Odd Lots Hyun Song Shin Explains Why This Dollar Shock Is So Unique
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Oct 31, 2022 Hyun Song Shin, Economic Adviser and Head of Research for the Bank for International Settlements, sheds light on the unique dynamics of the current dollar rally. He explains how this cycle differs from past trends, examining its significant impact on global markets. Shin discusses the implications for trade and investment, exploring how the dollar's strength affects commodity prices and inflation. Policymakers are challenged to navigate these complexities, especially in emerging markets, while the dollar's position as the dominant currency remains a focal point.
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Dollar's W-Shaped Strength
- The dollar's strength over the past 50 years resembles a W shape, peaking in the early 1980s, early 2000s, and currently.
- Hyun Song Shin quantifies these peaks, highlighting the dollar's real effective exchange rate reaching 145 in 1985, 124 in 2002, and over 140 now.
Dollar's Impact on Global Risk
- The dollar's dominance as the primary international currency influences trade and financial conditions.
- Its strength impacts risk appetite, leading to deleveraging and reduced risk-taking globally.
Drivers of Dollar Strength
- US monetary tightening and its net energy exporter status contribute to dollar strength.
- Safe haven flows due to global uncertainty, including the pandemic and war in Ukraine, further bolster the dollar.