Early warning signs are suggesting that there will be another currency crisis as the United States dollar is getting too strong for other countries.
South Africa along with Mexico have exchange rates that are at the lowest levels every when compared to the dollar. Southeast Asia has fallen to its low level since its financial crisis in the 1990’s. Brazil hit an even lower in twelve years. While these countries are at all time lows the dollar is gaining in value. History buffs are shaking in their boots. The dollar which helped cause Latin America’s debt crisis back in the early 1980’s is fifteen years later rising again. This rise is causing economies in Southeast Asia to collapse as the rise is creating a run on banks. The dollar is stronger than it has been since 2010.
While the world is more integrated today than it was back in the 1990’s a currency crisis could even affect the United States. If China’s stocks drop it could cause trouble for all emerging markets. This currency crisis puts a lot of pressure on the stock markets in the future according to Andrew Karolyi who is a professor at Cornell’s Johnson Graduate School of Management. The Federal Reserve’s possible rising rates in September, the dollar gaining against other currencies and commodities slowing down are three things when coming together could create a crisis. Most investors are more worried about the Federal Reserve but they need to also realize that the rising of the dollar is also of great importance.
The United States Commerce Department has said that the trade deficit had risen from 17.1% to $46.6 billion. This is the highest it has risen since 2012. While the strong dollar can be good it can also cause problems. It can cause a trade deficit. A trade deficit happens when foreign consumers are not buying a lot of United States company goods. Another thing that causes the deficit is when Americans are buying goods from international corporations. This means that United States companies have to decide if the price war makes for a good business plan in the long run.
The dollar hit a forty year high in March and is continuing to climb. It is up 20% in the past year when compared to other world currencies. This is from information that the Saint Louis Federal Reserve Bank put out. While the dollar is rising China’s dropping is creating a low demand for commodities. With a slow down on commodities, it could cause a major buyer drop out of the equation. Other countries have their own problems. While China is slowing down Brazil is in a recession.
Both Mexico and India which have had large economic reforms which help the dollar to rise countries which like Brazil have not reformed the dollar continues to deal blows to their already beaten up economy. Any country that owes money to the United States may struggle to make its payments an could end up defaulting.
While it could be bad for other countries for the people in the United States it could mean that their money will go further as commodities will cost less.