The Strong Dollar and Its Impact on Global Currencies
Xinhua News Agency, Beijing, April 27
Question: Why do the currencies of many countries depreciate sharply against the US dollar and continue to fall?
In recent times, the exchange rates of the Japanese yen, Korean won, Indian rupee, Indonesian rupiah, and other domestic currencies have fallen sharply against the US dollar, causing market concerns about the stability of the capital markets of emerging economies. Analysts attribute the main reason for the sharp depreciation of these currencies to the “strong dollar”, fueled by the Federal Reserve’s policies that have led to a sharp appreciation of the dollar and the return of capital from emerging markets, further exacerbating the risks faced by emerging economies and the world economy.
Multinational currencies “in trouble”
The Bank of Japan recently decided to maintain its current monetary policy unchanged, causing the yen to decline even further. The yen’s exchange rate against the US dollar in the Tokyo foreign exchange market fell below 158 yen to 1 US dollar, reaching its lowest level since May 1990. Similarly, the Korean won, Indian rupee, Indonesian rupiah, and other Asian currencies have also experienced significant depreciation against the US dollar.
Sharp depreciation ‘worrying’
The sharp depreciation of these currencies has had negative impacts on the economies of the relevant countries. In Japan, the sharp depreciation of the yen has led to severe imported inflation and increased pressure on consumption due to rising import costs. South Korea is facing higher inflation and increased life pressure due to the depreciation of the won. Countries like Indonesia and Vietnam struggle to repay foreign debt and interest as their currencies weaken.
Strong dollar “harvesting the world”
The “strong US dollar” is attributed to the Federal Reserve’s high benchmark interest rates and geopolitical tensions, leading to a flow of funds into the US dollar. The recent remarks of Fed Chairman Powell indicating no rush to cut interest rates have caused further depreciation of Asian currencies. Many analysts warn that if the Federal Reserve continues to maintain high interest rates, it may intensify the depreciation of other countries’ currencies, causing more turmoil in the global capital market.
Overall, the Federal Reserve’s policies have led to a sharp appreciation of the US dollar and the return of capital from emerging markets, intensifying the debt risks of emerging economies and making the world economy worse. This has caused turmoil in international markets and raised concerns about the stability of global currencies.