Global economist David Malpass explains for Forbes readers why misguided monetary policies in the U.S. and Japan are leading to foreign-policy challenges.

The Obama Administration is hoping that conflicts in Asia can resolve themselves through discourse and negotiation, but that strategy would work only if both the American and the Japanese economies were strong.

China’s GDP will top $10 trillion this year–double Japan’s and growing fast. In contrast, Prime Minister Shinzo Abe’s structural reforms have fizzled, and Japan is pursuing a Fed-style monetary policy (more government, less growth). This means Japan’s national wealth is dissipating. Household net financial assets ($15 trillion) have been growing more slowly than the national debt ($14 trillion), leaving no cushion for the aging population or interest rate increases.

Currencies play a key role in all of these developments. For 20 years the yuan has matched or been stronger than the U.S. dollar, creating stability and growth. China defied the 1997–99 devaluation crisis in Asia, with then premier Zhu Rongji declaring that the yuan would be “strong and stable.”

Following China’s lead, Vladimir Putin adopted ruble stability in 2000, when he became Russia’s president. From 2002 through the bankruptcy of Lehman Bros. in 2008, the ruble was stronger than the dollar and yuan, a track record that solidified Putin’s rule and has helped the ruble withstand the recent U.S. and European sanctions. …

… Weighing on the U.S. and the dollar, the Fed says interest rates should stay at zero. That policy enriches the rich and hammers median living standards. Each month that the Fed keeps interest rates at zero distorts market-based investment decisions, hurting liberal economies and pushing the global economy away from capitalism.

Growth is not rocket science. It requires stable money, a market-based interest rate, low tax rates on a broad base, a liberal trading environment and effective regulation. These policies aren’t being adhered to; consequently, the U.S. is losing its important global leadership position, which puts peace at risk.