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The US dollar has begun its rapid ascent journey since the beginning of 2022, and expectations indicate that it will become more powerful during the current year, as raising US interest rates, as expected in the coming period, with the aim of curbing inflation, will attract capital from the rest of the world to America It gives the dollar superiority over most currencies.
It is true that raising interest rates will automatically lead to curbing the US inflation rate, but this step is not without risks, as it will make the dollar stronger, and this will mean a decline in the competitiveness of the United States and a widening of the trade deficit gap.
And strength will come dollar It will be counterproductive to large American companies, and will contribute to reducing the value of their sales and the volume of their international profits, as their products will become more expensive, compared to the products of non-American companies, because a strong dollar means a higher production cost for American companies.
One of the risks of a strong dollar to the global economy is that it causes capital to flow out of emerging markets, especially those that depend on external financing, as it has been historically proven that every time the dollar becomes strong, the dollars return to United Statethe global economy is damaged and an economic downturn begins.
The risks are also particularly great for developing countries that are already facing severe economic crises amid the continued accumulation of their dollar debts and the difficulty of repaying them, as these countries borrowed heavily during the spread of the pandemic. coronathat is, during 2020 and 2021, and it also postponed the payment of its accumulated debt installments in the hope that the global economy would return to growth this year, but what happened is that it was surprised by the disaster of the Russia and Ukraine war and its repercussions on the global economy.
All this noise would not have occurred if a currency other than the US dollar was witnessing this rise. The dollar has a special place in global trade, as 40 percent of trade deals in the world are made through a currency. "Uncle Sam"Which means that the cost will rise in many countries of the world.
Also, many countries’ currencies are mainly linked to the dollar, and this exposes them to pressure. Any rise in the dollar will result in a similar action in the price of their currencies.
Analysts’ expectations indicate that the US interest rate will continue to rise during 2022, which means that the dollar’s strength will increase, which raises the following question: "Has the dollar become too strong?" Especially in the current state of the global economy?
According to the banker, the former deputy governor of the Banque du Liban, Dr. Muhammad Al-Baasiri, in an interview with the site "Sky News Arabia"that it is difficult to say that the dollar is too strong and overvalued, because the currency It is a mirror that reflects the strength or weakness of the economy.
He said that the inflationary situation posed a danger to US economy And globally, as the most effective way to combat it is to raise US interest rates, which inevitably leads to an increase in the price of the dollar once morest other foreign currencies, because other countries did not raise interest rates in the same proportions as in the United States.
Al-Baasiri pointed out that there are other reasons behind the rise of the dollar once morest foreign currencies, specifically euroAs Europe is in the eye of the storm of the Russian-Ukrainian war, which means an increase in inflation and high prices, and this negatively affects its economies much more than the American economy, and therefore the currency, which is considered the mirror of the economy, is catching up with security, military and economic fear, which is a more important factor than raising benefits. .
It is expected that the US dollar will remain stronger than euro At least in the medium term, with the continuation of the Ukrainian crisis and US sanctions on Russiawith the problem remaining Gas And the oil that Europe suffers from, even if the interest rates increase between America and Europe are equal.
Al-Baasiri considered that the solution to what is happening remains political, followed by economic stability that restores balance to foreign currencies.
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The US dollar has begun its rapid ascent journey since the beginning of 2022, and expectations indicate that it will become more powerful during the current year, as raising US interest rates, as expected in the coming period, with the aim of curbing inflation, will attract capital from the rest of the world to America It gives the dollar superiority over most currencies.
It is true that raising interest rates will automatically lead to curbing the US inflation rate, but this step is not without risks, as it will make the dollar stronger, and this will mean a decline in the competitiveness of the United States and a widening of the trade deficit gap.
And strength will come dollar It will be counterproductive to large American companies, and will contribute to reducing the value of their sales and the volume of their international profits, as their products will become more expensive, compared to the products of non-American companies, because a strong dollar means a higher production cost for American companies.
One of the risks of a strong dollar to the global economy is that it causes capital to flow out of emerging markets, especially those that depend on external financing, as it has been historically proven that every time the dollar becomes strong, the dollars return to United Statethe global economy is damaged and an economic downturn begins.
The risks are also particularly great for developing countries that are already facing severe economic crises amid the continued accumulation of their dollar debts and the difficulty of repaying them, as these countries borrowed heavily during the spread of the pandemic. coronathat is, during 2020 and 2021, and it also postponed the payment of its accumulated debt installments in the hope that the global economy would return to growth this year, but what happened is that it was surprised by the disaster of the Russia and Ukraine war and its repercussions on the global economy.
All this noise would not have occurred if a currency other than the US dollar was witnessing this rise. The dollar has a special place in global trade, as 40 percent of the trade deals in the world are done through the “Uncle Sam” currency, which means that the cost It will rise in many countries of the world.
Also, many countries’ currencies are mainly linked to the dollar, and this exposes them to pressure. Any rise in the dollar will result in a similar action in the price of their currencies.
Analysts’ expectations indicate that the US interest rate will continue to rise during 2022, which means that the dollar’s strength will increase, which raises the following question: “Is the dollar becoming too strong?” Especially in the current state of the global economy?
According to the banker, the former deputy governor of the Banque du Liban, Dr. Muhammad Al-Baasiri, in an interview with “Sky News Arabia”, that it is difficult to say that the dollar is stronger than necessary and overvalued, because the currency It is a mirror that reflects the strength or weakness of the economy.
He said that the inflationary situation posed a danger to US economy And globally, as the most effective way to combat it is to raise US interest rates, which inevitably leads to an increase in the price of the dollar once morest other foreign currencies, because other countries did not raise interest rates in the same proportions as in the United States.
Al-Baasiri pointed out that there are other reasons behind the rise of the dollar once morest foreign currencies, specifically euroAs Europe is in the eye of the storm of the Russian-Ukrainian war, which means an increase in inflation and high prices, and this negatively affects its economies much more than the American economy, and therefore the currency, which is considered the mirror of the economy, is catching up with security, military and economic fear, which is a more important factor than raising benefits. .
It is expected that the US dollar will remain stronger than euro At least in the medium term, with the continuation of the Ukrainian crisis and US sanctions on Russiawith the problem remaining Gas And the oil that Europe suffers from, even if the interest rates increase between America and Europe are equal.
Al-Baasiri considered that the solution to what is happening remains political, followed by economic stability that restores balance to foreign currencies.
