The Hopes and Fears of a Cheaper Dollar for the U.S. and the World
The value of the dollar index, which measures the value of the U.S. national currency against a selected basket of national currencies from specific countries around the world, has reached its lowest level in 2024.
The story of the years 2022 and 2023 was the rising dollar and the reign of declining national currencies against it.
The increase in interest rates, decided by the U.S. Federal Reserve in a step-by-step manner to combat high inflation in the country, made the dollar more expensive. At the same time, Joe Biden’s economy, relying on investment in production and expanding employment, created a wave of attracting investment from large international companies in the U.S.
This wave naturally led to a search for dollars to convert investment into the national currency of the target investment country, heating up the dollar even more. This trend had specific benefits for American importers and also controlled the prices of some imported goods.
The tourism industry market also gained a relative benefit, with American tourists becoming more eager to travel and tour other countries because they could buy and tour more and better with their dollars in other countries.
Meanwhile, various groups suffered losses.
One such group was American exporters, whose income from selling goods and services in other countries decreased with the weakening value of the target market currencies. Over time, some of these losses, which might have been compensated by other means, appeared in the quarterly and annual reports of some companies.
On the other hand, countries with significant exporters targeting the United States might benefit when they obtain the valuable dollar. However, what threatens countries with weakening national currencies is capital flight. Those who have dollars and those who earn dollars, even from exports to the dollar country, see investing in the U.S. as profitable. Thus, developing countries and emerging markets do not benefit from exporting to the U.S.
Beyond these specific groups, it should be noted that countries with high foreign debt have faced numerous hardships during these years of a strong dollar, with their debt effectively increasing by several percent.
Requests for extensions, borrowing on top of borrowing, and selling state assets to convert to dollars have been painful ways for these countries to cope with this crisis. The stability of the dollar’s value at a lower price is of great importance for developing countries and also gives hope to industrialized and developed countries. Countries like India and Brazil have long been dealing with the shocks caused by the depreciation of their national currencies against the dollar.
Brazil, which has put its economy on a growth trajectory with the export of goods, minerals, and food items, and whose economic lifeline is the power of exports, pays special attention to this issue.
Among industrialized countries, perhaps no country has understood the impacts of the crises caused by the fluctuations of national currency value against the dollar in recent months as much as Japan.
Maximum stability in Japan’s financial markets with the hope of yen stability is the greatest wish of the country’s politicians and managers. It should also be noted that the policy of trading with national currencies other than the dollar is beneficial for countries with an upper hand in economic and political interactions because they meet their needs from lower-hand countries with currencies other than the dollar and impose their national currency on these countries.
This opportunistic Chinese approach has particularly dealt significant blows to Iran’s national income and capital. The coming days and new decisions by the U.S. Federal Reserve, and more importantly, the decisive speech by Jerome Powell at the major conference of central bank managers from around the world in Wyoming, will be highly significant for the value of the dollar and global capital and economic equations.
