The International Monetary Fund has reached an unexpected conclusion that the US dollar’s reign in the global trade and finance could aggravate the economic fallout from the COVID-19 pandemic. Indeed, the US dollar has been firmly incorporated into the global economy, so that such reliance poses a threat.
The IMF experts fear that the US dollar’s strength is sure to escalate the collapse of the international trade and global economic output in the short term. Besides, the overvalued greenback will deal a blow to currencies of emerging markets. They will not be able to revive their national economies in the wake of the pandemic because export invoices are issued in dollars. At the same time, weak national currencies will inflate prices of imported goods that will slash domestic demand and consumer activity.
Besides, experts note that the US could drag down a revival of the global economy. Investors are fretted about inefficient measures against COVID-19 in the US. The top global economy generates a quarter of the global GDP. Thus, the failure of the US authorities to contain rampant coronavirus rates and a sluggish economic recovery cast a shadow over the whole global economy.
Market participants share the viewpoint that the US dollar has been bruised by the pandemic-driven crisis. Interestingly, the euro has been able to meet the challenge. Moreover, the single European currency has been acquiring safe haven features with prospects of becoming a new shelter asset. Former chairman of Morgan Stanley Asia Stephen Roach warns that the collapse of the US dollar is inevitable on the back of the ballooning budget deficit in the US and de-globalization. “The dollar is going to fall very, very sharply,” the economist predicts.
