Since 1971 when the US abandoned the gold standard for a free wheeling fiat currency system, the dollar has impacted other currencies often to the detriment of their economies, especially with African nations.
A peek at the phoney state of the US dollar
by Mila Bera
From early as the Byzantine Empire, gold was used to support fiat currencies – that is, those considered legal tender in their nation of origin, writes Kalen Smith. Gold was also used as the world reserve currency up through most of the 20th century. As she rightly pointed out in the article How Gold Affects Currencies, Gold was used to back up the US dollar until President Nixon’s masterstroke wherein the US Federal Reserve abandoned the gold standard, ostensibly for easily manipulable figures.
Today we’re all well aware of how complex the global market has been. It’s essentially like an intricate web of strings where tugging each individual strand can lead to noticeable consequences to the entire system. It is now obvious that some strings, of course, have been manouvered to cause more of a stir than others.
And the US dollar is one big string.
Its position on the global market can seriously disrupt the greater workings of the whole ecosystem. Likewise, any notable shifts in the global market can affect the dollar’s state.
The Dollar: 2017 to date
The dollar’s performance in 2017 is a fine example of how external factors can mount pressure on the currency. The USD experienced a major dip at that time, the first of that severity in five years. The reason for this drop could largely be attributed to the euro’s rise in value, which in turn slumped the dollar by 12 percent.
At the other end, the dollar has exerted its power over other economies. Africa’s emerging economies, for example, have partially been under suppression from the currency’s boost in value. It’s true that trade precarity and fluctuating commodity prices were the significant factors, but the dollar has nevertheless contributed quite a bit to the situation.
Africa has been under dollar-denominated debt for decades, which it managed to soften with the help of negative interest rates and rocketing oil prices. But as the dollar grew stronger, commodities became lower in price, making this debt servicing more difficult. On the other hand, a stronger dollar value does encourage foreign investors to get involved, mainly through government securities like gilts and bonds.
As you can see from the above effects, there’s quite a lot to learn from the dollar’s behavior and current trends. Furthermore, its undulations are an important factor for investors looking into the African market.
If you’re interested in knowing more about the dollar’s state on the global economic scene, this insightful infographic by Fortunly is definitely worth your time. It’s chock full of invaluable information about the currency’s history and trends, as well as the factors that drive those fluctuations.