Strengthening of USD is a problem for other economies

Washington: The USD is currently at its highest level in two decades and the rest of the world’s economies are suffering the consequences. The International Monetary Fund (IMF) has warned that the USD’s strength is becoming problematic and its effects are beginning to show. This warning from the IMF is getting support from other countries as well. Indonesia, the leading economy in Southeast Asia, has indicated an increase in the use of local currencies. A few days ago, the United Nations also blamed the decisions taken by the US Federal Reserve regarding the USD and warned that this matter would lead to a global recession.

Due to the flareup in fuel prices due to the Russia-Ukraine war and the disrupted supply chain due to the Chinese ‘Zero COVID Policy’, inflation has flared up worldwide. Many advanced countries, including the United States and European countries, have reported record inflation in the last three to four decades. To control this inflation, central banks in most countries have implemented the policy of increasing interest rates. The US Federal Reserve has raised interest rates five times in the last seven months. Due to this increase, the USD is strengthening and it is affecting other currencies of the world. Many currencies have depreciated, including Euro, Yen, Yuan and Pound. At the same time, the international stock markets have also been hit hard and it is said that billions of dollars have been lost.

The new report of the IMF has drawn attention to this and made it clear that the strengthening of the USD is dangerous for the global economy. The USD still maintains its influence in the international trade and financial system and its changes are jolting the global economy. Especially the emerging economies of the world, as well as the low-income economies, have to bear the enormous consequences of the fluctuation in the dollar rates, the IMF cited. The IMF also warned that many emerging economies and smaller countries are already reeling under the debt burden.

Indonesia, the leading economy in Southeast Asia, seems to have confirmed this report of the IMF. Indonesia, the host of the G-20 summit, signalled an increase in transactions in local currencies in the near term, saying changes in the USD are significantly impacting the economy. Senior officials of Indonesia’s central bank ‘Bank Indonesia’ gave information in this regard. Nugroho Joko Prastovo informed that four countries have approved using Indonesia’s ‘local currency settlement’. Prastovo said that these include Japan, China, Thailand and Malaysia.

The ‘UN Conference on Trade and Development’ had recently issued a serious warning that if the Federal Reserve decides to raise interest rates again, the world economy, including underdeveloped countries, could suffer. Current policies are heavily disadvantageous to the weaker sections, including developing countries. The global economy could be pushed into recession due to these policies. The United Nations has warned that this recession will be worse than the recession that occurred in 2007-2009.