrian civil war, the migrant crisis affecting Europe and the Mediterranean, and evolving threats to cyber security – all constitute serious challenges to the rules of the global game.
A natural, and perhaps inevitable, question that emerges in the light of such concerns is: ‘How can the United Kingdom and Japan work together to deal with these issues?’ This, however, is a question more appealing to diplomats than to scholars or journalists. We are sceptical about the idea that bilateral cooperation can play a significant role in these matters, even if we are not at all opposed to it. Rather, we feel – and our feeling was confirmed by the September discussions – that what is most valuable is to enhance British and Japanese awareness and understanding of each other’s perspectives and, in particular, of the differences in emphasis or priority seen in the two countries, and thereby to help each other promote solutions more effectively in multilateral forums.
This essay aims to contribute to that process. There is plainly a great deal of overlap and agreement between Japan and the UK on many issues. There is always a lot that each country can learn from the other. But it is in the differences – whether of perspective, of experience or of emphasis – that the most important learnings lie. This essay will therefore explore differences more zealously than it seeks similarities.

Two major goals have driven Vladimir Putin’s presidency: a controlling state and a prosperous economy. His central dilemma has been to manage the tension between those objectives. He has had to consider how Russia could reap prosperity through globalization while maintaining domestic control and great-power autonomy.
To achieve that end, Russia evolved a strategy of ‘sovereign globalization’. Initially, this involved managing the terms of economic engagement to limit external influence by reducing sovereign debt, circumscribing foreign ownership rights and maximizing the balance of benefits over obligations in global economic governance.
As Russia’s confidence grew, it sought to exert broader political influence by economic means, using its position as the major market of the former Soviet Union and dominant energy supplier to Europe.
A series of adverse developments undermined that strategy: the decline of energy-export-led growth, global energy market developments and EU responses to Russian policy. Those changes led to a sharp and unfavourable shift in the balance between opportunity and risk in Russia’s engagement with the global economy.
The unravelling of Russia’s strategy propelled events in Ukraine and triggered the present crisis in Russia–West relations. As a consequence, Russia’s distorted political economy is now under strain; its regional influence is waning; and Western sanctions are depriving it of goods, capital and technology.
Russia’s experiment with ‘sovereign globalization’ was a highly ambitious attempt to harness interdependence to the pursuit of power-political ends. For the first time, Russia used economic relations – its traditional weakness – as a source of strength. The failure of that strategy encourages pessimism about Russia’s prospects but optimism about globalization.
- See more at: https://www.chathamhouse.org/publication/russias-sovereign-globalization-rise-fall-and-future#sthash.katIyU1J.dpuf

The British government’s approach since 2010 of seeking to enhance the UK's relations with the world’s emerging powers while balancing these with relationships with the United States and Europe has had only limited success. With constrained resources, and in the face of intense global economic competition, mounting security challenges and decaying international institutions, trying to commit the UK equally on all three fronts will not succeed in the future.

This paper calls for a different mindset and strategy towards the UK’s place in the world – one in which Britain is surrounded by three concentric circles of influence:

- The first or ‘inner circle’ is the EU, the region with which the UK’s relationships need to be strongest and most active.
- The ‘second circle’ consists of the protective and enabling set of economic and security relationships with the US.
- Finally, an ‘outer circle’ comprises the UK’s other key bilateral and institutional relationships.

The approach advocated by this paper is not the so-called ‘economic peace’. Economic development is not a substitute for political rights. As an educated and entrepreneurial people, Palestinians are capable of creating a viable economy that would support a sovereign state unreliant on foreign aid.
The EU policy shift would have to entail effective engagement of Israelis and Palestinians to address each other’s security requirements in accordance with international standards. This includes addressing Israel’s occupation and its ‘layering’ of measures under the name of security that undermine Palestinian economic development. A crippled Palestinian economy does not make Israel safer, but it meanwhile diminishes Palestinian dignity and hope for the future.
Such a shift in policy on the part of the EU would better align Europe with its own ENP objectives, and would be a critical positive response to political factors at play in the Middle East. It would fill the void arising from the reduced US focus on Israel and Palestine. However, this policy shift would be enhanced if it were fortified with a degree of US acceptance – if not support.

The US military is at a crossroads. After a decade of war with nearly unlimited defence spending, the Pentagon must determine how to absorb nearly $500 billion in cuts over 10 years amid debate over how the ‘future force’ should be structured and equipped. The challenges of force planning for Pentagon strategists will only be exacerbated by an uncertain and challenging security environment combined with a war-weary public, debates over the United States’ role in the world and fears of its ‘retrenchment’.

The simplistic US-China focused narrative of the future of the Asia-Pacific does not sufficiently take into consideration other regional actors such as Japan and India, new instruments of leverage in the region, or the extent and complexity of changing relationships.

In making the situation appear simpler than reality, Asia-Pacific countries and the United States risk narrowing the aperture through which they evaluate policy choices regarding major regional challenges. At the same time, the bipolar perspective, potentially invoking Cold War-type mentalities, could exacerbate tensions rather than relieve them. Seeing US–Chinese competition as the main variable in the region could become a self-fulfilling prophecy.

This paper seeks to go beyond this perception by laying out the major narratives of the region’s power distribution currently in play in its four principal powers – the United States, China, India and Japan. Building on a review of the main instruments of power and the current regional trends, this paper argues that the Asia-Pacific region in 2030 will have at least four principal characteristics:
- The pace of change will increase, along with its volatility. This will result in the power distribution between the principal actors becoming more complex, finely balanced and difficult to assess clearly. The emergence of new, often disruptive, technologies, particularly in media and communications, will make control of information increasingly difficult.
- Power will become more diverse and diffuse, with more state and non-state actors having influential roles. Power is also becoming more diffuse within states, making it harder for governments to manage internal debates and to send clear messages to neighbours, particularly where nationalism is growing.
- The region will become more complex, unpredictable and thus hard to govern as a result of the rise of new actors, challenges and tools. This could lead to policy paralysis on the part of leading state actors as a swiftly changing environment and too many choices lead to greater uncertainty and, in the end, hesitancy or no action being taken.
- The region will become more interdependent, which makes the previous point troubling. Already, all states in the Asia-Pacific are increasingly dependent on one another for growth, stability and security.

The Gulf monarchies – the six member states of the Gulf Cooperation Council (GCC – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)) – are undergoing dramatic change. The last decade has seen rapid growth in their populations, economies and education systems, coupled with deep changes in the flow of information, the make-up of the population and the economic expectations of the younger generation. The Gulf states are increasingly important foreign policy players and investors, which means that a growing range of countries have a direct interest in their wealth and stability.

This report makes a number of recommendations for GCC governments and international allies. Key points are summarized below. In short, it argues that the Gulf countries should seize the opportunity to carry out meaningful reforms towards more constitutional forms of monarchy. Failing that, the various dynamics of change – economic, demographic, social and political – will add to pressures on the states of the Gulf, and increase the risks of future conflict in a region of vital strategic importance to the rest of the world.