A new world order is looming, one that will reshape currency flows and tip power towards emerging markets like Indonesia and South Korea in the next decade and a half.
By 2025, six major emerging economies -- Brazil, China, India, Indonesia, South Korea, and Russia -- will account for more than half of all global growth, a World Bank report predicted Tuesday.
The international monetary system, meanwhile, will no longer be dominated by a single currency, but rather by three: the U.S. dollar, the euro, and the yuan.
"As economic power shifts, these successful economies will help drive growth in lower-income countries through cross-border commercial and financial transactions," the bank said in a study entitled, "Multipolarity: The New Global Economy."
It expects emerging economies will grow, on average, 4.7 per cent a year between this year and 2025, while their share of the global economy will expand from 36 per cent to 45 per cent.
Advanced economies are forecast to grow at less than half that pace -- by 2.3 per cent over the same period. The euro area, Japan, the U.K. and the U.S. will still play a "core role" in supporting the global economic engine.
"The fast rise of emerging economies has driven a shift whereby the centres of economic growth are distributed across developed and developing economies -- it's a truly multipolar world," said Justin Yifu Lin, the World Bank's chief economist.
Emerging market multinational companies are reshaping global industry, "with rapidly expanding South-South investment and FDI inflows," he added. "International financial institutions need to adapt fast to keep up."
Emerging markets vary widely. Some, like China and Korea, rely heavily on exports while others, like Brazil and Mexico, are more reliant on domestic consumption.
It sees sharp declines in savings rates in East Asian and Eastern European economies as consumption rises and the population ages.
The bank thinks the Chinese currency will play a greater role on the global stage. "Over the next decade or so, China's size and the rapid globalization of its corporations and banks will likely mean a more important role for the renminbi," said Mansoor Dailami, lead author of the report and manager of emerging trends. "The most likely global currency scenario in 2025 will be a multi-currency one centred around the dollar, the euro, and the renminbi."
Developing and emerging countries held two-thirds of the world's $9-trillion of official foreign exchange reserves as of late 2010, a steep increase from only 37 per cent held at the end of 2000.
Emerging economies need to overhaul domestic institutions if they want to sustain growth though. China, Indonesia, India, and Russia all face "institutional and governance challenges" while human capital and access to education is a concern in Brazil, India, and Indonesia.