US dollar smile can only make other economies toothless

Since the beginning of 2022, the US currency has gained ten percent to its value compared to other major world currencies. However, such a development of events does not bode well for the states that can not boast of strong and powerful economies.

CNN said that investors turned to the US currency, as they consider it a reliable asset in the face of the threat of a global recession.

In addition, the policy of the US Federal Reserve System, aimed at combating powerful inflation in the country, makes investments in the US currency more profitable.

Investors may capitalize on the economic recovery in the United States, or keep their savings in the event of an economic downturn. This phenomenon is very often referred to as the "dollar smile" because of the shape of the currency fluctuations chart, which goes up from both ends.

However, such a smile does not promise anything good for the rest of the world. A stronger dollar could hurt countries with weaker economies.

The burden on the budget increases significantly, because not all countries have an opportunity to borrow funds in their own national currency.

Furthermore, one has to spend more money on food imports, medicines, and fuel. A good example of such a situation is the current crisis in Sri Lanka.

The strengthening of the dollar also triggers capital flight. As national currencies get weaker, both businesses and individuals desperately want to keep their funds. In order to do that, they try to convert their currencies into more reliable assets.

To crown it all, the strengthening of the dollar produces a negative impact on economic growth. When companies lack funds to import components that they need for their production, their productivity drops. Such companies will have less products to sell which causes GDP to decline.

According to the IMF, about 60 percent of low-income countries are either close to a critical situation due to high levels of public debt, or already experience the crisis. For comparison, ten years ago, their share did not exceed 20 percent.

The above-mentioned issues can only stress out the need for de-dollarization. Clearly, this is a very complicated task, and the United States will resist with all its might. Otherwise, the world will remain dependent on decisions that are made in Washington.

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Author`s name: Editorial Team, Editor: Dmitry Sudakov