On Breakingviews: Reports of the dollar’s demise are greatly exaggerated, writes guerreraf72
that between 1999 and 2019 the dollar accounted for 96% of trade invoicing in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world. Banks used the greenback for around 60% of all international deposits and loans.
The greenback’s function as the lubricant of global economic activity has another important effect: a stronger dollar curbs global trade.by American University’s Valentina Bruno and Hyun Song Shin of the BIS shows that when the U.S. currency appreciates, trading for companies in other countries becomes more expensive. This more than offsets the traditional export-boosting effect of a weaker domestic currency.an “Imperial Circle”.
The period between December 2015, when the Fed raised rates, and December 2018, when the official cost of borrowing peaked at 2.25%-2.50%, illustrates the point. The dollar rose around 10% against other major currencies between mid-2015 and the beginning of 2017. During that period, manufacturing growth in the United States – measured by purchasing managers' index surveys – outstripped that of the rest of the world while financing conditions overseas tightened.
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