The US currency started seeing huge fluctuations after the country experienced a recession in 2008. Following it, the Federal Reserve initiated the largest quantitative easing program in the history by printing more money to buy bonds. With the increased number of currency circulating in the market, the country was able to improve its balance sheet by $3.5 trillion.
As a result, the supply of dollars in the international market also increased causing its value to drop. It was in October 2014 that the Federal Reserve decided to end this program and this has sent the currency soaring high in most of the international markets.
With the increased trend of digital currencies like Bitcoin and Ripple, we have to see whether the US dollar will be able to maintain its position in the market or not.
The Profits of Multinational Companies
Just a few years back the languishing dollar was bringing in enormous profits for huge companies like Nike, Oracle, and FedEx. A weaker dollar generates more revenue for such companies because it makes their products less expensive for the foreign markets. Apart from this, it also brings about an accounting benefit.
Even Apple has hinted that it will receive a huge blow to its profits if the dollar continued to rise in the international market. It’s Chief Financial Officer said, “Because about two-thirds of our company is outside the United States, a weak dollar is a positive for our gross margins.”
President Trump’s Approach
Earlier, President Trump was an advocate of a weaker dollar but his approach has changed since then. His tone now touts for a fiercer USD because he said that it is going to become stronger and stronger.
Treasury Secretary Mnuchin described the weak dollar as good for the trade but it seems that the currency is enjoying benefits the other way around. While it is hurting the international economies, the question being will it be beneficial for the US conglomerates and stock market too?
The Tension in the Trade
As the US booms with the rise in the dollar value, the rest of the world struggles with hardened market conditions. An HSBC economist said, “A simple dynamic is playing out in the global economy right now – the US is booming, while most of the rest of the world slows or even stagnates.”
Only the countries which are exporters of oil will be able to make up the difference. Emerging economies like Brazil, Chile, and Venezuela are going to suffer because they export various commodities across different nations.
The Bottom Line
It is out of question who ranks best whether it’s a small mattress company or the US economy as it has come down to ‘who will survive 2019’. Be it the business giants in the US or the economies of certain small countries, the soaring dollar is not going to bring about added any benefit to anyone except the US government. In order to stabilize the trade around the world, it is impertinent to ensure a strong yet non-volatile dollar.