Tuesday, November 29, 2022

Skyrocketing dollar: Resolution involves politics and not just economics says S&P Global Ratings

PUNJAB NEWS LINE | October 07, 2022 01:20 PM

CHENNAI:The skyrocketing of the US dollar against various currencies in 2022 is posing problems for advanced and emerging markets, but there is no easy option available, said S&P Global Ratings.

According to the report, the resolution of the issue is not just dependent on economics but also on politics.

In a research report, S&P Global Ratings said there are no easy options to correct the US dollar's upward trajectory for advanced a nd emerging markets.

The US dollar has risen 17 per cent on a trade-weighted basis and by over 20 per cent against some currencies. This reflects relative--and expected--policy and market rate paths and heightened risk aversion, S&P Global Ratings said.

"We appear to be entering the third dollar boom period in the past 50 years," said Paul Gruenwald, Global Chief Economist, S&P Global Ratings.

"There is no easy solution: passivity endangers inflation targets and credibility, rate rises risk lower output and employment, intervention is likely to burn through precious reserves," he added, noting that the 1980s solution--global coordination--requires a lot of political capital.

For both advanced and emerging economies, the dollar's outsized strength triggers several problems, including higher imported inflation and the potential for higher rates, capital flow volatility, and higher debt service on US dollar liabilities.

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