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19-07-2022, 08:26 AM
By ALEXANDER TZIAMALIS And YUAN WANG
JULY 12, 2022
The US dollar has been on a major surge against major global currencies in the past year, recently hitting levels not seen in 20 years. It has gained 15% against the British pound, 16% against the euro and 23% against the Japanese yen.
The dollar is the world’s reserve currency, which means it is used in most international transactions. As a result, changes in its value have implications for the entire global economy. Below are five of the main ones.
1. Even more inflation
Petrol and most commodities such as metals or timber are usually traded in US dollars (though with exceptions). So when the dollar gets stronger, these items cost more in local currency.
For example in British pounds, the cost of US$100-worth of petrol has risen over the past year from £72 to £84. And since the price per liter of petrol in US dollars has risen steeply as well, it is creating a double whammy.
......
2. Low-income countries under threat
Most developing countries owe their debt in US dollars, so many owe much more now than a year ago. As a result, many will struggle to find an ever-increasing amount of local currency to service their debts.
......
3. A bigger US trade deficit
Other countries will buy fewer US products as a result of the strong dollar.
......
4. De-globalization to get worse
The most obvious economic policy to prevent a trade deficit from growing is the old game of imposing tariffs, quotas or other barriers on imports. Other countries tend to retaliate against such protectionism, adding their own taxes and other barriers to US products.
......
5. Eurozone fears
Weaker EU member states such as Portugal, Ireland, Greece and Cyprus have become somewhat less vulnerable to investors driving up their borrowing costs to crisis levels than during the darkest days of the eurozone crisis.
This is because much of their national debt is now in the hands of the European Stability Mechanism (ESM), which was set up to help rescue them, as well as friendlier investment banks within the eurozone.
However, the stronger dollar is creating pressure for the European Central Bank to raise its own interest rates to prop up the euro and subdue the cost of imports, including energy. This will put more pressure on eurozone countries with high levels of debt.
Italy, which is the ninth-largest economy in the world and has government debts at a whopping 150% of GDP, would be particularly hard to bail out if the situation got out of control.
......
Bringing these five points together, the ultra-strong dollar is yet another reason to fear a global recession in the coming period. Higher inflation erodes consumer incomes and reduces consumption.
Protectionism can reduce international trade and investment. Sovereign debt crises mean serious trouble for many developing countries and possibly even the eurozone.
Better to read full article at: https://asiatimes.com/2022/07/super-stro...d-economy/
JULY 12, 2022
The US dollar has been on a major surge against major global currencies in the past year, recently hitting levels not seen in 20 years. It has gained 15% against the British pound, 16% against the euro and 23% against the Japanese yen.
The dollar is the world’s reserve currency, which means it is used in most international transactions. As a result, changes in its value have implications for the entire global economy. Below are five of the main ones.
1. Even more inflation
Petrol and most commodities such as metals or timber are usually traded in US dollars (though with exceptions). So when the dollar gets stronger, these items cost more in local currency.
For example in British pounds, the cost of US$100-worth of petrol has risen over the past year from £72 to £84. And since the price per liter of petrol in US dollars has risen steeply as well, it is creating a double whammy.
......
2. Low-income countries under threat
Most developing countries owe their debt in US dollars, so many owe much more now than a year ago. As a result, many will struggle to find an ever-increasing amount of local currency to service their debts.
......
3. A bigger US trade deficit
Other countries will buy fewer US products as a result of the strong dollar.
......
4. De-globalization to get worse
The most obvious economic policy to prevent a trade deficit from growing is the old game of imposing tariffs, quotas or other barriers on imports. Other countries tend to retaliate against such protectionism, adding their own taxes and other barriers to US products.
......
5. Eurozone fears
Weaker EU member states such as Portugal, Ireland, Greece and Cyprus have become somewhat less vulnerable to investors driving up their borrowing costs to crisis levels than during the darkest days of the eurozone crisis.
This is because much of their national debt is now in the hands of the European Stability Mechanism (ESM), which was set up to help rescue them, as well as friendlier investment banks within the eurozone.
However, the stronger dollar is creating pressure for the European Central Bank to raise its own interest rates to prop up the euro and subdue the cost of imports, including energy. This will put more pressure on eurozone countries with high levels of debt.
Italy, which is the ninth-largest economy in the world and has government debts at a whopping 150% of GDP, would be particularly hard to bail out if the situation got out of control.
......
Bringing these five points together, the ultra-strong dollar is yet another reason to fear a global recession in the coming period. Higher inflation erodes consumer incomes and reduces consumption.
Protectionism can reduce international trade and investment. Sovereign debt crises mean serious trouble for many developing countries and possibly even the eurozone.
Better to read full article at: https://asiatimes.com/2022/07/super-stro...d-economy/
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