The Fate of Currencies Pegged to the Dollar

The US dollar represents a major economic axis in many a country worldwide. Most of them have pegged their national currency to the dollar, believing the currency of a country such as the United States would remain sturdy seeing as it has one of the strongest economies in the world. So it came to be that the currencies that were pegged to the dollar were affected by its fluctuation, however the greenback became unstable. In the last two years, the dollar began its recession, dragging down with it these satellite currencies. They began to pay for this through a loss in their value that is, at the very least, equal to the losses incurred by the US currency. Sometimes the losses exceed those of the dollar depending on the currency’s strength or vulnerability in the face of the dollar or other major currencies.
Central Banks in these nations therefore keep an eye on the movement of the dollar but do not know what procedures to take in terms of the exchange value of their national currency. For political and economic reasons, very few nations have relinquished their peg to the US currency; they have forged links to a basket of major currencies, including the dollar, and imposed burdensome factors that are comprehensive. These factors differ and balance out according to the weight of each currency; so if the value of one or more of them recedes, this is recouped by the gains of other currencies that are not losing.

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Whether the rise in fuel and oil prices is a result of the recession of the dollar or a result of other factors, its full weight also bears down on world growth. This growth, subjected to the pressure of economic crises exported by the US or under the pressure of the world price of oil and its reason is the depleted US reserves and climatic tornadoes hitting this superpower or the destruction of the recycling technologies there, this growth is slowing down due to these aggregated crises.

Hence what befalls the world economies as a result of the falling price of the dollar also strikes the economies of those countries that have strong currencies rising in its face. EU countries with sturdy economies are fearful of a recession in their exports and a recession of their economic activity would lessen the chances of new business opportunities. If those mother countries that have the major currencies are capable of absorbing the impact of the collapse of the dollar and rise in oil prices, and deal with the effects of the economic crises, then the countries most susceptible to economic crises and being hit by huge shocks are those countries that deal in any of these currencies, or link their currency to the dollar, or buy Euros or pounds and then use a weak currency to ace the flow of products and goods from a source that deals in strong currencies.

Dar Al Hayat