The US dollar has risen nearly 15% against some of the world’s most traded currencies this year.
This has led to a rise in interest rates around the world as central banks try to increase the value of their currencies.
Emerging economies with large dollar-denominated debt balances have been hit hard by the strengthening of the dollar, causing several countries to shift away from the dollar.
Some of these countries are Kenya, Malaysia, India, Saudi Arabia. Question remains on what can be done.
What should be done?
Controlling global inflation and reviving global growth should lead to improved terms of trade and reviving demand for exports. National policy makers can’t do much about this, but wait.
While doing so, they can take political action to address the immediate reality of dollar shortages. Few of these steps are easy.
The usual advice is to reduce public spending. This will reduce the demand for imports. It is politically difficult. Governments are also generally advised to encourage the production of exports and substitute products. It’s hard and it takes time.
Therefore, effective reforms will also depend on external support. This means new and additional balance of payment assistance from international financial institutions and international development banks. And that means debt reform initiatives like the G20 Joint Framework Mechanism.
Recurrent dollar shortages are an ongoing reality for many low-income countries, even if growth and development mean that they are likely to become more frequent and decelerate over time. The pressures that some countries in Africa are currently facing are severe, but they can be managed if countries maintain the sound macroeconomic management that they have developed over the past decade, especially if this internal economic discipline is accompanied by strong support from the International Community. . . financial institutions and external development partners.