New research suggests the dollar’s level drives world trade

AGUS SACCHAL sells sheets and blankets from a warehouse in Buenos Aires, for which he is paid in Argentine pesos. While the pesos go into his wallet, two other banknotes are stuck to his office window. One is a ten-yuan note from a visit to China, where he went in search of cheap textiles. The other is a $5 bill, pinned next to an invoice, also in dollars. Though he does not trade with America directly, when importing he uses the greenback.

Argentina’s rocky financial history makes the dollar’s dominance there unsurprising. Still, it is an extreme case of a wider phenomenon. After gathering data on 91% of the world’s imports, by value, Gita Gopinath of Harvard University found that America accounts for nearly 10%. But its currency is used in over 40% of invoicing.

Recent research suggests that this creates a link between a weak dollar and buoyant trade flows—and vice versa. Trends since 1999 are suggestive (see chart). During 2017 the dollar depreciated by 7% against a basket of other currencies, as global trade flows surged...

via The Economist: Finance and economics Business Feeds

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