Page 19 - July-August 2018 GSE Report Flip Book

MONETARY POLICY
JJUALN. U- ARUYG. 22001188
The currency crisis of 2018?
The next domino to fall—corporate debt
Rand Venezuela implodes and neighboring countries suffer
Make or break time in Europe
GLOBAL RISKS
The currency crisis of 2018?
Geopolitical Future’s Jacob Shapiro wrote:
What do the Turkish lira, the Iranian rial, the Russian ruble, the Indian rupee, the Argentine peso, the Chilean peso, the Chinese yuan and the South African rand all have in common? They’ve all declined steadily this year, and some have depreciated dramatically in the
past two weeks alone. But this isn’t the whole story. The whole story is that each of these countries is sitting on a ticking time bomb of U.S. dollar-denominated debt.
This story has been long in the making. In the 1990s, many countries began to accumulate large amounts of debt denominated in U.S. dollars. It was an effective way to kick-start economic activity, and so long as their own currencies remained relatively strong against the dollar, it was fairly risk free. From 1990 to 2000, dollar-denominated debt tripled from $642 billion to $2.17 trillion.
The problem may now be coming to a head. Dollar-denominated debt has ballooned. In its latest quarterly report, the Bank of International Settlements found that U.S. denominated debt to non-bank borrowers reached $11.5 trillion in March 2018 – the highest recorded total in the 55 years the bank has been tracking it. Meanwhile, the dollar has strengthened amid a tepid global recovery from the 2008 financial crisis. As the currencies of indebted countries weaken against the dollar, it is becoming harder for some countries to pay their debts. This could be a bubble waiting to pop, especially if vulnerable countries don’t have the monetary policy options to protect themselves.
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