Security guard Mustafa Gamal had to transfer his wife and 1-year-old daughter to live with his parents in a hamlet 70 miles south of Cairo in order to save money due to the city’s skyrocketing cost of living.
Gamal, a 28-year-old who stayed behind gave up meat and worked two jobs while living in an apartment with several young people. Everything now costs twice as much, he claimed. There was no other option.
Gamal’s suffering and annoyance are being felt by individuals all across the world. The same issue is being voiced by an importer of wine in Manchester, England, a seller of baby clothing in Istanbul, and an auto parts merchant in Nairobi: the weakening of their native currencies due to the strong U.S. dollar is driving up the cost of basic goods and services. Financial hardship is being made worse at a time when families are already experiencing shortages of food and energy due to Russia’s invasion of Ukraine.
Eswar Prasad, a professor of trade policy at Cornell University, asserts that “a high dollar makes a poor situation in the rest of the world worse.” Numerous experts are concerned that the significant increase in the dollar is raising the possibility of a world recession sometime in 2023.
The benchmark ICE U.S. Dollar Index, which compares the value of the dollar to a basket of important currencies, shows that the dollar has increased by 18% this year and reached a 20-year high last month.
The causes of the dollar’s increase are well known. The Federal Reserve has increased its benchmark short-term interest rate five times this year to combat the U.S. inflation crisis and is indicating that additional increases are expected. As a result, interest rates on a variety of U.S. corporate and government bonds have increased, enticing investors and strengthening the dollar.
Comparatively speaking, most other currencies, particularly in developing nations, are significantly weaker. In relation to the dollar, the Egyptian pound has fallen by 20% this year, the Turkish lira by a startling 28%, and the Indian rupee by about 10%.
In Istanbul, 60-year-old Celal Kaleli sells baby clothes and diaper bags. He has to hike rates for Turkish customers who struggle to pay him in the severely devalued local currency because he needs more lira to purchase imported zippers and liners priced in dollars.
He remarked, “We’re anticipating the new year. “We’ll review our finances and downsize as necessary. There’s nothing else that we can do.
Rich nations are not exempt. The British pound has fallen 18% from a year ago, and one euro is worth less than $1 in Europe, which was already on the verge of recession due to skyrocketing oil prices. After Britain’s new prime minister, Liz Truss announced hefty tax cuts that shook financial markets and resulted in the resignation of her Treasury secretary, the pound briefly flirted with dollar parity recently.
Normally, countries could gain from declining currencies because it makes their goods more affordable and competitive elsewhere. Any benefit from increased exports, however, is currently limited because economic development is stuttering practically everywhere.
A rising dollar hurts foreign economies in a number of ways, including:
— It increases the price of imports from other nations, escalating inflationary pressures.
— It puts pressure on businesses, consumers, and governments that took out dollar-denominated loans. This is due to the fact that more local currency is required to convert local currency into dollars for loan payments.
— It forces interest rates to rise at central banks in other nations in an effort to support other nations’ currencies and prevent capital from leaving the country. However, those higher rates also slow economic expansion and increase unemployment.
Simply put, Ariane Curtis of Capital Economics believes that the strengthening of the dollar is terrible news for the world economy. It is just another factor supporting our prediction that the world economy will enter a recession in 2023.
Businesses are failing, and customers are dissatisfied, in a seedy district of Nairobi known for mending automobiles and selling auto parts. The cost of fuel and imported spare parts is rising so dramatically this year due to the 6% decline in the value of the Kenyan currency that some people are opting to give up their cars and use public transportation instead.
Michael Gachie, the buying manager at Shamas Auto Parts, declared, “This has been the worst.” Customers frequently voice complaints.
Many times in the past, fluctuating currencies have hurt economies all around the world. For instance, during the Asian financial crisis of the late 1990s, Indonesian businesses took out large loans in dollars during periods of economic expansion only to lose everything when the value of the Indonesian rupiah fell against the dollar. A falling peso caused similar suffering for Mexican consumers and businesses a few years prior.
However, the 2022 dollar increase will be particularly difficult. At a time when prices were already skyrocketing, it is putting additional pressure on global inflation. Energy and agricultural market disruptions brought on by the conflict in Ukraine made the COVID-19 recession and recovery-related supply limitations more severe.
In Manila, 29-year-old Raymond Manaog, who operates the vibrant Philippine minibus known as a jeepney, laments that inflation, particularly the growing cost of diesel, is making him work harder to make ends meet.
What we need to do in order to make enough money to cover our daily needs, he said. “Nowadays, we take our routes six times instead of the five times we did before.”
For decades, Ravindra Mehta has prospered in New Delhi as a middleman for American exporters of almond and pistachio products. But on top of increasing transportation and raw material expenses, the rupee’s record decline has driven up the price of the nuts for Indian customers.
According to Mehta, India imported 400 containers of almonds in August, down from 1,250 containers a year prior.
“The entire supply chain, including folks like me, is impacted if the consumer isn’t buying,” he said.
One of the largest wine bottlers in the UK, Kingsland Drinks, was already feeling the pinch from rising costs for shipping containers, bottles, caps, and energy. Now that the dollar is in freefall, it is increasing the cost of the wine that it purchases from American vineyards as well as Chilean and Argentinean ones, two nations that, like many others, depending on the currency for international trade.
Kingsland has contracted to acquire dollars at a specified price in order to offset some of its currency costs. The managing director of the company, Ed Baker, noted that eventually, “those hedges run out and you have to reflect the reality of a weaker pound against the U.S. dollar.”
Customers will soon simply have to pay more for their wine.
