The current currency crisis in the emerging economies is linked to the...
Sep 11, 2018
The current currency crisis in the emerging economies is linked to the US trade and monetary policies. How? What wider global response is being witnessed to the US "flexing its financial muscle"?
Important emerging economies’ currencies crashed recently: Iranian rial, Turkish lira, Argentine peso, Brazilian real. There are many reasons for it .Turkey’s case is influenced by the bubble of easy credit created by European banks that Turkish banks are not able to repay. Iran’s has to do with harsh United States sanctions imposed after the Trump administration’s unilateral pullout from the Iran nuclear deal. Brazil’s has to do with a possible victory by the imprisoned Lula (former president Luiz Inácio Lula da Silva) or his appointed candidate in the presidential election in 2018 October.
This is a serious currency crisis affecting key emerging markets. Three of these – Brazil, Argentina and Turkey – are G20 members.
Independent analysts agree that the overwhelming factor in the current currency crisis is a reversing of the US Federal Reserve quantitative easing (QE) policy.No more liquid dollars flooding emerging markets such as Turkey, Brazil, Argentina, Indonesia or India. US interest rates are up. The Fed stopped buying new bonds. The US Treasury is issuing new bond debt. Thus QT, combined with a global, targeted trade war against major emerging markets, spells out the new normal: the weaponization of the US dollar.
Russia, China, Turkey, Iran – nearly every major regional player invested in Eurasia integration – is buying gold with the aim of progressively getting out of US dollar hegemony. Russia and China are heavily invested in buying gold. Russia has dumped US Treasuries en masse. And what the BRICS had been discussing since the mid-2000s is now in motion; the drive to build alternative payment systems to the US dollar. Germany appears to be coming around to the idea. If that does happen, it could possibly lead the way towards Europe redefining itself geopolitically in terms of its military and strategic independence. When and if that happens, arguably at some point in the next decade, US foreign policy configured as an avalanche of sanctions may be effectively neutralized.
It will be a long, protracted affair – but some elements are already visible.
Besides, there are nations contemplating the creation of their own cryptocurrencies whose popularity in future could undercut US dollar.