Sino-India Doklam Standoff, #BRICS and Shanghai Cooperation Organization (SCO). How the Resolution Could Have Been Reached?

The National Security Adviser of India, Mr. Ajit Doval was posed with a blunt question by China’s state councillor Yang Jiechi when the two met on July 27 to make a settlement over the disputable patch in the Bhutan-owned Doklam stretch. He was asked: Is it  your territory? However, this tough question failed to faze Doval, who, according to reliable sources, had most calmly replied that the stretch of land in question is not China’s territory either – Does every disputed territory become China’s by default? Doval asked in return. This has the potential to read a lot in between and thus without getting awed by the response, deconstructing what transpired is the imperative. This sharp exchange between the two countries was followed by several rounds of negotiations between the two sides in Beijing, with India’s foreign secretary S Jaishankar and India’s ambassador to China Vijay Gokhale trying to reach out to a mutually acceptable solution. These meetings were also sanctioned by the prime ministers of both the countries, especially when they met in Hamburg on the sidelines of G20 meeting on July 7. In fact, the Indian Prime Minister Narendra Modi and his Chinese counterpart Xi Jinping also agreed to the fact that the negotiations should be held at the NSA level in order to let the dispute not escalate any more. Modi later asked his diplomatic team to reach to a solution at the earliest as this dispute had been the worst in numerous years and the two countries cannot afford to lose each other’s support any more.

This is Doklam, the tri-junction between India, Bhutan and China.

Doklam Plateau-3


It was here that India and China were involved in a three-month standoff with the two largest militaries in the world in a eyeball-to-eyeball contact. While, it was in everybody’s interest that the countries do not spark a conflagration, the suspense over this tiny out-of-bounds area had consequences to speculations trajectory. It all started in June this year, when the Indian troops crossed over the disputed territory claimed by both China and Bhutan as its sovereign territory to halt a road construction at Doklam, which could have given China the surveillance and access mechanism over India’s Chicken Neck, the narrow strip that connects the NE Indian states with the mainland. But, other reason for India’s crossing over the boundary lies in a pact with Bhutan where the country would defend any incursions into Bhutan. The standoff was pretty tense with piling up of the war machinery and the troops from either side in a ready-to-combat stature, but still showed extreme presence of mind from getting involved in anything adventurous. China’s blistering state-owned media attacks from instigating to belligerent to carrying out travel advisories on the one hand, and India’s state-purchased media exhibiting peppered nationalism to inflating the 56″ authoritarianism on the other did not really help matters boil down to what was transpiring on the ground. We had pretty much only these two state-owned-purchased behemoths to rely upon and imagine the busting of the myths. But, this week, much to the respite of citizens from either side of the border and the international community at large keenly observing the developments as they were unfolding, the tensions eased, or rather resolved almost dramatically as they had begun in the first place. The dramatic end was at least passed over in silence in the media, but whatever noises were made were trumpeting victories for their respective sides. Even if this were a biased viewpoint, the news reports were quantitative largely and qualitative-ness was generally found at large. The resolution agreed on the the accelerated withdrawal of troops from the site of the standoff.

China still vociferously insists that the territorial dispute in Sikkim was resolved as long ago as in 1890, when Beijing and the British Empire signed the so-called Convention of Calcutta, which defined Sikkim’s borders. As per Article (1) of Convention of 1890, it was agreed that the boundary of Sikkim and Tibet shall be the crest of the mountain range separating the waters flowing into the Sikkim Teesta and its affluents, from the waters flowing into the Tibetan Mochu and northwards into other rivers of Tibet. The line commences at Mount Gipmochi, on the Bhutan frontier, and follows the above-mentioned water-parting to the point where it meets Nepal territory. However, Tibet refused to recognise the validity of Convention of 1890 and further refused to carry into effect the provisions of the said Convention. In 1904, a treaty known as a Convention between Great Britain and Tibet was signed at Lhasa. As per the Convention, Tibet agreed to respect the Convention of 1890 and to recognise the frontier between Sikkim and Tibet, as defined in Article (1) of the said Convention. On April 27, 1906, a treaty was signed between Great Britain and China at Peking, which confirmed the Convention of 1904 between Great Britain and Tibet. The Convention of 1890 was entered by the King of Great Britain on behalf of India before independence and around the time of independence, the Indian Independence (International Arrangement) Order, 1947 was notified by Secretariat of the Governor-General (Reforms) on August 14, 1947. The Order provided, inter alia, that the rights and obligations under all international agreements to which India is a party immediately before the appointed day will devolve upon the Dominion of India. Therefore, in terms of Order of 1947, the government of India is bound by the said Convention of 1890. However, India’s affirmation of the Convention of 1890 was limited to the alignment of the India-China border in Sikkim, based on watershed, and not with respect to any other aspects. However, India-backed Bhutan is convinced that Beijing’s attempt to extend a road to the Doklam area goes against a China-Bhutan agreement on maintaining peace in the region until the dispute is resolved.

The question then is: how could have the tensions that were simmering just short of an accident resolved? Maybe, for the Indians, these were a result of diplomatic procedures followed through the time of tensions, whereas for the Chinese, it was a victory and yet another lesson learnt by the Indians after their debacle in the 1962 conflict. The victory stood its claim because the Chinese maintained that even if the Indians were withdrawing from the plateau, the Chinese would continue patrolling the area. Surprisingly, there isn’t a convincing counterclaim by the Indians making the resolution a tad more concessionary as regards the Indians. It was often thought that amid tensions over the dispute, there had been growing concerns over whether Indian Prime Minister Narendra Modi would skip the upcoming BRICS summit in China as he did in May when Beijing hosted an international event to celebrate the One Belt One Road Initiative championed by Chinese President Xi Jinping. Harsh Pant, a professor of International Relations at King’s College, London, and a distinguished fellow at Observer Research Foundation, said,

If the road is not being built, it’s legal enough for India to pullback, because the boundary dispute is not the problem and has been going on for ages. The real issue was China’s desire to construct a concrete road in this trijunction under dispute. If the Chinese made the concession to not build the road, the whole problem went away.

The Chinese Foreign Ministry’s spokeswoman said on Tuesday that China would adjust its road building plans in the disputed area taking into account of various factors such as the weather. In his turn, Prime Minister Modi would not have gone ahead with the visit to China if the border dispute remains unresolved, according to the expert. Following the resolution of the border dispute, India’s MEA said that Modi plans to visit Xiamen in China’s Fujian province during September 3-5, 2017 to attend the 9th BRICS Summit. But, the weather angle refused to go, as in the words of Hu Zhiyong, a research fellow at the Institute of International Relations of the Shanghai Academy of Social Sciences,

The weather condition is still the main reason. We all know that heavy snowfall is expected in the Donglang region by late September. The snow will block off the mountain completely, making it impossible to continue road construction. This incident has allowed China to clearly understand potential threat from India. I would call India an ‘incompetent bungler.’ That’s because India always is a spoiler in all the international organizations it becomes a part of. It always takes outrageous and irrational actions. After this incident, China realized that India is not a friendly partner, but a trouble-maker.

The Shanghai-based expert pointed out that the recent standoff has helped China better understand the potential harm India can cause. Chinese Foreign Minister Wang Yi said that Beijing hopes that New Delhi will remember the lessons of latest border confrontation and will avoid such incidents in the future. Despite both China and India agreeing to deescalate the border dispute for the sake of the BRICS summit, the temporary compromise may not last long, as tensions could quickly flare again. In the words of Brahma Chellaney, a professor of strategic studies at the New Delhi-based Center for Policy Research,

The standoff has ended without resolving the dispute over the Doklam plateau. The Indian forces have retreated 500 meters to their ridge-top post at Doka La and can quickly intervene if the Chinese People’s Liberation Army (PLA) attempts to restart work on the military road – a construction that triggered the face-off. As for China, it has withdrawn its troops and equipment from the face-off site, but strongly asserts the right to send in armed patrols. A fresh crisis could flare if the PLA tries again to build the controversial road to the Indian border.

Hu, the Shanghai-based Chinese professor, asserted that the recent standoff has allowed China to better prepare for future border disputes with India. The Chinese Defense Ministry said that China will maintain a high combat readiness level in the disputed area near the border with India and Bhutan and will decisively protect China’s territorial sovereignty.

So, where does Shanghai Cooperation Organization (SCO) fit in here?

With India and Pakistan as newly installed members of the Shanghai Cooperation Organization, or SCO, China is likely to face an increasing amount of divisiveness within a regional economic and security organization accustomed to extreme comity and cooperative discussions. India’s entry could especially frustrate Beijing because of rising geopolitical competition between the Asian giants and different approaches to counterterrorism. Beijing may not have even wanted India to join the SCO. Russia first proposed India as a member, likely in part to complement bilateral economic and security engagement, but mainly to constrain China’s growing influence in the organization. Russia is increasingly concerned that post-Soviet SCO members  –  Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan – are drifting too far into China’s geostrategic orbit. Moscow had long delayed implementing Chinese initiatives that would enable Beijing to reap greater benefits from regional trade, including establishing an SCO regional trade agreement and bank. As China gains more clout in Central Asia, Moscow may welcome New Delhi by its side to occasionally strengthen Russia’s hand at slowing or opposing Chinese initiatives. Indeed, during a visit to Moscow, Modi said, “India and Russia have always been together on international issues.”

Going forward, this strategy is likely to pay big dividends. New Delhi has a major hang-up related to the activities of its archrival Pakistan – sponsored by Beijing at the 2015 SCO summit to balance Moscow’s support of India – and continues to be highly critical of China’s so-called “all-weather friendship” with Islamabad. In May, New Delhi refused to send a delegation to Beijing’s widely publicized Belt and Road Initiative summit, which was aimed at increasing trade and infrastructure connectivity between China and Eurasian countries. According to an official Indian statement, the flagship project of the Belt and Road Initiative – the China-Pakistan Economic Corridor – was not being “pursued in a manner that respects sovereignty and territorial integrity.” Indian opposition stems from the plan to build the corridor through the disputed Kashmir region and to link it to the strategically positioned Pakistani port of Gwadar, prompting Prime Minister Narendra Modi to raise the issue again during his acceptance speech at the SCO summit last month. New Delhi likely will continue to criticize the corridor in the context of the SCO because, as a full member, India has the right to protest developments that do not serve the interests of all SCO members. The SCO also offers another public stage for India to constantly question the intent behind China’s exceptionally close ties to Pakistan.

India-Pakistan tensions occasionally flare up, and Beijing may have to brace for either side to use the SCO as a platform to criticize the other. In the absence of a major incident, Beijing has admirably handled the delicacy of this situation. When asked in early June whether SCO membership would positively impact India-Pakistan relations, China spokesperson Hua Chunying said: “I see the journalist from Pakistan sit[s] right here, while journalists from India sit over there. Maybe someday you can sit closer to each other.” Additionally, the Chinese military’s unofficial mouthpiece, Global Times, published an op-ed suggesting that SCO membership for India and Pakistan would lead to positive bilateral developments. Even if that is overly optimistic, it would set the right tone as the organization forges ahead. But the odds are against China’s desired outcome. Beijing needs to look no farther than South Asia for a cautionary tale. In this region, both India and Pakistan are members of the multilateral grouping known as the South Asian Association for Regional Cooperation. New Delhi, along with Afghanistan, Bangladesh and Bhutan, boycotted last year’s summit in Islamabad because it believed Pakistan was behind a terrorist attack on an Indian army base. Even with an official ban on discussing bilateral issues in its proceedings, SAARC has been perennially hobbled by the intrusion of India-Pakistan grievances. Beijing can probably keep its close friend Islamabad in line at the SCO, but this likely won’t be the case with New Delhi. Another major issue for the SCO to contend with is the security of Afghanistan. An integral component of the organization is the Regional Anti-Terrorist Structure, aimed at combating China’s “three evils” – terrorism, extremism, and separatism. India, however, is likely to reliably and reasonably highlight the contradiction between China’s stated anti-terrorism goals and the reality of its policy. Most notably, Beijing has consistently looked the other way as Pakistani intelligence services continue to support terrorist groups in Afghanistan, including the Afghan Taliban and Haqqani Network. Moreover, because India is particularly close to the Afghan government, it could seek to sponsor Afghanistan to move from observer status toward full SCO membership. This would give India even greater strength in the group and could bolster Russia’s position as well.

Lingering border disputes and fierce geostrategic competition in South Asia between China and India is likely to temper any cooperation Beijing might hope to achieve with New Delhi in the SCO. Mutual suspicions in the maritime domain persist as well, with the Indian government recently shoring up its position in the strategically important Andaman and Nicobar island chain to counter the perceived Chinese “string of pearls” strategy – aimed at establishing access to naval ports throughout the Indian Ocean that could be militarily advantageous in a conflict. Such mutual suspicions will likely impact SCO discussions, perhaps in unpredictable ways. Although India may be an unwelcome addition and irritant to Beijing at the SCO, China does not necessarily need the SCO to achieve its regional objectives. From its announcement in 2001, the SCO gave Beijing a productive way to engage neighbors still dominated by Moscow. But today, China’s economic and military strength makes it far more formidable on its own – a point that is only magnified as Russian influence simultaneously recedes, or rather more aptly fluctuates. For instance, even though India rejected Beijing’s Belt and Road Initiative overture, China remains India’s top trading partner and a critical market for all Central and South Asian states, leaving them with few other appealing options. India’s entry into the SCO, however, could put Beijing in the awkward position of highlighting the organization’s value, while increasingly working around or outside of it. Outright failure of the SCO would be unacceptable for China because of its central role in establishing the forum. Regardless of the bickering between countries that may break out, Beijing can be expected to make yet another show of the importance of the SCO, with all of the usual pomp and circumstance, at the next summit in June 2018. China as host makes this outcome even more likely.

Taking on the imagination to flight, I am of the opinion that its the banks/financial institutions, more specifically the Shanghai Cooperation Organisation (SCO) and the upcoming BRICS Summit that have played majorly into this so-called resolution. India’s move to enter Doklam/Donglang was always brazen as India, along with Pakistan entered the Shanghai Cooperation Organisations (SCO) shortly before India entered Chinese territory. In this sense, India was almost mocking the Shanghai Cooperation Organisation by refusing to utilise the SCO as a proper forum in which to settle such disputes diplomatically. So, even if diplomatically it is a victory for #BRICS, materially it is #China‘s. Whatever, two nuclear-powered states in a stand-off is a cold-threat to….whatever the propaganda machine wants us to believe, the truth is laid bare. This so-called diplomatic victory has yielded a lot of positive, and in the process have snatched the vitality of what economic proponents in the country like to express solemnly of late, growth paradigm, wherein the decision is rested with how accelerated your rate of growth is, and thus proportionally how much of a political clout you can exercise on the international scenario. India’s restraint is not to be taken as how the Indian media projects it in the form of a victory, for that would indeed mean leading the nation blindly at the helm of proto-fascism. This could get scary.


Why Should Modinomics Be Bestowed With An Ignoble Prize In Economics? Demonetization’s Spectacular Failure.

This lesson from history is quite well known:

Muhammad bin Tughlaq thought that may be if he could find an alternative currency, he could save some money. So he replaced the Gold and Silver coins with copper currency. Local goldsmiths started manufacturing these coins and which led to a loss of a huge sum of money to the court. He had to take his orders back and reissue Gold/Silver coins against those copper coins. This counter decision was far more devastating as people exchanged all their fake currency and emptied royal treasure.

And nothing seems to have changed ideatically even after close to 800 years since, when another bold and bald move or rather a balderdash move by the Prime Minister of India Narendra Modi launched his version of the lunacy. Throw in Demonetization and flush out black money. Well, that was the reason promulgated along with a host of other nationalistic-sounding derivatives like curbing terror funding, expanding the tax net, open to embracing digital economy and making the banking system more foolproof by introducing banking accounts for the millions hitherto devoid of any. But, financial analysts and economists of the left of the political spectrum saw this as brazen porto-fascistic move, when they almost unanimously faulted the government for not really understanding the essence of black money. These voices of sanity were chased off the net, and chided in person and at fora by paid trolls of the ruling dispensation, who incidentally were as clueless about it as about their existence. Though, some other motives of demonetization were smuggled in in feeble voices but weren’t really paid any heed to for they would have sounded the economic disaster even back then. And these are the contraband that could give some credibility to the whole exercise even though it has turned the world’s fastest-growing emerging economy (God knows how it even reached that pinnacle, but, so be it!) into a laughing stock of a democratically-elected dictatorial regime. What is the credibility talked about here? It was all about smashing the informal economy (which until the announcement of November 8 contributed to 40% of the GDP and had a workforce bordering on 90% of the entire economy) to smithereens and sucking it into the formal channel through getting banking accounts formalized. Yes, this is a positive in the most negative sense, and even today the government and whatever voices emanate from Delhi refuse to consider it as a numero uno aim.

Fast forward by 3 (period of trauma) + 8 (periods of post-trauma) months and the cat is out of the bag slapping the government for its hubris. But a spectacular failure it has turned out to be. The government has refused to reveal the details of how much money in banned notes was deposited back with the RBI although 8 months have passed since the window of exchange closed in January this year. Despite repeated questioning in Parliament, Supreme Court and through RTIs, the govt. and RBI has doggedly maintained that old banned notes were still being counted. In June this year, finance minister Arun Jaitley claimed that each note was being checked whether it was counterfeit and that the process would take “a long time”. The whole country had seen through these lies because how can it take 8 months to count the notes. Obviously there was some hanky panky going on. Despite statutory responsibility to release data related to currency in circulation and its accounts, the RBI too was not doing so for this period. They were under instructions to fiddle around and not reveal the truth. Consider the statistics next:

As on November 8, 2016, there were 1716.5 crore piece of Rs. 500 and 685.8 crore pieces of Rs. 1000 circulating the economy totaling Rs. 15.44 lakh crore. The Reserve Bank of India (RESERVE BANK OF INDIA ANNUAL REPORT 2016-17), which for a time as long as Urjit Patel runs the show has been criticized for surrendering the autonomy of the Central Bank to the whims and fancies of PM-run circus finally revealed that 99% of the junked notes (500 + 1000) have returned to the banking system. This revelation has begun to ricochet the corridors of power with severe criticisms of the government’s move to flush out black money and arrest corruption. When the RBI finally gave the figures through its annual report for 2016-17, it disclosed that Rs. 15.28 lakh crore of junked currency had formally entered the banking system through deposits, thus leaving out a difference of a mere (yes, a ‘mere’ in this case) Rs. 16,050 crore unaccounted for money. Following through with more statistics, post-demonetization, the RBI spent Rs. 7,965 crore in 2016-17 on printing new Rs. 500 and Rs. 2000 notes in addition to other denominations, which is more than double the Rs. 3,421 crore spent on printing new notes in the previous year. Demonetization, that was hailed as a step has proved to be complete damp squib as the RBI said that just 7.1 pieces of Rs. 500 per million in circulation and 19.1 pieces of Rs. 1000 per million in circulation were discovered to be fake further implying that if demonetization was also to flush pout counterfeit currency from the system, this hypothesis too failed miserably.

Opposition was quick to seize on the data with the former Finance minister P Chidambaram tweeting:


He further lamented that with 99% of the currency exchanged, was demonetization a scheme designed to convert black money to white? Naresh Agarwal of Samajwadi Party said his party would move privilege motion against Urjit Patel for misleading a Parliamentary Panel on the issue.

But, what of the immense collateral damage that the exercise caused? And why is the government still so shameless in protecting a lunacy? Finance Minister Arun Jaitley on asserted that any attempt to measure the success of the government’s demonetization exercise on the basis of the amount of money that stayed out of the system was flawed since the confiscation of money had not been the objective. He maintained that the government had met its principal objectives of reducing the reliance on cash in the economy, expanding the tax base and pushing digitisation. Holy Shit! And he along with his comrades is selling and marketing this crap and sadly the majority would even buy into this. Let us hear him out on the official position:

Denying that demonetisation failed to achieve its objectives, Finance Minister Arun Jaitley said the measure had succeeded in reducing cash in the economy, increasing digitisation, expanding the tax base, checking black money and in moving towards integrating the informal economy with the formal one. “The objective of demonetisation was that India is a high-cash economy and that scenario needs to be altered,” Jaitley told following the release of the Reserve Bank of India’s (RBI) annual report for the last fiscal giving the figures, for the first time, of demonetised notes returned to the system. The RBI said that of the Rs 15.44 lakh crore of notes taken out of circulation by the demonetisation of Rs 500 and Rs 1,000 notes last November, Rs 15.28 lakh crore, or almost 99 per cent, had returned to the system by way of deposits by the public.”The other objectives of demonetisation were to combat black money and expand the tax base. Post demonetisation, tariff tax base has increased substantially. Personal IT returns have increased by 25 per cent,” the Finance Minister said. “Those dealing in cash currency have now been forced to deposit these in banks, the money has got identified with a particular owner,” he said. “Expanding of the indirect tax base is evident from the results of the GST collections, which shows more and more transactions taking place within the system,” he added. Jaitley said the government has collected Rs 92,283 crore as Goods and Services Tax (GST) revenue for the first month of its roll-out, exceeding the target, while 21.19 lakh taxpayers are yet to file returns. Thus, the July collections target have been met with only 64 per cent of compliance. “The next object of demonetisation is that digitisation must expand, which climaxed during demonetisation and we are trying to sustain that momentum even after remonetisation is completed. Our aim was that the quantum of cash must come down,” Jaitley said. He noted in this regard that RBI reports that the volume of cash transactions had reduced by 17 per cent post-demonetisation. A Finance Ministry reaction to the RBI report said a significant portion of the scrapped notes deposited “could possibly be representing unexplained/black money”. “Accordingly, ‘Operation Clean Money’ was launched on 31st January 2017. Scrutiny of about 18 lakh accounts, prima facie, did not appear to be in line with their tax profile. These were identified and have been approached through email/sms. “Jaitley slammed his predecessor P. Chidambaram for his criticism of the note ban, saying those who had not taken a single step against black money were trying to confuse the objectives of the exercise with the amount of currency that came back into the system. The Finance Ministry said transactions of more than three lakh registered companies are being scrutinised, while one lakh companies have been “struck off the list”. “The government has already identified more than 37,000 shell companies which were engaged in hiding black money and hawala transactions. The Income-tax Directorates of Investigation have identified more than 400 benami transactions up to May 23, 2017, and the market value of properties under attachment is more than Rs 600 crore,” it said. “The integration of the informal with the formal economy was one of the principle objectives of demonetisation,” Jaitley said. He also said that demonetisation had dealt a body blow to terrorist and Maoist financing that was evident from the situation on the ground in Chhattisgarh and Jammu and Kashmir. One thing is for sure: more and more of gobbledygook is to follow.

One of the major offshoots of the demonetisation drive was a push towards a cashless, digital economy. Looking at the chart below, where there is presented the quantum of cashless transactions in some of the major economies of the world…one could only see India’s dismal position. Just about 2% of the volume of economic transactions in India are cashless.


Less cash would mean less black money…less corruption…and more transparency. Is it? Assuming it is, how far the drive would go on driving? But was India really ready to go digital? There were 5.3 bank branches per one lakh Indians in rural India 15 years ago. On the eve of demonetization, the figure stood at 7.8 bank branches per one lakh Indians. This shows that a majority of rural India has very little access to banks and the organized financial sector. They rely heavily on cash and the informal credit system. Then, we have just 2.2 lakh ATMs in the country. For a population of over 1.2 billion people, that’s a very small number. And guess what? A majority of ATMs are concentrated in metros and cities. For instance, Delhi has more ATMs than the entire state of Rajasthan. Given the poor penetration of banks and formal sector financial services in rural India, Modi’s cashless economy ambitions were always a distant dream. Then there are issues of related to security. Were the banks and other financial institutions technologically competent to tackle the security issues associated with the swift shift towards a digital economy? Can the common man fully trust that his hard earned money in the financial system will be safe from hackers and fraudsters? And the answer does not seem be a comforting one!

“Those dealing in cash currency have now been forced to deposit these in banks, the money has got identified with a particular owner” So surveillance was the reason. Makes sense why they are so desperate to link aadhaar to bank accounts. Some researchers have considered couple of factors which have actually caused demonetization in India. First one includes the refinancing of public sector banks in India. 80% of banks in India are run by government, during the last two decades these banks have been used to lend out loans to corporations which stink of cronyism. These politically-affiliated businesses did not pay back their money which has resulted into the accumulation of huge amount of non-performing assets (NPAs) within these banks. From last three years warning signals were continuously coming about their collapse. Through demonetization millions of poor people have deposited their meagre sums within these banks which have resulted into their refinancing, so that they can now lend the money to the same guys who earlier do not paid back their loans. sounds pretty simplistic, right? Sad, but true, it is this simple. The second factor is the influence of technological and communications companies on the government, as these companies are among the fastest growing ones during the last two decades. Making payments through digital gate ways will be very beneficial for their growth. They can expand their influence over the whole human race. The statements from technological giants like Apple, Microsoft, MasterCard, Facebook, Google etc. clearly shows their intentions behind cashless society. Tim Cook the chief executive of Apple said that “next generation of children will not know what money is” as he promotes “apple pay” as an alternative. MasterCard executives consider apple pay as another step towards cashless society. MasterCard is mining Facebook users data to get consumer behaviour information which it can sell to banks. Bill gates said India will shift to digital payments, as the digital world lets you track things quickly. The acquisition of artificial intelligence companies by Google, Facebook and Microsoft is also on its peak. Over 200 private companies using AI algorithms across different verticals have been acquired since 2012, with over 30 acquisitions taking place in Q1 of 2017 alone. Apple acquired voice recognition firm “Vocal IQ and real face Google has acquired deep learning and neural network, Facebook acquired Masquerade Technologies and Zurich Eye. So what is actually going on, as private corporations and governments are desperate to introduce cashless economy through biometric payment system.

No black money was unearthed by Modi’s historic folly. Terrorism has also not gone down after demonetization and neither has circulation of counterfeit currency. So, it was a failure on all counts, a point that has been predicted by economists worldwide. What the note ban did was cause untold suffering and misery to common people, destroy livelihoods of millions of wage workers, caused bankruptcy to farmers because prices of their produce crashed and disrupted the economic life of the whole country. The only people who benefited from the note bandi were companies that own digital payment systems (like PayTM, MobiKwik etc.) and credit card companies. It also seems now that ultimately, the black money owners have benefited because they managed to convert all their black wealth in to white using proxies.

Dynamics of Point Particles: Orthogonality and Proportionality


Let γ be a smooth, future-directed, timelike curve with unit tangent field ξa in our background spacetime (M, gab). We suppose that some massive point particle O has (the image of) this curve as its worldline. Further, let p be a point on the image of γ and let λa be a vector at p. Then there is a natural decomposition of λa into components proportional to, and orthogonal to, ξa:

λa = (λbξba + (λa −(λbξba) —– (1)

Here, the first part of the sum is proportional to ξa, whereas the second one is orthogonal to ξa.

These are standardly interpreted, respectively, as the “temporal” and “spatial” components of λa relative to ξa (or relative to O). In particular, the three-dimensional vector space of vectors at p orthogonal to ξa is interpreted as the “infinitesimal” simultaneity slice of O at p. If we introduce the tangent and orthogonal projection operators

kab = ξa ξb —– (2)

hab = gab − ξa ξb —– (3)

then the decomposition can be expressed in the form

λa = kab λb + hab λb —– (4)

We can think of kab and hab as the relative temporal and spatial metrics determined by ξa. They are symmetric and satisfy

kabkbc = kac —– (5)

habhbc = hac —– (6)

Many standard textbook assertions concerning the kinematics and dynamics of point particles can be recovered using these decomposition formulas. For example, suppose that the worldline of a second particle O′ also passes through p and that its four-velocity at p is ξ′a. (Since ξa and ξ′a are both future-directed, they are co-oriented; i.e., ξa ξ′a > 0.) We compute the speed of O′ as determined by O. To do so, we take the spatial magnitude of ξ′a relative to O and divide by its temporal magnitude relative to O:

v = speed of O′ relative to O = ∥hab ξ′b∥ / ∥kab ξ′b∥ —– (7)

For any vector μa, ∥μa∥ is (μaμa)1/2 if μ is causal, and it is (−μaμa)1/2 otherwise.

We have from equations 2, 3, 5 and 6

∥kab ξ′b∥ = (kab ξ′b kac ξ′c)1/2 = (kbc ξ′bξ′c)1/2 = (ξ′bξb)


∥hab ξ′b∥ = (−hab ξ′b hac ξ′c)1/2 = (−hbc ξ′bξ′c)1/2 = ((ξ′bξb)2 − 1)1/2


v = ((ξ’bξb)2 − 1)1/2 / (ξ′bξb) < 1 —– (8)

Thus, as measured by O, no massive particle can ever attain the maximal speed 1. We note that equation (8) implies that

(ξ′bξb) = 1/√(1 – v2) —– (9)

It is a basic fact of relativistic life that there is associated with every point particle, at every event on its worldline, a four-momentum (or energy-momentum) vector Pa that is tangent to its worldline there. The length ∥Pa∥ of this vector is what we would otherwise call the mass (or inertial mass or rest mass) of the particle. So, in particular, if Pa is timelike, we can write it in the form Pa =mξa, where m = ∥Pa∥ > 0 and ξa is the four-velocity of the particle. No such decomposition is possible when Pa is null and m = ∥Pa∥ = 0.

Suppose a particle O with positive mass has four-velocity ξa at a point, and another particle O′ has four-momentum Pa there. The latter can either be a particle with positive mass or mass 0. We can recover the usual expressions for the energy and three-momentum of the second particle relative to O if we decompose Pa in terms of ξa. By equations (4) and (2), we have

Pa = (Pbξb) ξa + habPb —– (10)

the first part of the sum is the energy component, while the second is the three-momentum. The energy relative to O is the coefficient in the first term: E = Pbξb. If O′ has positive mass and Pa = mξ′a, this yields, by equation (9),

E = m (ξ′bξb) = m/√(1 − v2) —– (11)

(If we had not chosen units in which c = 1, the numerator in the final expression would have been mc2 and the denominator √(1 − (v2/c2)). The three−momentum relative to O is the second term habPb in the decomposition of Pa, i.e., the component of Pa orthogonal to ξa. It follows from equations (8) and (9) that it has magnitude

p = ∥hab mξ′b∥ = m((ξ′bξb)2 − 1)1/2 = mv/√(1 − v2) —– (12)

Interpretive principle asserts that the worldlines of free particles with positive mass are the images of timelike geodesics. It can be thought of as a relativistic version of Newton’s first law of motion. Now we consider acceleration and a relativistic version of the second law. Once again, let γ : I → M be a smooth, future-directed, timelike curve with unit tangent field ξa. Just as we understand ξa to be the four-velocity field of a massive point particle (that has the image of γ as its worldline), so we understand ξnnξa – the directional derivative of ξa in the direction ξa – to be its four-acceleration field (or just acceleration) field). The four-acceleration vector at any point is orthogonal to ξa. (This is, since ξannξa) = 1/2 ξnnaξa) = 1/2 ξnn (1) = 0). The magnitude ∥ξnnξa∥ of the four-acceleration vector at a point is just what we would otherwise describe as the curvature of γ there. It is a measure of the rate at which γ “changes direction.” (And γ is a geodesic precisely if its curvature vanishes everywhere).

The notion of spacetime acceleration requires attention. Consider an example. Suppose you decide to end it all and jump off the tower. What would your acceleration history be like during your final moments? One is accustomed in such cases to think in terms of acceleration relative to the earth. So one would say that you undergo acceleration between the time of your jump and your calamitous arrival. But on the present account, that description has things backwards. Between jump and arrival, you are not accelerating. You are in a state of free fall and moving (approximately) along a spacetime geodesic. But before the jump, and after the arrival, you are accelerating. The floor of the observation deck, and then later the sidewalk, push you away from a geodesic path. The all-important idea here is that we are incorporating the “gravitational field” into the geometric structure of spacetime, and particles traverse geodesics iff they are acted on by no forces “except gravity.”

The acceleration of our massive point particle – i.e., its deviation from a geodesic trajectory – is determined by the forces acting on it (other than “gravity”). If it has mass m, and if the vector field Fa on I represents the vector sum of the various (non-gravitational) forces acting on it, then the particle’s four-acceleration ξnnξa satisfies

Fa = mξnnξa —– (13)

This is Newton’s second law of motion. Consider an example. Electromagnetic fields are represented by smooth, anti-symmetric fields Fab. If a particle with mass m > 0, charge q, and four-velocity field ξa is present, the force exerted by the field on the particle at a point is given by qFabξb. If we use this expression for the left side of equation (13), we arrive at the Lorentz law of motion for charged particles in the presence of an electromagnetic field:

qFabξb = mξbbξa —– (14)

This equation makes geometric sense. The acceleration field on the right is orthogonal to ξa. But so is the force field on the left, since ξa(Fabξb) = ξaξbFab = ξaξbF(ab), and F(ab) = 0 by the anti-symmetry of Fab.

Orthodoxy of the Neoclassical Synthesis: Minsky’s Capitalism Without Capitalists, Capital Assets, and Financial Markets


During the very years when orthodoxy turned Keynesianism on its head, extolling Reaganomics and Thatcherism as adequate for achieving stabilisation in the epoch of global capitalism, Minsky (Stabilizing an Unstable Economy) pointed to the destabilising consequences of this approach. The view that instability is the result of the internal processes of a capitalist economy, he wrote, stands in sharp contrast to neoclassical theory, whether Keynesian or monetarist, which holds that instability is due to events that are outside the working of the economy. The neoclassical synthesis and the Keynes theories are different because the focus of the neoclassical synthesis is on how a decentralized market economy achieves coherence and coordination in production and distribution, whereas the focus of the Keynes theory is upon the capital development of an economy. The neoclassical synthesis emphasizes equilibrium and equilibrating tendencies, whereas Keynes‘s theory revolves around bankers and businessmen making deals on Wall Street. The neoclassical synthesis ignores the capitalist nature of the economy, a fact that the Keynes theory is always aware of.

Minsky here identifies the main flaw of the neoclassical synthesis, which is that it ignores the capitalist nature of the economy, while authentic Keynesianism proceeds from precisely this nature. Minsky lays bare the preconceived approach of orthodoxy, which has mainstream economics concentrating all its focus on an equilibrium which is called upon to confirm the orthodox belief in the stability of capitalism. At the same time, orthodoxy fails to devote sufficient attention to the speculation in the area of finance and banking that is the precise cause of the instability of the capitalist economy.

Elsewhere, Minsky stresses still more firmly that from the theory of Keynes, the neoclassical standard included in its arsenal only those earlier-mentioned elements which could be interpreted as confirming its preconceived position that capitalism was so perfect that it could not have innate flaws. In this connection Minsky writes:

Whereas Keynes in The General Theory proposed that economists look at the economy in quite a different way from the way they had, only those parts of The General Theory that could be readily integrated into the old way of looking at things survive in today‘s standard theory. What was lost was a view of an economy always in transit because it accumulates in response to disequilibrating forces that are internal to the economy. As a result of the way accumulation takes place in a capitalist economy, Keynes‘s theory showed that success in operating the economy can only be transitory; instability is an inherent and inescapable flaw of capitalism. 

The view that survived is that a number of special things went wrong, which led the economy into the Great Depression. In this view, apt policy can assure that cannot happen again. The standard theory of the 1950s and 1960s seemed to assert that if policy were apt, then full employment at stable prices could be attained and sustained. The existence of internally disruptive forces was ignored; the neoclassical synthesis became the economics of capitalism without capitalists, capital assets, and financial markets. As a result, very little of Keynes has survived today in standard economics.

Here, resting on Keynes‘s analysis, one can find the central idea of Minsky‘s book: the innate instability of capitalism, which in time will lead the system to a new Great Depression. This forecast has now been brilliantly confirmed, but previously there were few who accepted it. Economic science was orchestrated by proponents of neoclassical orthodoxy under the direction of Nobel prizewinners, authors of popular economics textbooks, and other authorities recognized by the mainstream. These people argued that the main problems which capitalism had encountered in earlier times had already been overcome, and that before it lay a direct, sunny road to an even better future.

Robed in complex theoretical constructs, and underpinned by an abundance of mathematical formulae, these ideas of a cloudless future for capitalism interpreted the economic situation, it then seemed, in thoroughly convincing fashion. These analyses were balm for the souls of the people who had come to believe that capitalism had attained perfection. In this respect, capitalism has come to bear an uncanny resemblance to communism. There is, however, something beyond the preconceptions and prejudices innate to people in all social systems, and that is the reality of historical and economic development. This provides a filter for our ideas, and over time makes it easier to separate truth from error. The present financial and economic crisis is an example of such reality. While the mainstream was still euphoric about the future of capitalism, the post-Keynesians saw the approaching outlines of a new Great Depression. The fate of Post Keynesianism will depend very heavily on the future development of the world capitalist economy. If the business cycle has indeed been abolished (this time), so that stable, non-inflationary growth continues indefinitely under something approximating to the present neoclassical (or pseudo-monetarist) policy consensus, then there is unlikely to be a significant market for Post Keynesian ideas. Things would be very different in the event of a new Great Depression, to think one last time in terms of extreme possibilities. If it happened again, to quote Hyman Minsky, the appeal of both a radical interventionist programme and the analysis from which it was derived would be very greatly enhanced.

Neoclassical orthodoxy, that is, today‘s mainstream economic thinking proceeds from the position that capitalism is so good and perfect that an alternative to it does not and cannot exist. Post-Keynesianism takes a different standpoint. Unlike Marxism it is not so revolutionary a theory as to call for a complete rejection of capitalism. At the same time, it does not consider capitalism so perfect that there is nothing in it that needs to be changed. To the contrary, Post-Keynesianism maintains that capitalism has definite flaws, and requires changes of such scope as to allow alternative ways of running the economy to be fully effective. To the prejudices of the mainstream, post-Keynesianism counterposes an approach based on an objective analysis of the real situation. Its economic and philosophical approach – the methodology of critical realism – has been developed accordingly, the methodological import of which helps post-Keynesianism answer a broad range of questions, providing an alternative both to market fundamentalism, and to bureaucratic centralism within a planned economy. This is the source of its attraction for us….

Monetary Policy Divergence: Cross Currency + FX Swaps — Negative Basis. Thought of the Day 83.0


Cross currency swaps and FX swaps encompass structures which allow investors to raise funds in a particular currency, e.g. the dollar from other funding currencies such as the euro. For example an institution which has dollar funding needs can raise euros in euro funding markets and convert the proceeds into dollar funding obligations via an FX swap. The only difference between cross currency swaps and FX swaps is that the former involves the exchange of floating rates during the contract term. Since a cross currency swap involves the exchange of two floating currencies, the two legs of the swap should be valued at par and thus the basis should be theoretically zero. But in periods when perceptions about credit risk or supply and demand imbalances in funding markets make the demand for one currency (e.g. the dollar) high vs. another currency (e.g. the euro), then the basis can be negative as a substantial premium is needed to convince an investor to exchange dollars against a foreign currency, i.e. to enter a swap where he receives USD Libor flat, an investor will want to pay Euribor minus a spread (because the basis is negative).

Both cross currency and FX swaps are subjected to counterparty and credit risk by a lot more than interest rate swaps due to the exchange of notional amounts. As such the pricing of these contracts is affected by perceptions about the creditworthiness of the banking system. The Japanese banking crisis of the 1990s caused a structurally negative basis in USD/JPY cross currency swaps. Similarly the European debt crisis of 2010/2012 was associated with a sustained period of very negative basis in USD/EUR cross currency swaps.

What had caused these dollar funding shortages? Financial globalization meant that Japanese banks had accumulated a large amount of dollar assets during the 1980s and 1990s. Similarly European banks accumulating a large amount of dollar assets during 2000s created structural US dollar funding needs. The Japanese banking crisis of 1990s made Japanese banks less creditworthy in dollar funding markets and they had to pay a premium to convert yen funding into dollar funding. Similarly the Euro debt crisis created a banking crisis making Euro area banks less worthy from a counterparty/credit risk point of view in dollar funding markets. As dollar funding markets including FX swap markets dried up, these funding needs took the form of an acute dollar shortage.

What then is causing the negative basis currently? The answer is monetary policy divergence. The ECB’s and BoJ’s QE coupled with a chorus of rate cuts across DM and EM central banks has created an imbalance between supply and demand across funding markets. Funding conditions have become a lot easier outside the US with QE-driven liquidity injections and rate cuts raising the supply of euro and other currency funding vs. dollar funding. This divergence manifested itself as one-sided order flow in cross currency swap markets causing a decline in the basis.

Time and World-Lines

Let γ: [s1, s2] → M be a smooth, future-directed timelike curve in M with tangent field ξa. We associate with it an elapsed proper time (relative to gab) given by

∥γ∥= ∫s1s2 (gabξaξb)1/2 ds

This elapsed proper time is invariant under reparametrization of γ and is just what we would otherwise describe as the length of (the image of) γ . The following is another basic principle of relativity theory:

Clocks record the passage of elapsed proper time along their world-lines.

Again, a number of qualifications and comments are called for. We have taken for granted that we know what “clocks” are. We have assumed that they have worldlines (rather than worldtubes). And we have overlooked the fact that ordinary clocks (e.g., the alarm clock on the nightstand) do not do well at all when subjected to extreme acceleration, tidal forces, and so forth. (Try smashing the alarm clock against the wall.) Again, these concerns are important and raise interesting questions about the role of idealization in the formulation of physical theory. (One might construe an “ideal clock” as a point-size test object that perfectly records the passage of proper time along its worldline, and then take the above principle to assert that real clocks are, under appropriate conditions and to varying degrees of accuracy, approximately ideal.) But they do not have much to do with relativity theory as such. Similar concerns arise when one attempts to formulate corresponding principles about clock behavior within the framework of Newtonian theory.

Now suppose that one has determined the conformal structure of spacetime, say, by using light rays. Then one can use clocks, rather than free particles, to determine the conformal factor.

Let g′ab be a second smooth metric on M, with g′ab = Ω2gab. Further suppose that the two metrics assign the same lengths to timelike curves – i.e., ∥γ∥g′ab = ∥γ∥gab ∀ smooth, timelike curves γ: I → M. Then Ω = 1 everywhere. (Here ∥γ∥gab is the length of γ relative to gab.)

Let ξoa be an arbitrary timelike vector at an arbitrary point p in M. We can certainly find a smooth, timelike curve γ: [s1, s2] → M through p whose tangent at p is ξoa. By our hypothesis, ∥γ∥g′ab = ∥γ∥gab. So, if ξa is the tangent field to γ,

s1s2 (g’ab ξaξb)1/2 ds = ∫s1s2 (gabξaξb)1/2 ds

∀ s in [s1, s2]. It follows that g′abξaξb = gabξaξb at every point on the image of γ. In particular, it follows that (g′ab − gab) ξoa ξob = 0 at p. But ξoa was an arbitrary timelike vector at p. So, g′ab = gab at our arbitrary point p. The principle gives the whole story of relativistic clock behavior. In particular, it implies the path dependence of clock readings. If two clocks start at an event p and travel along different trajectories to an event q, then, in general, they will record different elapsed times for the trip. This is true no matter how similar the clocks are. (We may stipulate that they came off the same assembly line.) This is the case because, as the principle asserts, the elapsed time recorded by each of the clocks is just the length of the timelike curve it traverses from p to q and, in general, those lengths will be different.

Suppose we consider all future-directed timelike curves from p to q. It is natural to ask if there are any that minimize or maximize the recorded elapsed time between the events. The answer to the first question is “no.” Indeed, one then has the following proposition:

Let p and q be events in M such that p ≪ q. Then, for all ε > 0, there exists a smooth, future directed timelike curve γ from p to q with ∥γ ∥ < ε. (But there is no such curve with length 0, since all timelike curves have non-zero length.)


If there is a smooth, timelike curve connecting p and q, there is also a jointed, zig-zag null curve connecting them. It has length 0. But we can approximate the jointed null curve arbitrarily closely with smooth timelike curves that swing back and forth. So (by the continuity of the length function), we should expect that, for all ε > 0, there is an approximating timelike curve that has length less than ε.

The answer to the second question (“Can one maximize recorded elapsed time between p and q?”) is “yes” if one restricts attention to local regions of spacetime. In the case of positive definite metrics, i.e., ones with signature of form (n, 0) – we know geodesics are locally shortest curves. The corresponding result for Lorentzian metrics is that timelike geodesics are locally longest curves.

Let γ: I → M be a smooth, future-directed, timelike curve. Then γ can be reparametrized so as to be a geodesic iff ∀ s ∈ I there exists an open set O containing γ(s) such that , ∀ s1, s2 ∈ I with s1 ≤ s ≤ s2, if the image of γ′ = γ|[s1, s2] is contained in O, then γ′ (and its reparametrizations) are longer than all other timelike curves in O from γ(s1) to γ(s2). (Here γ|[s1, s2] is the restriction of γ to the interval [s1, s2].)

Of all clocks passing locally from p to q, the one that will record the greatest elapsed time is the one that “falls freely” from p to q. To get a clock to read a smaller elapsed time than the maximal value, one will have to accelerate the clock. Now, acceleration requires fuel, and fuel is not free. So the above proposition has the consequence that (locally) “saving time costs money.” And proposition before that may be taken to imply that “with enough money one can save as much time as one wants.” The restriction here to local regions of spacetime is essential. The connection described between clock behavior and acceleration does not, in general, hold on a global scale. In some relativistic spacetimes, one can find future-directed timelike geodesics connecting two events that have different lengths, and so clocks following the curves will record different elapsed times between the events even though both are in a state of free fall. Furthermore – this follows from the preceding claim by continuity considerations alone – it can be the case that of two clocks passing between the events, the one that undergoes acceleration during the trip records a greater elapsed time than the one that remains in a state of free fall. (A rolled-up version of two-dimensional Minkowski spacetime provides a simple example)


Two-dimensional Minkowski spacetime rolledup into a cylindrical spacetime. Three timelike curves are displayed: γ1 and γ3 are geodesics; γ2 is not; γ1 is longer than γ2; and γ2 is longer than γ3.

The connection we have been considering between clock behavior and acceleration was once thought to be paradoxical. Recall the so-called “clock paradox.” Suppose two clocks, A and B, pass from one event to another in a suitably small region of spacetime. Further suppose A does so in a state of free fall but B undergoes acceleration at some point along the way. Then, we know, A will record a greater elapsed time for the trip than B. This was thought paradoxical because it was believed that relativity theory denies the possibility of distinguishing “absolutely” between free-fall motion and accelerated motion. (If we are equally well entitled to think that it is clock B that is in a state of free fall and A that undergoes acceleration, then, by parity of reasoning, it should be B that records the greater elapsed time.) The resolution of the paradox, if one can call it that, is that relativity theory makes no such denial. The situations of A and B here are not symmetric. The distinction between accelerated motion and free fall makes every bit as much sense in relativity theory as it does in Newtonian physics.

A “timelike curve” should be understood to be a smooth, future-directed, timelike curve parametrized by elapsed proper time – i.e., by arc length. In that case, the tangent field ξa of the curve has unit length (ξaξa = 1). And if a particle happens to have the image of the curve as its worldline, then, at any point, ξa is called the particle’s four-velocity there.

Why Do Sovereign Borrowers Seek to Avoid Default? A Case of Self-Compliance With Contractual Terms.


Every form of debt is typically a contractual agreement between a lender and a borrower. The former initially pays a money amount to the latter, the latter promises regular interest payments in the future (ct) for a certain time period (n years) and then return of the whole nominal value of the contract (C). This practically means that the owner of the contract (creditor) acquires a right on a future stream of payments and the contract a present value for the same reason. In a general case, the present value of the contract is given by the following formula (r is the discounting rate):

PV = ∑t=1n ct/(1 + r)t + C/(1 + r)n

Put simply, the equation gives the present value of the liability discounting all future anticipated payments. Default is by definition any ex post change in the stream of current and future payments on the debt contract. This change makes the contract less valuable to the creditor, reducing its present value for non-execution of the agreed payments.

In the case that the borrower is a private firm (or a household), law and related third party enforcers (including but not limited to the courts) guarantee the execution of the contractual terms. If the borrower in the international financial markets is a sovereign state, things are quite different as the third-party enforcement is typically futile. Sovereign borrowers may voluntarily choose to self-comply to the contractual terms; nevertheless, if not, there is no typical third-party enforcement on the international level. Even in the case that the debt contracts are subject to foreign law, the enforcement powers of the foreign courts are limited. The case of Argentina is indicative enough. As it is now well known and widely discussed, the court judgment of Thomas P. Griesa determined that the Argentine government should pay the holdouts pari passu despite the fact that the great majority of creditors had agreed to a restructuring. The decision had its results and triggered a new mini-default, but by no means could typically enforce a policy change to Argentina. In the relevant literature, this is usually called fundamental asymmetry of the sovereign debt market. In the mainstream misleading analytical context (where states, firms, and households are treated as coherent agents acting on a cost/benefit basis and pursuing the optimum position) the key question is the following: why do sovereign borrowers comply with the contractual terms much more often than expected?

Sovereign borrowers avoid default and self-comply with the contractual terms because the strategic benefits from a default do not exceed the anticipated losses. There is truth in this argument. For instance, a sovereign default would heavily affect the domestic financial system, which is usually not only exposed to domestic sovereign debt but would also face serious impediments in its organic connection to the international markets (in the case of a developed capitalist economy, this implies extra financial costs for the private sector and thus serious macroeconomic consequences for employment and growth). One should also take into consideration the economic and political consequences of a default, since negotiations with the creditors take considerable time. The list of cost/benefit analysis can be quite long, but this train of thought misses the crucial factor: the very nature of contemporary capitalist power.

Cost-benefit analysis takes a concrete form only within the contemporary context of capitalist power. International financial markets do not curtail the range of state sovereignty – they reshape the contour of capitalist power. Contemporary capitalism (the term “neoliberalism” is too restrictive to capture all its aspects) amounts to a recomposition or reshaping of the relations between capitalist states (as uneven links in the context of the global imperialist chain), individual capitals (which are constituted as such only in relation to a particular national social capital), and “liberalized” financial markets. This recomposition presupposes a proper reforming of all components involved, in a way that secures the reproduction of the dominant (neoliberal) capitalist paradigm. From this point of view, contemporary capitalism comprises a historical specific form of organization of capitalist power on a social-wide scale, wherein governmentality through financial markets acquires a crucial role. The new condition of governmentality (reproduction of capitalist rule) thus takes the form of a “state-and-market” type of connection. Regardless of the results of cost-benefit calculus, the organic inclusion of the economy in the international markets is a critical premise for the organization of capitalist rule. On the other hand, it is also clear that a recomposition of the relation to international markets (national self-sufficiency) can easily incite the most regressive and authoritarian forms of state governance, if it is not accompanied by a radical shift in the class relations of power.