The impact of Western financial policies on global economies has become increasingly pronounced, particularly for developing countries facing contractionary effects from rising interest rates. Jomo Kwame Sundaram highlights that the unconventional measures taken by central banks following the 2008 financial crisis have resulted in increased debt levels, which are now exacerbated by the Federal Reserve and European Central Bank's (ECB) tightening policies [130570cd]. The rigid 2% inflation target, established in 1989, has remained unchanged despite evolving economic conditions, contributing to stagnation and limiting fiscal policy options for many nations [130570cd].
As interest rates have risen since 2022, the adverse effects on low-income countries have intensified, with capital being redirected away from these economies, further deepening inequalities. Notably, two-thirds of income inequality is now attributed to international disparities, underscoring the global ramifications of Western financial strategies [130570cd].
The weaponization of finance, particularly through the freezing of assets and sanctions, has disrupted international trade and cooperation, as noted in previous discussions regarding the $300 billion in Russian reserves frozen by Western nations [5269a3ea]. This economic warfare has led to significant instability, prompting emerging economies to seek a more equitable global order. Countries like China are advocating for multilateralism and have seen their economic influence grow, with their GDP surpassing that of the US in purchasing power parity [5269a3ea].
In this context, the recent interventions by Japan in foreign exchange markets to stabilize the yen further illustrate the complexities of the current economic landscape. The yen's significant depreciation has raised costs for industries and importers, while also benefiting tourism and exports [7e62ba49].
Overall, the divergence in monetary policies among major central banks continues to complicate the economic situation for emerging markets and developing economies, highlighting the urgent need for reforms in the global financial system [7e62ba49].