Georgieva said that the U.S. currency is likely to retain its leading position – she sees no change in the dollar’s role in the near future. And, “the size of the U.S. economy and entrepreneurial spirit” called the reasons why the dollar plays an important role in the international monetary system.
Georgieva repeated these statements at the IMF Emerging Markets Conference in Al-Ula, Saudi Arabia. The IMF chief noted that a weaker dollar can be beneficial for emerging markets because it reduces the cost of servicing foreign debt: “Those who borrow in dollars will now pay less,” she said.
Why is it beneficial to borrow in dollars?
The extra yield investors demand for owning emerging-market sovereign dollar bonds over U.S. Treasuries has fallen to 250 basis points, according to JPMorgan Chase & Co. indexes. That’s the lowest level since January 2013 and nearly 500 basis points lower than at the height of the COVID-19 pandemic in 2020.
Over the past year, the Bloomberg Dollar Index, which tracks the U.S. dollar against a basket of ten other major currencies, has fallen 8.1%. That’s the biggest decline since 2017.
This year, the drop continued, amounting to another 1.3%. Such changes are due to the imposition of duties by the Trump administration and the weakening of the US fiscal policy, which raises concerns among global investors.
On Monday, Bloomberg reported that Chinese regulators advised financial institutions to reduce investments in U.S. Treasuries due to concentration risks and market volatility.
U.S. Treasury Secretary Scott Mnuchin said the country has always maintained a strong dollar policy and the authorities do not interfere with its exchange rate. His words came after President Trump said that the dollar’s depreciation does not bother him.
