Desperately seeking $ !
Since last January, interest rate hikes have accelerated throughout the world. It’s simple: we might have returned to the pre-Lehman average rate level, according to a Bank of America Merrill Lynch study! It’s not surprising that, in such a situation, global cash is drying up internationally since it goes without saying that such a tightening of monetary policy from the central banks is bringing about a global contraction.
In reality, it’s almost exclusively the global supply of U.S. dollars that is being distributed much less generously than before since this currency is, and remains, the sole indicator of the world’s economic and financial security. This rush on the Greenback observed by all the planet’s actors, and which has gradually risen in power throughout the course of this year, does of course owe to a return to the fold of more and more dollars attracted by an economy that is undeniably in superb health. This increased – even sometimes frenetic – demand of dollars is also due to the Chinese slowdown and to the current protectionist fever. Still a universal measure – and a judge of peace –, the dollar and its reserves are essential for basically every nation’s economic cogs: the dollar is the reserve currency of choice for central banks and is also the reference for most bonds across the world and is used for transactions and exchanges that reach 4,400 billion daily.
While this tectonic shift of the dollar plates grinding away beneath our feet is felt everywhere, it’s above all the emerging countries that will suffer the consequences of it, which are sometimes devastating. Having seen an influx of liquidities in their direction a few years ago in search of superior profitability while the interest rates of the main economies were zero, even negative, these emerging countries are only beginning to experience the reverse shift, that being an exodus of dollars at a time when the monetary policies of the main powers are being normalised. While Argentina and Turkey have made recent headlines, all the nations that based their take-off on debt and whose reserves are poorly stacked in foreign currencies are the most fragile. Indonesia, Malaysia, the Philippines and South Africa will therefore most likely be in the hot seat while – elsewhere – euphoria reigns over the American stock markets that last week enjoyed their longest upturn since 1945.
The US shouldn’t crack open the Champagne just yet though because the extreme volatility to come on the emerging markets brings a strong risk of contaminating it. You don’t withdraw 600 billion dollars in cash every year with impunity, as does the Federal Reserve, without perverse effects for businesses’ profitability and national growth.