Heat of the US Dollar

The people of the United States have benefited because of the increased value of the dollar. There the prices of imported goods have fallen, and when they go abroad, they get more money in exchange for dollars. But the US exporters are in danger. As the price increases, the sales of their products are decreasing.

Let's say, a young man gets a job contract with an organization in the United States. At the time of the contract, the exchange rate of one dollar in the country was 90 rupees, but when he started receiving money in exchange for work, the exchange rate of the dollar stood at 108 rupees. As a result, the young man is now getting an extra 18 rupees for one dollar. He was overjoyed at this; That is, where he is supposed to get 90 thousand taka for 1 thousand dollars, now he is getting 1 lakh 8 thousand taka. And for those whose family members live abroad, that is, those who depend on expatriate income, the additional exchange rate of the dollar is also good news. This increased their family income.

But this reality is not for everyone, those who import and those who have to use the imported products, the situation is deplorable. Most of the world's foreign trade is done in dollars. As a result, countries like Bangladesh, Turkey, Egypt and India, which import raw materials, are not in good condition. In this, the prices of most imported products have risen to a record high in the local market.

 From the second quarter of last year, inflation started to occur around the world. At first it was supply-side inflation, now coupled with an overvalued exchange rate of the dollar. Due to the Russia-Ukraine war, fuel prices are already high, and the dollar is at a record high. As a result, all countries have to buy oil at a higher price in exchange for the overvalued dollar which in turn, affects the product price.

The people of the United States have benefited because of the increased value of the dollar. There, the prices of imported goods have fallen, and when they go abroad, they get more money in exchange for dollars. But the US exporters are in danger. As the price increases, the sales of their products are decreasing. The Wall Street Journal reports that sales of US companies that make large profits overseas are falling. Like Microsoft and Coca-Cola companies are already feeling it. They have already informed the shareholders that the sales have decreased. Besides, they have also sent a notice to the Securities and Exchange House of the country. According to the report of Wall Street, 40 percent of the revenue of the companies included in the S&P index of the country's stock market comes from outside the United States.

Most of the world's foreign trade is transacted in US dollars. According to International Monetary Fund (IMF) estimates, 149 countries in the world have about seven trillion dollars in reserves. This is basically why the dollar is spreading heat in the world. Due to the use of dollars in various transactions, including trade, there is always a demand for dollars, and the US central bank, the Federal Reserve, always tries to keep the dollar market strong.

But the interesting thing is that when the US economy is strong, the demand for dollars increases; And when the US economy is in recession, the value of the dollar increases. It's called the dollar smile, literally like a dollar smiling. If the economy is strong, investors think that policy interest rates in the United States will rise. When the policy interest rate rises, so does the bond interest rate. As a result investors invest in US bonds.

On the other hand, the fear of economic recession is now haunting the whole world. Fears of recession are also strengthening the US dollar. But this is from fear. The global supply system has not yet returned to normal, and no one knows when the Russia-Ukraine war will end. China still has a zero covid policy, making the dollar smile even more.

The thing is, the heat that the US dollar is spreading is being felt in different parts of the world, by different professions, even by ordinary people. The strength of the US dollar is such that its ups and downs touch people from all walks of life. It is felt more and more in the present reality. The dollar has not only weakened the currencies of various regions including Europe and Asia, due to which the value of the local currency has gone down.

There are various explanations for why the US dollar has suddenly become so hot. But an explanation is plausible. That is, when the world's markets begin to behave abnormally, suffering from uncertainty, investors seek safe havens. Investors around the world are looking for safety in the US dollar due to fears of recession and instability in the economy.

By: Mehrab Uddin

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