Increasing dollar strength and emerging-market currency weakness demands a new model
Exploring the transformation of value in the digital age By Michael J. Casey, Chief Content Officer Was this newsletter forwarded to you? Sign up here. |
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This week's newsletter is all about the big picture, the really big picture. The column touches on the challenges that a post-COVID-19 currency crisis might pose to the dollar-based international financial system. Our weekly chart looks at the dollar's impact on global inflation. We also question the prospect of government failures in the West and survey crisis-prone Latin America's experience with crypto. For the "Money Reimagined" podcast, my co-host Sheila Warren and I talk to Josh Lipsky of the Atlantic Council and John Soroushian of the Bipartisan Policy Center about the engagement of think tanks with policymakers as they intensify their focus on crypto in the U.S. and abroad. Have a listen after reading the newsletter. |
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Launched in September 2017, KuCoin is a global cryptocurrency exchange with its operational headquarters in Seychelles. As a user-oriented platform with focus on inclusiveness and community action reach, it offers over 700 digital assets, and currently provides spot trading, margin trading, P2P fiat trading, futures trading, staking, and lending to its 20 million users in 207 countries and regions. In 2022, KuCoin raised over $150 million in investments through a pre-Series B round, bringing total investments to $170 million with Round A combined, at a total valuation of $10 billion. KuCoin is currently one of the top 5 crypto exchanges according to CoinMarketCap. Forbes also named KuCoin one of the Best Crypto Exchanges in 2021. In 2022, The Ascent named KuCoin the Best Crypto App for enthusiasts. |
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A Currency Crisis Looms: We Need a New Model |
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(Rachel Sun/CoinDesk) The global economy is staring down the barrel of a currency crisis. That has huge ramifications for the crypto industry. Emerging-market currencies face a perfect storm: the COVID-19 pandemic, the Russia-Ukraine war, soaring commodity prices, rising inflationary expectations, political crises in multiple developing economies and, now, aggressive interest rate hikes from the U.S. Federal Reserve that draw speculative money into the dollar. It's all putting exchange rates in countless countries under extreme pressure. Raoul Pal observed this week that, by some measures, there is a more extreme dislocation in Asian currencies now than there was during the region's 1997-98 financial crisis. Currency crises like these impose a vicious cycle on emerging-market countries: The exchange rate plunges, local policymakers' try to contain the fallout but fail, and confidence in their abilities wanes, which further drives down the currency, stoking fears of default among foreign lenders and generating inflation as import prices surge. And all of that further undermines confidence in the currency and the government. Nations such as Sri Lanka and Lebanon have already entered this dark phase. Others with less overt political problems may well be next as 1998-style "contagion" takes root. Now, let's take a look at the vicious cycles and flaws that emerge from a dollar-centric international financial system and why a new digital asset model is needed... Read the story here... |
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Off the Charts: Dollar Dependency |
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As discussed above, a rising dollar has the opposite effect on U.S. and emerging markets. In the U.S., it helps contain inflation by making imported goods cheaper for Americans. In emerging markets, it exacerbates inflation by driving up the price of imports in local currency terms. With that in mind, I asked my colleague Sage Young to come up with the following chart. |
The chart compares different measures of global headline inflation compiled by the Federal Reserve Bank of Dallas with the trade-weighted dollar index produced by the Dallas Fed's counterpart in St. Louis. It turns out that a rising dollar doesn't always correlate with a higher global inflation. In fact, sometimes it coincides with falling prices. That's probably because, often, the dollar gains as a safe haven in times of economic stress, when softer demand exerts downward pressure on global commodity prices. At such times, that countervailing effect more than offsets the exchange rate-driven appreciation in non-dollar countries' import prices. For the past year, however, the correlation is strong. |
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The Conversation: "United" States
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Since we're on the topic of big, seismic shifts, one of things I like about crypto commentators is that they're not shy of making big, bold predictions. Here's CoinShares Chief Strategy Officer Meltem Demirors this week: |
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What do we think? Are "failed states" part of the West's future? What does that mean for crypto? |
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Relevant Reads: Crisis and Crypto in Latin America |
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(Roberto Huczek/Unsplash) One region that's no stranger to currency crises is Latin America, which is why many crypto advocates see great potential for adoption there. How that potential compares with reality is a mixed story, as output from CoinDesk over the past week and a half demonstrates. |
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Which institutes are most impacting the blockchain world? Tell us your thoughts in a five-minute survey. We're welcoming responses until Sept. 7. Take the survey here. | |
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