The rise in interest rates on the US dollar since 2022 has led to an increase in the cost of obtaining the US currency by emerging markets in addition to straining their foreign trade payments.
On Wednesday, Argentine Economy Minister Sergio Massa announced that his country intends to pay for its Chinese imports in yuan instead of the US dollar, in order to reduce the depletion of its hard currency reserves.
Argentina was hit hard by the Fed's interest rate hikes on the dollar, which increased the cost of acquiring the US currency on the one hand, and raised the cost of dollar-denominated debt on the other.
As reported by the Associated Press, Massa said during a meeting in Buenos Aires with Chinese Ambassador Zhou Xiaoli that Argentina "will program part of its imports in yuan (equally) more than a billion dollars next month."
Increasing interest rates on the dollar increases the strength of the US currency against other currencies, while the rest of the economies are trying to maintain the attractiveness of their currencies with similar increases in interest rates.
The US Federal Reserve will hold next Tuesday and Wednesday the meeting of the Open Market Committee, to decide on interest rates on the dollar, amid expectations of an increase of 25 basis points, in a tenth consecutive increase.
Pressure
However, the global economy's reliance on the dollar as a currency for trade payments and foreign reserves is putting pressure on economies in general, especially emerging markets, such as Argentina, Egypt, and most African countries.
According to data from the World Trade Organization last year, 86% of global trade is in US dollars, while data from the International Monetary Fund showed that the dollar represents 58.3% of the reserves of countries in the Fund, which consists of 7 major currencies.
The seven currencies are: Euro, British Pound, Chinese Yuan, Swiss Franc, Australian Dollar, Japanese Yen and Canadian Dollar.
At the end of March, Brazil and China announced that they had agreed to use their local currencies for trade rather than the dollar.
China and Russia are leading efforts with other economies, led by India, to implement trade payments away from the U.S. dollar for sovereign, economic and political reasons
China and Russia are leading efforts with other economies, led by India, to implement trade payments away from the U.S. dollar for sovereign, economic and political reasons.
The strong dollar has caused the exit of more than $23 billion of hot money (foreign investments in debt instruments) in Egypt since March 2022.
The strength of the dollar resulting from higher interest rates, coupled with global inflation, has increased the cost of Egyptian imports from abroad by 90% to more than $9.5 billion per month.