What Could This Mean for the Future of Currencies Around the Globe?
For the first time in more than 2 decades, the dollar and the euro reached a near-equal parity on Tuesday, July 12, with just a one-cent difference. The last time the two currencies were in a similar situation was in 2002, when 1 euro traded for 0.99 dollars.
Although America is the gainer in this situation, there are concerns for what this news may spell out for the future of currencies around the globe. Investors may see a short-term relief in migrating to the dollar, but the future of the euro seems uncertain. Many experts are sounding fears about the possibility of a recession in the near future.
What is the cause behind Europe’s declining currency? Everything hinges upon a smooth flow of goods and services, and the disruptions in global supply chains is the main cause of escalating economic issues. Ever since the start of the Russia-Ukraine war in the month of February 2022, escalating geopolitical tensions have affected global prices, gas costs, food markets, and currency markets. Food prices have gone up in most countries, as exports and imports of crucial commodities like wheat, oil, and gas have suffered fluctuations. With consumer demand returning to pre-pandemic levels, production finds itself being unable to cope with the increased demand.
In Europe, concerns over energy supply and rising inflation continue to build up. European governments are worried about a looming energy crisis, especially due to the recent shutdown of a part of the Nord Stream Pipeline for maintenance. European countries are heavily dependent on this pipeline for their energy needs; if any permanent shutdown is issued by Russian officials, the domino effect caused by this causality means that the entire world will suffer the effects of a deep recession.
Other major currencies around the globe aren’t performing too well, either. In India, retail inflation surged to 7.04% in May 2022, amidst the backdrop of rising commodity prices. As of 13th July 2022, the value of the dollar against the rupee stands at ₹79.62. In Sri Lanka, right in the throes of its worst economic and political crisis, the future seems bleak. Countries all around the globe are facing pressures to hike interest rates to keep their currencies stable.
In the light of all the hyperinflation in currency rates across the world, some experts are tentatively pitching the idea of a common global currency. Indeed, the state of the world’s economic uncertainties seems to be setting the stage for a more level playing field for economies and societies as a whole. But it remains to be seen what kind of ramifications having a world currency will set into motion.