2034 – are we already there?

With 100,000 Russian troops massing on the borders of Ukraine and enjoying a buildup of supporting airpower and logistics, I was happy to receive Admiral James Stavridis and Elliot Ackermann’s cheerily entitled book ‘2034 – a Novel of the Next World War’ through the letterbox (with thanks to Michael Levitt).

The book outlines how a potential naval focused war between China and the US might play out. It is a fun read though also an unvarnished appeal for the USA to spend more on cyber capabilities, and at times ascribes a tactical naivety to the US navy that is implausible.

While there is a cottage industry of writers opining on the ‘next’ war in the South China Sea, Stavridis is well qualified as a warrior and scholar. From my own non-military perch, the book emphasized at least four things about the ‘new world order’ that Xi Jinping references at last week’s Boao Forum.  

The first of these is that clusters of books that warn against coming wars, may eventually be worth paying attention to. The outstanding example here is Erskine Childers’ ‘The Riddle of the Sands’ which intricately unveiled the contours of how Britain was vulnerable to a surprise attack by the German navy (a trajectory later enacted by Maldwin Drummond in Rune VII).

A related thought is that history repeats itself, which is why the argument of Graham Allison’s ‘Thucydides Trap’ is a seductive one. In addition, reading Margaret McMillan’s ‘The War that Ended Peace’ I was struck by the inexorable buildup of navies (principally Germany and Britain) in the early part of the 20th century (that Norman Angell also flagged in ‘The Great Illusion’) and the parallels between this phase of history and the growth of the Chinese navy, which on number of ships alone is bigger than the American one.

The third point is that Stavridis and Ackermann have their timing all wrong – today it already feels like we are close to a ‘2034’ type scenario. New geopolitical ‘gangs’ are forming – the Quad (Australia, Japan, India and the US) and the SCO (China, Pakistan, Russia…with guest appearances by Iran), and China in particular is at odds with most of the countries in its geopolitical hinterland (notably India where border skirmishes have been followed by cyber attacks).

Add to that the growing effectiveness of drones on the battlefield (as witnessed during the brief war between Azerbaijan and Armenia) and talk of ‘quantum warfare’ as the ‘next big thing’ and the future does indeed look bleak.

In that context, there are maybe a few other points to set straight. First, and this might be my markets background talking, but there is so much discussion of a grand naval battle in the South China Sea, that it is unlikely to happen. A piece of grand naval theatre has few winners. Instead, look at the way that Hong Kong has been subsumed by China, with only a whimper from the West. China’s approach is multifaceted, based on constructive ambiguity.

This provokes a second point that in the future we will see fewer outright wars, but a lot more conflict and tension (over ‘rare places and rare materials’, my February 27th note).

In this scenario, outright war takes a backseat to strategic contests – where cyber power, soft power and in particular financial power are brought to bear on rival nations and constellations. This is especially the case with digital currencies, where the People’s Bank of China’s trial roll out of a digital yuan (Digital Currency Electronic Payment, DCEP) in cities such as Shenzhen, Chengdu and Suzhou has ignited a debate as to whether this is, in part, a maneuver to supplant the dollar as the world’s dominant currency, and also threatening the place of other currencies such as the pound.

Reflecting this, the Bank of England and Treasury have announced the joint creation of a Central Bank Digital Currency (CBDC) taskforce to coordinate the exploration of a potential UK CBDC. In my view this ups the ante in the roll out of digital currencies and underlines the notion of ‘money is power’. It does not mean that the dollar is in demise – digital currencies from central banks come at a cost in the sense that the central banks gain ever more information and control over economies and transactions. For this reason, I am not sure that African companies for instance would prefer – a digital dollar or digital yuan?

To close out the ‘total war’ loop, the ruble is one currency that is unlikely to transplant the dollar or the pound anytime soon. Indeed, it oscillated last week on every flex of the Russian army’s muscle. As I finish writing this note, the Russians have pulled back from the Ukrainian border – possibly because the terrain is still too muddy for a decent tank charge, but more likely because they feel they have sent a message regarding NATO enlargement and the Russian view of Ukraine’s geopolitical role.

The real question is – what will Russia be like by 2034? By then Vladimir Putin will still have two years to run on his elongated presidential cycle…who knows what he will have gotten up to?

Have a great week ahead

Mike

2 thoughts on “2034 – are we already there?

  1. “… digital currencies from central banks come at a cost in the sense that the central banks gain ever more information and control over economies and transactions. For this reason, I am not sure that African companies for instance would prefer – a digital dollar or digital yuan?”

    Wow. Do I need to label this?
    Are ‘Africans’ the go-to corruption mascots?
    You are talking about the UK here. Have you noticed the level of corruption that is being revealed daily about the current *UK* government. Would they want all of that instantly revealed on a blockchain ledger? Same country. Same era.
    Why have you jumped across the ocean to Africa?

    Like

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