‘Bad situation’: A rising US currency causes suffering everywhere
Cairo’s cost of living has risen so dramatically that security officer Mustafa Gamal had to transfer his wife and one-year-old daughter to live with his parents in a hamlet 70 miles south of the Egyptian capital to save money. Gamal, 28, stuck behind, working two jobs, living in an apartment with other young people, and avoiding meat. “Everything’s been doubled in price,” he remarked. “There was no other option.”
People all over the world are feeling Gamal’s anguish and frustration. The same complaint can be heard from an auto parts trader in Nairobi, a baby clothing seller in Istanbul, and a wine importer in Manchester, England: a rising US dollar weakens their native currencies, adding to ballooning prices for common goods and services. This adds to families’ financial woes at a time when they are already facing food and electricity shortages as a result of Russia’s invasion of Ukraine.
“A strong dollar exacerbates a bad situation in the rest of the world,” says Eswar Prasad, a professor of trade policy at Cornell University. Many economists are concerned that the dollar’s sharp rise is increasing the likelihood of a global recession sometime next year. The dollar is up 18% this year and hit a 20-year high last month, according to the benchmark ICE US Dollar Index, which measures the dollar against a basket of key currencies.
The reasons for the dollar’s growth are well known. To battle rising US inflation, the Federal Reserve has raised its key short-term interest rate five times this year, with more hikes on the way. This has resulted in higher interest rates on a wide variety of US government and business bonds, attracting investors and driving up the US dollar. Most other currencies are substantially weaker in contrast, particularly in developing countries. The Indian rupee has fallen over 10% against the US dollar this year, the Egyptian pound 20%, and the Turkish lira 28%.
Celal Kaleli, 60, is an Istanbul-based seller of child apparel and diaper bags. He has to hike rates for Turkish customers who struggle to pay him in the much-depreciated local currency because he needs more lira to acquire imported zippers and liners priced in dollars. “We’re looking forward to the new year,” he explained. “We’ll look into our finances and downsize accordingly; there’s nothing else we can do.” In Europe, which was already on the verge of recession due to surging energy prices, one euro is worth less than a dollar for the first time in 20 years, and the British pound has dropped 18% from a year ago.
The pound recently flirted with parity with the dollar after Britain’s new prime minister, Liz Truss, proposed massive tax cuts that roiled financial markets and led to the resignation of her Treasury secretary. In most cases, declining currencies help countries by making their products less expensive and more competitive in foreign markets. However, any benefit from greater exports is currently subdued because economic growth is stuttering practically everywhere.
(source : AP)