Recently, affected by the Federal Reserve’s aggressive interest rate hikes to curb inflation, the U.S. dollar has continued to rise against most currencies around the world, and the currencies of emerging market countries have been under particularly obvious depreciation pressure.
Sri Lanka has experienced debt defaults, currency depreciation, skyrocketing inflation, national bankruptcy, and the resignation of both the president and prime minister. The United Nations has said that worsening food, fuel and financial crises could destabilize poorer countries, leading more than 70 countries to default on their debts, following Sri Lanka.
Inflationary pressures intensify in Colombia
CCTV Finance reported that since the end of May this year, the Colombian peso has depreciated significantly for six consecutive weeks. In Colombia, the fourth largest economy in Latin America, the exchange rate of the Colombian peso against the US dollar has fallen continuously in the past seven trading days.
Intraday trading once exceeded the record low of 4,600 pesos per U.S. dollar. According to official data from Colombia, Colombia’s annualized inflation rate reached over 9% in June.
Colombian financial analyst Julio Cesar Lomero believes that the strengthening of the dollar globally is related to interest rate hikes. The U.S. central bank, the Federal Reserve, began an interest rate hike cycle in March 2022, and the pace of interest rate increases is much higher than in the past.
The strong dollar policy has triggered exchange rate fluctuations around the world, especially in emerging markets, and may trigger some overseas investors to withdraw from emerging markets. This means that international capital investment is more willing to flow to the US market.
Julio also emphasized that at least 33% of the current foreign debt held by the Colombian government is US dollar foreign debt. Under the influence of the strong US dollar, the peso continues to depreciate, which means that the Colombian government has to bear more foreign debt, increasing the government’s fiscal deficit.
Julio further explained that when the dollar price goes up, everything becomes more expensive for us because we import a lot. The first impact of the depreciation of the peso is inflation, the second is poor fiscal account performance, and the third is slower growth due to having to control imports.
The latest report released by the National Bank of Colombia shows that the impact of the recent continued depreciation of the peso will be reflected in 2 to 3 months, manifested in the rise of various domestic prices, which will also intensify the inflationary pressure faced by Colombia in the second half of the year. Inflation is expected to reach a record high of 9.32% by the end of this year.
In order to curb inflation, Colombian President Duque signed a decree in mid-July to reduce or reduce import tariffs on some agricultural and industrial products. The measure is not expected to take effect until June 2024.
It is not optimistic that many countries are in debt crisis
Türkiye:
Since March, Turkey’s exchange rate has fallen to a record low—it had hit a record low earlier, breaking through the record low of 17.1983 per U.S. dollar. In a further sign of unease for investors, Turkey’s credit default swaps rose 24 basis points to 816 basis points, the highest level since 2008.
The inflation rate rose to nearly 75% in May. This inflation rate is currently the highest among G20 members and the sixth highest in the world. Independent economists say Türkiye’s actual inflation rate is likely to be much higher.
Egypt:
Egypt, a major country in the Middle East, is also in danger. The rise in food, fertilizer and energy prices triggered by the Russia-Ukraine conflict has caused Egypt’s economic situation to take a turn for the worse, seriously affecting people’s normal lives.
Egypt is the world’s largest wheat importer, with 59.7% coming from Russia and 22.3% coming from Ukraine. The surge in wheat prices caused Egypt’s non-subsidized food prices to rise by 50% in the short term, and the inflation rate also jumped to 15.3% in May from 4.8% in the same period last year.
The Egyptian government recently announced that the current wheat stocks are only enough to last 2 months and 18 days.
Argentina:
Since March this year, demonstrations have erupted from time to time in Buenos Aires, the capital of Argentina, to protest against rising prices and foreign debt. Argentina is facing an inflation crisis, coupled with the depreciation of the national currency and the soaring cost of imported natural gas, its foreign exchange reserves have officially bottomed out.
It is reported that in the past decade, Argentina’s exchange rate against the US dollar fell by 99% by printing useless pesos. During the same period, Argentina’s money supply, including all currencies in circulation, surged by 2328.09% in ten years.
In view of the current global economic environment, we need to be careful of buyers abandoning goods and collecting foreign exchange risks to avoid losses.
</p
