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    Opportunity and threat of dollar decline

    شناسه : 30328 17 شهریور 1399 - 14:45
    Many analysts saw the devaluation of the dollar in favor of global trade and ultimately in favor of the global economy. The US dollar index has fallen more than 9 percent since April, and experts expect the value of the world's most important economy to fall by 15 to 20 percent over the next five years. However, a group of analysts believe that the devaluation of the dollar could be a major threat to the global economy, at least in the short term. Contrary to the depreciation of the dollar against the currencies of developed economies, the value of the dollar has risen against the currencies of developing economies and emerging markets since the beginning of the corona outbreak. This issue, which analysts and various institutions, including the International Monetary Fund, can pose a major threat to international trade and the global economy.
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    The dollar decline has typically helped improve trade and resilience in the global economy, as well as shifted trade imbalances between countries toward equilibrium.

     

    *** Change the position of the dollar

    However, the recent devaluation of the US dollar due to the Corona pandemic does not seem to have the same effects as before. The new effect of the devaluation of the dollar is due to the contradictory movement of value between different world currencies and on the other hand due to the special conditions of the world economy, which has prevented the global economy from adapting to the recent devaluation of the dollar. The dollar has been declining since the beginning of June; The main reason for this was the change in investors’ view of the dollar from a global safe haven to a high-risk currency.

    The value of the dollar index has fallen by more than 9 percent since April, when the corona crisis peaked. According to many global currency analysts, the reasons for keeping the dollar are rapidly declining. In fact, the Fed’s rapid and declining interest rates have eroded the position of the dollar and the currencies of other developed economies; The policy was adopted in response to the economic crisis caused by the Corona epidemic.

     

    *** dollar failure; Hope for the Euro

    While the US government has failed to control the corona epidemic, major European and Asian countries have been able to control the virus relatively well. On the other hand, the approval of the unprecedented 750 billion euro package for the recovery of the European economy, as well as the relative success of the countries in this area in controlling the corona, has raised many hopes about the economic outlook in this area and also about the euro.

    “The dollar has entered a downtrend,” said Aaron Hurd, chief executive of State Street Global Advisors. This downturn may not happen in the coming weeks, but the dollar is projected to fall 15 to 20 percent over the next five years against a basket of rival currencies. GMP analysts also say that relative economic growth could be the main driver of the dollar; But the high number of coroners in the country, along with the economic outlook, will still act as a devaluation of the dollar.

    Among developed economies, the devaluation of the dollar, as long as it does not become a permanent trend, can also have positive global effects. For many years, the United States has had a stable trade deficit, and the devaluation of the dollar could boost US exports and balance the country’s trade balance with more expensive imports from developed economies.

    The EU recovery package, along with increasing domestic demand, could lead to a more balanced global economy at a higher demand level. However, this effect could be lessened if the United States continues to have cheaper access to finance than other countries. However, no part of the global economy has experienced a fall like the devaluation of the dollar.

     

    *** The devaluation of the dollar to the detriment of the global economy?

    The dollar index actually measures the value of the US currency against a basket of currencies from developed economies, most of which are denominated in euros. The euro area includes 57.6% of the basket, while the rest is occupied by the five currencies of the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc.

    But the point is that this index does not include any of the currencies of developing economies; Currencies against which the dollar has risen in value since the beginning of the corona epidemic. For example, since March, the dollar has risen 25 percent against the real (Brazilian currency) and more than 10 percent against the Mexican peso and the Russian ruble. Analysts see the appreciation of the dollar decline against the currencies of developing economies as a threat to the outlook for the global economy.

    Traditional economic theories predict that the devaluation of developing economies against the dollar decline could be to their advantage. In fact, with the devaluation of these currencies, the exports of these countries will increase and the imported goods will become more expensive, and thus the demand in these countries will increase. But some economists worry that this argument is incorrect.

     

    *** Damage to developing economies by the devaluation of the dollar

    Many emerging economies trade in US dollars, so a devaluation of their currency will not necessarily mean an improvement in exports. Recent research by the International Monetary Fund also shows that demand growth will be very weak in this case. On the other hand, because imports from other developing economies are also priced in dollars, trade in these countries will generally be hit.

    On the other hand, this factor has been aggravated by the corona pandemic. The tourism industry, as the largest part of a country’s exports priced in domestic currency, has suffered huge losses due to travel restrictions during the Corona. Governments and large corporations in developing economies with dollar-denominated debt are also facing major problems; Because they need more income to pay off their debts.

    The International Monetary Fund has also said that these conditions could be very destructive to the global economy. Finally, IMF analysts have concluded that a stronger dollar decline against the currencies of emerging economies and emerging markets could exacerbate the downturn in global trade and economic activity.

    In such circumstances, it seems that even the countries that predict It is also unlikely that they will benefit from changes in the value of currencies during the epidemic, which is projected to benefit them during this period. Rising currency values in developing economies can relieve some of the financing pressure on emerging markets; However, it is not enough to neutralize the effects of the epidemic on these markets.

     

    the world of economy

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