The rise in interest rates on the US dollar since 2022 has increased the cost of obtaining the US currency on the part of emerging markets, in addition to exhausting its foreign trade payments.
On Wednesday, the Argentine Minister of Economy, Sergio Massa, announced that his country intends to pay the price of its Chinese imports in yuan (the Chinese currency) instead of the US dollar, in order to limit the depletion of its hard currency reserves.
Argentina was severely affected by the US Federal Reserve's interest rate increases on the dollar, which increased the cost of obtaining the US currency on the one hand, and raised the cost of debt denominated in dollars, on the other hand.
According to the Associated Press, Massa said – during a meeting in Buenos Aires with Chinese Ambassador Zhou Xiaoli – that Argentina "will program part of its imports in yuan (equivalent to) more than a billion dollars next month."
Increasing interest rates on the dollar leads to an increase in the strength of the US currency against other currencies, while the rest of the economies try to maintain the attractiveness of their currencies with similar increases in interest rates.
The US Federal Reserve will hold – next Tuesday and Wednesday – a meeting of the Open Market Committee, to decide on interest rates on the dollar, amid speculation that they will increase by 25 basis points, in the tenth consecutive increase.
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However, the dependence of the global economy on the dollar as a currency for commercial payments and foreign reserves is putting pressure on economies in general, especially emerging markets, such as Argentina, Egypt, and most African countries.
According to data from the World Trade Organization last year, 86% of global trade takes place in US dollars, while data from the International Monetary Fund showed that the dollar represents 58.3% of countries' reserves with the Fund, which consists of 7 major currencies.
The seven currencies are: the euro, the pound sterling, the Chinese yuan, the Swiss franc, the Australian dollar, the Japanese yen, and the Canadian dollar.
And at the end of last March, Brazil and China announced that they had agreed to use their local currencies in trade exchange between them, instead of using the dollar.
China and Russia are leading efforts with other economies, led by India, to implement trade payments away from the US dollar, for sovereign, economic and political reasons.
China and Russia are leading efforts, along with other economies led by India, to implement trade payments away from the US dollar, for sovereign, economic and political reasons.
And the strong dollar caused more than $23 billion of hot money (foreign investments in debt instruments) to exit (money leaving the country for other markets) in Egypt, since March 2022.
The strength of the dollar resulting from the increase in interest rates, in addition to global inflation, caused an increase in the cost of Egyptian imports from abroad by 90% to more than $9.5 billion per month.
