Global foreign exchange regime faces winds of change

Wednesday 05 October 2022

The dollar’s pre-eminence over the last three decades has had little to do whether the currency was rising or falling on the foreign exchanges. But the amount of pain that its protracted rally is currently inflicting, even on other developed economies, is a stark reminder of its entrenched dominance in financial markets and international trade. Japan has been forced to intervene in the foreign exchanges for the first time since 1998 to prop up the yen, while the British pound’s slide to record lows against the greenback is exacerbating inflation and piling pressure on the Bank of England to hike interest rates more sharply.

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Regionalisation, receding global value chains, and the reshoring of manufacturing activities will make the world less dependent on dollars.