โThe end of modern globalization may owe more to the fortunes of the U.S. dollar than Kremlinologists, Sinologists or military analysts acknowledge.โ
reuters.com
reuters.com
Neither is good for developing economies that are only beginning to attract back sizeable investment for the first time since the COVID-19 pandemic and Ukraine shocks.
The relentless international trade growth that defines globalization - measured by global export volumes as a share of world GDP - peaked just before the banking crash of 2008 and has essentially stagnated ever since, despite recovering post-crash and post-pandemic troughs.
As most trade finance and international borrowing is conducted in dollars, demand for the U.S. currency and movements in the value of the greenback provide one of the best proxies for world credit conditions overall.
Compensating somewhat for dollar exchange rate strength over the decade were historically low real dollar borrowing rates. The average real 10-year real yield since 2008 was less than 0.4%.
Reduced trade, supply chain disruptions and 'onshoring' to higher-wage domestic sites are all potentially inflationary over time and will likely only buoy borrowing costs for longer.
If the U.S. dollar is the key weather vane, rumors of its demise this year already seem to have been greatly exaggerated. After only seven weeks, the dollar is already almost 1% higher for the year to date.
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