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New York, U.S. | Xinhua | The U.S. dollar’s rise compounds excruciating problems of debt sustainability for scores of low- and middle-income countries, propelling them to diversify reserve currencies, reported Foreign Affairs in mid-October.
The dollar “is everyone’s problem, to paraphrase an aphorism from John Connally, the former U.S. Treasury secretary,” said the report.
Much of the corporate debt of such countries in the hands of foreign investors is denominated in dollars. This debt becomes more expensive to service and repay when the dollar is strong, according to the report.
“Even when external debt is in local currency, a fall in the exchange rate against the dollar can cause problems,” it said.
U.S. financial firms, seeing themselves exposed to losses on those foreign investments, withdraw from emerging-market assets, putting yet additional downward pressure on the value of foreign currencies in a vicious circle, it added.
