Emerging Markets Economies Vs Corona Virus Pandemic
The financial fallout from the coronavirus is spreading rapidly and that’s ugly news for many developing countries. The risk of contagion, where the collapse of one currency triggers a global panic, is very real.
Outflows from emerging market funds totaled more than $83 billion in March ($53 billion in bonds, $31 billion in equities), according to data from the International Institute of Finance. The last thing the world needs is an emerging markets crisis, yet all the conditions are there: collapsing commodity prices, a sudden economic shock, over-indebtedness and fragile currencies.
US Dollar is king!
The demand for dollar cash is driving the relative value of the currency higher
Source: Bloomberg
The persistent strength of the dollar, despite plentiful liquidity, has pushed major emerging currencies such as the Mexican Peso, the South African Rand and the Brazilian Real to depreciate by about 25% this year. The U.S. Federal Reserve has acted swiftly to extend dollar swaps, which give foreign central banks the capacity to deliver U.S. dollar funding to their institutions, but the attractiveness of dollar cash outweighs all in a crisis.
