While the dollar is suffering a loss of status, some countries have strengthened their currencies due to the outbreak of COVID-19
The impact of the coronavirus epidemic on the global economy is indeed tremendous. In addition to the total change in consumer sentiment and opportunities, the world has yet to face new unforeseen consequences – the market has not yet fallen apart, the market will not be the same, even after the removal of quarantine restrictions.
The epidemic “shut down” the existing economic system to some extent, causing some predictable processes to resume. These include, for example, the money market and the central role of the US dollar. Given the unprecedented suspension of globalization, the currency is in danger of a real fall from the throne. Furthermore, now the United States is struggling to deal with the outbreak of the disease, which certainly affects the state of the currency. South Korea, New Zealand and Australia have shown a more successful example of the fight against coronovirus, which allowed their markets to recover very quickly. Due to this, the stability of local currencies was affected and the attractiveness of countries for investment increased considerably.
The Australian dollar has greatly strengthened its position, and local products are already actively exported, while the US and Europe are still forced to fight COVID-19. China has the same situation – the country starts production after the recession and starts the economic processes again.
It is worth noting that at first the Australian dollar was not very popular, but after the rapid response to the epidemic in the country (including the rapid closure of borders and restrictions on movement), the currency saw an 11.4% increase. The situation is similar with the New Zealand dollar – at the onset of the outbreak, the country raised the threat level to the highest, which not only strengthened the health care system, reducing the flow of cases, but also increasing the national currency by 6.4% touched off.
For South Korea – initially badly affected by the epidemic – today this country is considered a model to prevent the spread of COVID-19. Thanks to large-scale testing and monitoring of social contacts, local government managed to achieve significant results. As a result, the economy is now starting in the country, the labor index is rising, and the currency is strengthening. Korean victories have already risen 5% since early April.
Returning to the dollar, for which demand naturally increased at the peak of the epidemic, the question arises – what will happen to the American currency after the outbreak of coronovirus? Indeed, the growth of the dollar is mainly due to privileged status as a global reserve currency.
This means that during a crisis, investors want to invest their money in US currency, even if the US economy is also in trouble. Thus, there is a possibility that the dollar will be too high in the end. And this, in turn, means only one thing – the cheapness of currency.
In addition, after the outbreak of coronaviruses, countries and individual economic defects will focus on trade. Most of them would prefer to make the production of important products more local, not requiring imports. This would strengthen local currencies, but would be a shock to the dollar.
However, dollars are still used in 80% of the global supply and occupy about 67% of the world’s securities and foreign exchange reserves. The fall in oil prices helped strengthen the dollar against the Russian ruble, the Canadian dollar and the Norwegian krone, whose economy is completely dependent on oil. Even today it is one of the safest paper currencies in the world.
Given the current situation, it is possible that the United States will decide on very extraordinary steps to strengthen its currency. This could come with the abandonment of the gold standard or the introduction of dollar cryptocurrency – there are already prerequisites for this.
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