The dollar confuses the world

It is often said in politics and in major crises that if America sneezes, the world will catch a cold. This time the dollar sneezes and the world is plagued with more than one cold. Recent turbulence in global financial markets, rising dollar and rising interest rates by central banks in several countries to curb inflation or defend national currencies, have increased burdens on people and pressures on governments, as if the world were lacking problems and crises.

Over the past few days, all major currencies have seen a decline against the rising dollar. The British pound hit its weakest level against the dollar yesterday after investors and speculators rejected plans by the British government to cut taxes and raise the public debt burden. The euro also fell below par with the US dollar, hitting 95 cents yesterday, while the Chinese yuan (or renminbi) hit its lowest level against the Mexican peso, the Tunisian dinar and the Egyptian pound. or Sudanese.

The negative effects have not only been in major countries, but around the world and especially in developing countries, with a few exceptions. The dollar is the preferred reserve currency, the primary currency for most international trade and 40 percent of the world’s transactions take place with it, so its rise or fall affects many aspects of our life, from prices energy at the prices of food, medicines and many necessities. Furthermore, countries that have external debts, and this is particularly true for most developing and poor countries, find themselves harmed by any increase in the value of the dollar, because the burden of servicing these will increase. debts.

The problem is that this crisis comes at a time when the world is still suffering from the repercussions of the Corona pandemic, the aftermath of the war in Ukraine, the effects of climate disasters and rising energy and food prices. . So there are real fears that the world is heading into a period of economic recession and deflation in the coming months. The Organization for Economic Co-operation and Development indicated this week that it expects economic growth to slow down in many countries around the world by the end of this year and into the next.

America seems determined to continue its war to curb its inflation with the weapon of raising interest rates, which means more increase in the value of the dollar, and consequently more pressures and economic problems for many countries of the world. The US Federal Reserve has announced that it will take more steps after raising the interest rate three times in a row to the highest pace in nearly 40 years, meaning the world must tighten its belts in anticipation of a further increase in the value of the dollar.

There are economists and politicians today who argue that America, which wants the dollar to reign supreme in global currencies, must take responsibility and take into account the repercussions of its financial decisions on the rest of the world. The Federal Reserve focuses on addressing the problems of the American economy and makes its decisions accordingly, while the impact of its steps is not limited internally, but extends to most countries of the world. This is exactly what is happening now as a result of the rise in US interest rates, which has helped create confusion in many countries and add to their suffering.
The rise in the dollar may help America in its efforts to curb domestic inflation, because it means lowering import prices for the consumer, but in return it creates more problems and burdens for other countries. While the American consumer buys some goods at lower prices, the consumer in Tunisia, Sudan, Egypt or Lebanon, for example, suffers from the continuous increase in the prices of many goods whose prices change from day to day. These and other countries not only face the problem of high prices for imported goods, but also suffer from a high debt service bill if they have foreign debt, as is the case with most developing countries.

The irony is that due to increasing economic pressures, these countries are forced to seek more loans, despite the high financing costs, they are forced to do so to cope with the growing internal burdens. This is happening at a time when several countries have already failed to pay their debt service, which portends an oncoming hurricane that threatens a new global debt crisis and bigger problems if the world enters a recession. economical as expected. It should not be forgotten that the rapid rise in interest rates in America in the 1980s caused the catastrophic debt crisis in Latin America at the time and the social and political turmoil that followed. Already this month, the World Bank warned that successive interest rate hikes are pushing the world into recession and developing countries into a series of financial crises.

The truth is that America isn’t the only one now using rising interest rates to curb inflation, as many countries have recently raised interest rates for that purpose, but the difference is that the impact of the American move is greater due to the consequent rise in the value of the dollar. It is the American currency, traditionally considered a safe haven in times of great crisis, which now confuses the world.

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