May 30, 2023 | Eul Basa

A Falling Dollar Could Mean High Prices For Longer

The falling U.S. dollar could have an undesirable effect on the prices of goods, say experts.

Currently, its value is on the decline after it had already experienced a whopping 8% drop last quarter, which was its worst three-month slump in 12 years.

According to Goldman Sachs, the change in currency rate will eventually bleed into consumer prices and cause an inverse impact on inflation. This means that the dollar’s decline will lead to a rise in the cost of imported goods, extending the period of time that consumers will have to deal with high prices.

Materials such as lumber and semiconductors, which the US is an importer of, will see price increases due to the falling dollar. Likewise, the cost of overseas travel will also be higher, adding to the already stressful travel situation in the U.S.

But beyond these, Kristoffer Jjaer Lomholt of Danske Bank told Insider that the greater concern is on the effect of the declining dollar on a global economic scale. A weak dollar would stimulate economic activity outside of the US, which would put even more stress on domestic labor markets.

"If we continue to see the dollar trade at current levels or even increase in weakness, that would be a headwind in the fight against high global inflation,” Lomholt said.

Meanwhile, other countries are floating plans to use local currencies in commerce, putting the dollar’s supremacy at risk. For example, Brazil and Argentina are working on a joint currency called the “sur” that could end up becoming a euro-like currency for all of South America. Similarly, Russia and Iran are looking to create a gold-backed stablecoin, while China is dedicated to using the yuan in its oil trades.

Even the UAE and India are looking to move away from the dollar, with the two nations debating the idea of using rupees in all non-oil trades. Should these countries move forward with these plans, the U.S. will be under substantial pressure to maintain its influence in global trade.

Sources: 1,2,3



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