The US dollar strengthened recently to the highest level in the past 10 years against a broad range of currencies. Falling commodity prices force "emerging" and "commodity-dependent" countries to weaken their currencies to maintain competitiveness. However, trying to improve export competitiveness through currency devaluation can induce a sharp rise in inflation rates. Enforced tightening of monetary policy also reduces economic growth because high interest rates stifle new business activity. According to the latest IMF estimates, countries such as Argentina, Brazil, Russia, and Venezuela are experiencing simultaneous declines in GDP and rapdily rising inflation, the so called "stagflation" phenomenon.
The United States, on the other hand, is in a more comfortable low-inflationary and accommodative monetary environment, and is also showing relatively strong economic growth. The US is growing faster than many emerging and developing countries. In addition, the appreciation of the US dollar in real terms remains lower than before the global economic crisis, based on comparison to the real trade-weighted broad US Dollar index during the period 1997-2006. So, while the economy stays strong and the rising currency reduces pressure on import prices for US consumers, it seems that the US (as a net importer of goods and services) will be able to manage additional appreciation of the dollar even if the US Federal Reserve raises short-term interest rates this autumn.
Sources: Exchange Rates, Annual, Monthly and Daily Series, August 2015; Market Exchange Rates Daily Data; IMF World Economic Outlook (WEO), April 2015; Principal Global Indicators Concepts by Country, June 2015; World Development Indicators (WDI), August 2015
Bitcoin is one of the world's most popular digital currencies, meaning that it is exclusively created and held electronically. But, what do we actually know about digital currencies and the potential of these currencies to replace conventional money? Like conventional money, the major function of a digital currency is to serve as a means of payment, whether that is in exchange for goods or real currency, such as dollars and euros. In addition, similar to how a normal currency's exchange rate is set, the price for bitcoins - per the CoinDesk Bitcoin Price Index (XBP) - is based on market dynamics and expressed as the midpoint of the bid/ask...
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