Why USD appreciation is bad news for Emerging Economies

Not least of which is a higher cost of servicing USD debt

The Financial Times highlighted the many reasons why an appreciation of the USD is bad news for Emerging Market countries (EMs), by which they mean, developing countries.

• increased cost of $ debt,
  
• reduced supply of capital into EMs,
  
• higher cost of imports,
• less global trade (because it is more expensive for non-$ countries to buy $ to buy imports, so EMs buy fewer goods) so reduced income from trade,
• Exchange rate depreciation (of local currency vs $) leads to domestic inflation,
• depreciation of the Chinese Yuan vs $ means less Chinese trade, which means less trade for EMs,
• worsening credit status of EMs - so it is more expensive for EMs to borrow (a higher coupon on debt).

If you are involved in import or export (not only to or from EMs) and you wish to discuss how to manage your currency transfers or hedge the associated currency risks, then contact me for a free no-obligation discussion.