The strong volatility in global financial and commodity markets has been unprecedented since the official end of recession in 2009. These waves of volatility have seen stock markets the worked over tank as a result of which trillions of dollars in equity and stock wealth have been wiped out. The undercurrents in global commodity and financial markets have mainly been a result of renewed fears that the economic heavyweights in North America and Europe are on the verge of a second recession.
In Europe, the sovereign debt crisis engulfing Greece is far from being fixed while the crisis threatens to spillover to a number of other countries whose levels of public debt have become unsustainable. Prospects of the global economy slowing down and entering yet again into another recession is becoming stronger.
It is extremely important that the global economy continues its pace of growth seen over the past two years following the 2008-09 debacle. It is important since lifting billions of poor people out of poverty in Asia, Africa and elsewhere is possible only through creation of wealth and value and a growing global economy.
A slowing global economy would mean that hundreds of thousands of jobs will be wiped out at a great socio-economic cost to the poor and middle class people living in various countries. In the international commodity markets, gold, silver, oil and a some of the base metals have been steadily rising for the past two years. Gold has already breached $1870 an ounce in global markets.
This steady rally in the price of this precious metal has been unprecedented since the end of World War 2 and the creation of the new global economic architecture. Surprisingly, oil as a commodity, has now turned into an asset class, fast becoming an investment option of choice not only for the purpose of preservation of wealth against inflation and economic shocks but also for earning handsome investment returns.
In global commodity markets, the volatility has been aided by the U.S. dollar losing its cherished status as the world's reserve currency. Investors of all hues the world over, spooked by the volatile markets, are increasingly taking refuge in commodities and stable currencies such as Swiss Franc. The bleak future outlook on the U.S. dollar has robbed it of its global reserve currency status.
The fact is that the global economy has already entered into a new phase of its history which has instability as one of its constant features. The post-World War 2 period, characterized by stability, the U.S. dollar as a safe haven, and steadily growing global economy is clearly over.
Historians of tomorrow will mark 2008 as the year that changed the face of the international economy, and consequently politics, for many decades thereafter. The continued weaknesses in the Western economies weighs down the global growth scenario as well as negatively affects the growth prospects in Asian and other emerging economies.
In the midst of all the turbulence outside in the real world, Afghanistan continues to live its happy dream in a bubble and in a fantasy world that is propped up by aid dollars pouring in. Over the medium and long term, if Afghanistan's nascent financial sector comes to a greater extent of exposure to international financial markets, we might as well end up importing into Afghanistan the turbulence and uncertainty the prevails on the international scene.
Certainly, the government of Afghanistan needs to think of plans and strategies to cushion the landing and prepare the ground for a smooth economic transition towards greater self-sufficiency over the next few years. In parallel to the security transition, an economic transition plan must be set in place and all internal and external resources mobilized to overcome the difficulties of the transition period.