“The rise of the east has been one of the defining events over the last decade. The economic crisis has only hardened views that the world’s center of economic gravity is gradually shifting,” said Ben Simpfendorfer, Royal Bank of Scotland’s chief China economist.“If the last decade was about the rise of the East, the next decade will be about the growing linkages between the East,” he said.

Trade flows between economies along the silk road are growing year-on-year and RBS expects this trade to swell in tandem with the region’s future expansion.
With 61% of the world’s population living along the ‘silk road’ route, RBS expects private consumption to rise, resulting in further economic integration as Gulf oil is exported to Asia and cheap consumer products flow in the other direction from places like Korea or China.
China overtook the US as the largest exporter to the Middle East in 2008, according to RBS research. And most of the Gulf’s crude oil is exported Asia, feeding China’s voracious appetite for energy.
According to FACTS Global Energy, the Mideast region provided half of China’s oil imports, or 1.8mn bpd, in 2008.
“I think the share of East-East trade will grow higher in the future as the share of the region’s global gross domestic product rises as well,” Simpfendorfer said. “The east’s share of global gross domestic product (based on purchasing power parity) is forecast to rise from 33% to 46% by 2020.”
Simpfendorfer said silk road countries should de-peg from the US dollar and move to a basket of currencies dominated by the Chinese yuan and the euro.
Such a basket would better reflect the reality of the region’s trade, Simpfendorfer said. Mideast and Asian countries are exporting consumer products more and more to the eurozone and are receiving the bulk of imports from China.
Deep security ties with the US could make a dollar depeg a tricky proposition for many Middle East countries, but prolonged dollar weakness could eventually favor a de-peg, said Simpfendorfer.
“Sustained dollar weakness would lead to a sharp rise in import costs and a fall in the dollar value for oil, which could tip the balance in favor for a basket,” Simpfendorfer said.
Moving to a basket of currencies would also aid the financial integration of silk road economies and prompt a shift away from reliance on the West for financing, according to RBS.