U.S. dollar : Workers congregate outside a used auto parts store in Nairobi, Kenya’s downtown industrial district, waiting for clients. Businesses in a rough area of Nairobi well-known for its supply of auto parts and repair services are floundering, and locals are frustrated.
Mustafa Gamal, a security guard, had to move his wife and one-year-old daughter to his parents’ home in a hamlet 70 miles south of the Egyptian capital because of the rising expense of living in Cairo.
Gamal, 28, remained behind, working two jobs and eating a vegetarian diet. “All prices have doubled,” he stated. “No choice.
People throughout the globe share Gamal’s suffering and dissatisfaction. A supplier of auto parts in Nairobi, a retailer of infant apparel in Istanbul, and a wine importer in Manchester, England, all share the same grievance: the weakening of their native currencies as a result of a strengthening U.S. dollar contributes to the increasing cost of goods and services. At a time when families are already experiencing food and electricity shortages as a result of Russia’s invasion of Ukraine, this only exacerbates their financial hardship.
As Professor of trade policy at Cornell University, Eswar Prasad asserts, “A high dollar exacerbates a terrible position in the rest of the globe.” Many analysts are worried that the strong rise of the dollar makes it more likely that there will be a global recession next year.
U.S. dollar is up 18% this year
The U.S. dollar is up 18% this year and hit a 20 – year high this month, as measured by the benchmark ICE U.S. Dollar Index, which tracks the dollar’s value against a basket of major currencies.
The causes of the growth of the dollar are not secret. The Federal Reserve has increased its benchmark short-term interest rate five times this year to battle growing U.S. inflation and has signalled that more increases are inevitable. This has caused interest rates on many government and business bonds in the U.S. to go up, which has brought in investors and made the U.S. dollar stronger.
In contrast, the majority of other currencies are far weaker, particularly in impoverished nations. This year, the Indian rupee lost about 10% of its value against the dollar, the Egyptian pound lost 20%, and the Turkish lira lost a huge 28%.
In Istanbul, Celal Kaleli, who is 60 years old, sells clothes for babies and diaper bags. He has to charge extra to Turkish consumers who have problems paying him in the greatly depreciated local currency since he needs more lira to acquire imported zippers and liners that cost dollars.
“We can’t wait until the new year,” he said. “We’ll look at our finances, and if we need to, we’ll downsize. We can’t do anything more. ”
U.S. dollar rise effect
Even the wealthy countries aren’t safe. One euro is now worth less than one dollar for the first time in twenty years, and the British pound has declined 18% over the past year, further threatening an economic crisis in Europe, which was already on the edge of depression owing to rising energy prices. After Britain’s new prime minister, Liz Truss, announced huge tax cuts that shook the financial markets and caused her Treasury secretary to quit, the pound came close to being equal to the dollar.
Typically, nations might profit from declining currencies since it makes their exports more affordable and competitive. But any benefit from more exports is getting smaller because economic growth is slowing almost everywhere.
In a variety of ways, a rising dollar is inflicting harm abroad. It increases the cost of imports from other nations, thus exacerbating inflationary pressures. It exerts pressure on firms, individuals, and governments that have borrowed currency. This is because more local money has to be changed into dollars when loan payments are made.
It causes central banks in other nations to boost interest rates in an effort to stabilise their currencies and prevent capital flight. However, higher interest rates also reduce economic growth and increase unemployment.
Simply put, “the dollar’s gain is terrible news for the world economy,” argues Ariane Curtis of Capital Economics. This is one more reason why we anticipate the world economy to enter a recession next year.
U.S. dollar rise, Businesses are suffering
Businesses are suffering and consumers are dissatisfied in a Nairobi area renowned for its vehicle repair shops and auto parts stores. Since the Kenyan shilling has lost 6% of its value this year, the price of gas and imported replacement parts has gone through the roof. This has caused some people to give up their cars in favour of public transportation.
Michael Gachie, buying manager at Shamas Auto Parts, said, “This has been the worst.” Customers complain often.
Historically, fluctuating currencies have often caused economic distress around the globe. For instance, Indonesian firms borrowed heavily in dollars during times of economic boom and were wiped out when the Indonesian rupiah plummeted against the dollar during the Asian financial crisis of the late 1990s. A few years ago, a falling peso caused comparable suffering for Mexican firms and consumers.
However, the increasing currency in 2022 is especially terrible. It exacerbates global inflationary pressures at a time when prices are already rising rapidly. The COVID-19 recession and recovery caused problems in the oil and agriculture industries, which were made worse by the war.
In Manila, 29-year-old Raymond Manaog, who drives a jeepney, a colourful Philippine minibus, laments that inflation, and particularly the growing price of fuel, is driving him to work harder to make ends meet.
“What we must do to cover our everyday costs,” he said. If we travelled our routes five times before, we now do so six times.
Higher costs for raw materials and transportation
Ravindra Mehta has prospered for decades as a middleman for American almond and pistachio exporters in the Indian metropolis of New Delhi. In India, the price of nuts has gone up because of higher costs for raw materials and transportation, as well as a historic drop in the value of the rupee.
Mehta said that India bought 400 containers of almonds in August, down from 1,250 containers a year earlier.
“If consumers do not purchase, it impacts the whole supply chain, including me,” he added.
Kingsland Drinks, one of the largest wine bottlers in the United Kingdom, was already feeling the pinch of rising expenses for shipping containers, bottles, caps, and electricity. The soaring dollar is pushing up the price of the wine it purchases from American vineyards, as well as from Chile and Argentina, which, like many other nations, depend on the dollar for international commerce.
Kingsland has mitigated a portion of its foreign exchange expenses by entering into contracts to purchase dollars at a predetermined price. At some point, though, “those hedges expire, and you must reflect the reality of a lower pound versus the U.S. dollar,” said the company’s managing director, Ed Baker.