Posted 15 января 2021,, 14:06

Published 15 января 2021,, 14:06

Modified 24 декабря 2022,, 22:37

Updated 24 декабря 2022,, 22:37

Analysts: dollar is weak and bad, but the situation with the other currencies is even worse

Analysts: dollar is weak and bad, but the situation with the other currencies is even worse

15 января 2021, 14:06
The American currency is still backed not only by investor confidence, but by America's economic and technological power, its political influence on the rest of the world, and Washington's administrative capabilities.

As you know, today, on January 14, the dollar rate fell immediately by 73.99 kopecks, to 73.5264 rubles. The euro fell by 53.96 kopecks to 89.7831 rubles. This fact has caused many predictions about the future fate of the American currency, especially in connection with the unstable domestic political situation in America.

For example, the popular analytical channel "Mysli-NeMysli" writes:

The dollar should be worth less than 24 rubles, and not about 74, as it is now. In general, the ruble turned out to be the most undervalued currency in the world, if we count in big macs adjusted for GDP per capita.

The legendary Big Mac Index from the British magazine The Economist shouldn't be taken lightly, but it's a pretty funny indicator. An ordinary Big Mac in the United States in January this year cost $ 5.66 on average, and its cost in Russia is at 135 rubles. So it turns out that for an equal value, the dollar exchange rate should be 23.85 rubles. And if we also make an adjustment for GDP per capita to take into account the fact that in poor countries a burger should cost less than in rich countries, then the ruble will generally be the most undervalued currency in the world.

The value of the currencies of most countries in this rating turns out to be underestimated (the only exceptions are the Norwegian and Swedish kronor and the Swiss franc), but the ruble as an anti-leader still looks sad and sad. Whatever one may say, but the standard of living in Russia, on average, is somewhere at the bottom and is not going to grow very much.

So we absorb overvalued big macs, smile and wave..."

But isn't it early to bury the dollar? - asks network analyst Andrey Nalgin, and gives the opinion of a respected expert on this matter

Stephen Roach is a senior fellow at Yale University and former chairman of Morgan Stanley Asia's board of directors who made a shocking confession the other day. According to him, the era of the dollar may be coming to an end, and the American currency "will fall very, very sharply". At least 35% in the next couple of years.

The rise of China and the separation of the United States from its trading partners sets the stage for a sharp weakening of the dollar in the next few years, which will likely end its dominance as the world's main reserve currency, the economist argues. In his opinion, "the era of" exorbitant privileges "of the dollar as the main global reserve currency is coming to an end", since the US economy is already "weakened" by the impact of the CoVID-19 pandemic, and the recession that has swept the United States since February 2020 amid the crisis in the region health care will only exacerbate the woes of green. Finally, America's growing financial deficit, as the government spends trillions of dollars to cushion the damage from the coronavirus, could further weaken the dollar.

Already this year, its rate could collapse by 20% due to the growing US budget deficit and the policy of near-zero rates pursued by the Fed, the economist warns, as the world's largest economy “is slowing down right before our eyes, but the stock market is ignored as a political problem. and economic. The only thing he thinks about is zero Fed rates".

On the contrary, the euro and especially the Chinese yuan will only benefit from American problems and large-scale dollar emission, Stephen Roach believes.

The latter will become increasingly attractive to investors as the PRC is going through a phase of structural reforms that will lead it to move away from an export-oriented manufacturing economy to one that will be service-oriented, that is, growth at the expense of domestic consumers. And there are many of them in China ...

Anticipating the indignation of critics, I will note right away that this is not a "funeral of the dollar." It will not disappear anywhere from the world financial system, will not turn to dust, will not turn into a piece of paper. Even if it is devalued by half . This, by the way, has already happened even relatively recently. In the first decade of the 21st century, we saw the exchange rate of both $ 0.82 / euro and $ 1.61 / euro - no collapse followed.

Although, of course, someone made good money on such a swing. Could something similar happen now?

Purely theoretically, it can. Why not? Now even the most unlikely events are not excluded.

But in practice...

To what currency will the dollar be devalued not tactically, but strategically - as it has lost its role?

The British pound has already lost once to its overseas rival. Two world wars and one Great Depression caused this. A revenge is now unlikely - also because against the background of Brexit, the United Kingdom currency may behave unpredictably, and it still has to earn its reputation under the new conditions.

Yes, there is the Swiss franc and the Japanese yen - traditional protective havens. But these are still local currencies. There are very few simultaneously liquid and profitable instruments. Of course, it is possible for “small” investors to sit out the storm in them, which has been proven more than once by history.

But what's next? Where will the market capacity needed to form international reserves and service transnational settlements come from? It's about tens of trillions, by the way. And, by the way, the high activity of the Bank of Japan at forex plays against the yen (in comparison with other Central Banks, of course).

As for the euro, it still hasn't gotten rid of the birth trauma. To put it simply, monetary policy in the eurozone is the same for everyone, but each country has its own fiscal policy. Their tax principles are still different; taxation systems also differ quite significantly. That does not add stability to the euro currency. For a concrete example, turn to the history of the Greek debt crisis, which put the entire euro area on its ears - and on the brink of collapse.

It remains - if you do not remember the deflated ruble - a rather controversial favorite: the yuan. Its history as the official reserve currency is less than five years old. Its reputation has been tarnished by the voluntarism of the National Bank of China in the domestic market. Its economic basis is questionable, since only the Russian one is worse than the Chinese official statistics. The only advantage is Chinese economic growth and the active expansion of the PRC to foreign markets, which stimulates the settlement and partially reserve functions of the yuan. But in any case, the world currency is not made so quickly.

“The bottom line”, Nalgin sums up, “the dollar, like democracy, is perhaps bad and worthless. But other currencies are even worse. The American one is at least provided not only with the trust of investors, but with the economic and technological power of America, its political influence on the rest of the world, and, finally, the administrative capabilities of Washington. What alternative can other currencies offer?

In short, while we exhale and sleep well. Even a partially devalued dollar is still a dollar.