Odd Lots Why a Strong Dollar Causes Most of the World Major Pain
Jul 1, 2019
Hyun Song Shin, economic advisor and head of research at the Bank for International Settlements, shares insights on the global influence of the U.S. dollar. He explains how a strong dollar tightens financial conditions worldwide, impacting trade and inflation. The conversation also delves into the relationship between dollar strength and deglobalization, as well as the challenges faced by emerging markets. Shin provides a keen outlook on the evolving global economy and the complexities of modern monetary policy.
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Dollar Strength and Global Trade
- A strong U.S. dollar correlates with weaker global trade, especially within elaborate value chains like China's.
- Dollar strength tightens credit conditions, impacting the financing of intermediate goods crucial for these chains.
Deglobalization Trend
- The decline in global trade relative to GDP since 2011 suggests a broader deglobalization trend.
- This decline mirrors the trend in emerging market equities, hinting at a potential driver.
Shift in Trade Financing
- Post-2008, corporate bond issuance has replaced bank lending in financing global trade, particularly dollar-denominated transactions.
- This shift makes trade vulnerable when corporate balance sheets are leveraged, as bank lending remains subdued.