Global Economic Outlook 2010

Global Economic Outlook 2010


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While a global recovery is already underway in many economies, there is considerable uncertainty on what happens next. The first Global Economic Outlook of the new decade looks at the near-term outlook for the world's major economies, while analyzing some of the important issues attracting attention of investors and business leaders in 2010.



Publié par
Nombre de lectures 123
Langue English
Poids de l'ouvrage 2 Mo
Signaler un problème
Te Future of te Dollar
Wy te Rise i Goldad Wat Does It Meafor te Ecoomy?
Emergig Asia Are we witnessing theseeds of change?
After the Recovery: New issues emerge
Global Economic OutlookPulised quarterly y Deloitte ResearcEditor-i-ciefIra KalishCotriutorsElisabeth DenisonShalabh Kumar SinghCarl SteidtmannIan StewartEditorial address350 South Grand StreetLos Angeles, CA 90013Tel: +1 213 688
Global Economic OutlookQ1 2010It is sobering to think that, just one year ago, this publication described the global economyas being in a “crisis of unknown depth and duration.” Today, the depth and duration areknown. Although the global recession was deep, a massive multi-governmental responsewas mostly successful and made the duration of the recession shorter than most analystsexpected. Now the uncertainty concerns the strength of the recovery, the future structure ofthe global economy, and the path of various asset prices including interest rates, exchangerates, commodity prices, and general inflation. There is also uncertainty about whatgovernments and central banks should and will do to exit the expansive paths they havetaken. What they do will play a significant role in determining what happens next.In this, our firstGlobal Economic Outlook of the new decade, our economists offer theirviews on the near-term direction of the world’s major economies. We also look at a fewmajor issues that have attracted the attention of investors and business leaders.First, the massive increase in the stock of U.S. government debt and the balance sheetof the U.S. Federal Reserve has raised concerns about the future of the dollar. In ourfirst article, I offer some thoughts on the dollar including its likely path, the impact ofgovernment policy on the dollar, the impact of the dollar on inflation, and the future ofthe dollar as a reserve currency. My basic conclusion is that the dollar will probably decline;that this is mostly a good thing provided that the decline is orderly; that a decline won’tnecessarily be inflationary for the United States; and that the reserve currency role of thedollar is probably not threatened for a long time to come.Shalabh Kumar Singh takes a look at the changing role of the emerging nations of Asia.While they have recovered quickly and more strongly than the developed nations, theyhave clearly not de-coupled from those countries. Yet something is changing. In the past,these nations depended heavily on exporting to the West in order to generate growth.In the future, more of their growth looks to come from domestic demand, includingincreased imports from developed countries. To the extent that exports remain a driver ofgrowth, the economic integration of the region will be important, with China acting as anengine of growth for the rest of Asia.Our final topical article, by Carl Steidtmann, concerns the recent upsurge in the price ofgold. For those of us who give presentations on the economic outlook, hardly a sessiongoes by without audience members raising questions about gold. The intense interest ingold is driven by the rise in the price, which in turn is driven by the intense interest. Thisraises the question as to whether a bubble is brewing or fundamental factors are drivingthe increase. Carl suggests that there are fundamental factors at work. He also notes that,unlike in the past, inflation is not one of them. Instead, he opines that the surge in gold isbeing driven by concerns about the U.S. dollar, central bank acquisition of gold, the rise ofgold exchange traded funds, and increased demand for gold by the rising middle classesof China and India.
As for our regional outlooks, Carl Steidtmann begins with anoptimistic take on the U.S. outlook. He reminds readers thatmany of today’s indicators are consistent with historicallystrong economic rebounds. He points to strong equity pricegains, a very steep yield curve, strong productivity increases,and some promising details in the latest employmentnumbers. Despite the relatively rosy outlook, Carl notes thatserious risks threaten the future recovery. These include highlevels of household debt, possibly onerous governmentpolicies, poorly performing bank assets, and the potentiallynegative consequences of higher oil prices.IChinfaofac ebs aestlrongwrec onverey ien 2d01s0 , but other issuesfltoacoinm g,  aabcnc eaosr sdeitn gpd rtiocietS bheualbadbbl he  oaKnurdm tahr eS ipnogthe.n tCiahli nfao ri sf ualtrueraed y isnuglalgtieosnts d ot hwaitn gC thion iat s wixll esdt aerxt cthhae npgreo craetses  pofo laicpy.p rSehciaalatibohn  once the recovery in the West evidences strength. Inaddition, the Chinese government will wait for Westernrecovery as well before it reverses its stimulus policies.Although exports will play a significant role in recovery, thebig issue for the future will be the extent to which domesticdemand replaces exports as the primary driver of growth.Shalabh also examines the outlook for India and concludesthat growth will be strong in 2010. He points to the strengthof domestic demand, the stability of the financial system,the lagged effects of aggressive monetary policy, and theconfidence of foreign investors. On the other hand, Shalabhpoints out that India still faces risks including global economicweakness, inflationary pressures, and political events.As for Japan, Shalabh notes that the economic recoveryis fragile. In fact, he suggests that a double dip is morelikely than a sustained recovery. The problems are many.They include declining prices, a rising currency, lack ofconsumer confidence, inadequate monetary stimulus, andthe changing structure of the global economy and its impacton Japan’s exports. Shalabh says that current conditions areeerily similar to those that held back Japan in the 1990s.In her discussion of the Eurozone, Elisabeth Denison notesthat although the region is in recovery, much uncertaintyremains. This is partly due to the two-track nature ofEurope’s recovery. Some countries are doing well whileothers are struggling with imbalanced public finances
and structural weaknesses. Of particular concern areItaly, Spain, Ireland, and Greece. While the region’s coreeconomies of Germany and France have done better, theystill face the challenge of shifting toward more domesticdemand-driven growth. Elisabeth notes how the two-tracknature of the recovery is creating strains for the euro,for European monetary policy, and for relations betweenmember countries.Ian Stewart examines the outlook for the United Kingdomand concludes that serious problems remain. Althoughrecovery will take hold in 2010, it will likely be weak. Theproblems include tight credit markets, lingering effects ofexcessive consumer debt, weak employment markets, andconstraints on government spending — especially followinga mid-year election. Ian says that the most promising part ofthe U.K. economy will be exports and manufacturing, owingin part to the weakness of the pound.Finally, I offer some thoughts on Brazil. This country, oncethe target of derision about its relatively low growth andhigh inflation, is now enjoying the fruits of a decadeof good policy. The country had a mild recession and aquick recovery. The outlook is for strong growth withmodest inflation. Moreover, investors in and out of Brazilevidently have confidence in government policy and in thecountry’s prospects. Risks remain, however. These includethe negative effects of a strong currency on exports, thepossibility of lower commodity prices, and excessively tightmonetary policy.  
Dr. Ira KalishDirector of Global EconomicsDeloitte Research
Executive summary
Gloal Ecoomic Outlook 1st quarter, 2010
Topics1The future of the dollarWith the massive increase in the stock of U.S. government debtand the balance sheet of the U.S. Federal Reserve, concerns are rising about the future ofthe dollar: its likely path, the impact of government policy on the dollar, the impact of thedollar on inflation, and the future of the dollar as a reserve currency.7Emerging Asia: Are we witnessing the seeds of change?While most of emerging Asiawill likely continue to outperform the rest of the world in 2010, they have clearly not de-coupled from those countries. Yet there is change from heavy dependence on exportingto the West to more growth coming from domestic demand, rising trade, and investmentflows between emerging Asian economies.11Why the rise in gold and what does it mean for the economy? The current surgeof interest in the price of gold is, interestingly, happening against a backdrop of verylow inflation in the United States and many other developed economies. It’s likely beingdriven by concerns about the U.S. dollar, central bank acquisition of gold, the rise of goldexchange traded funds, and increased demand for gold by the rising middle classes ofChina and India.
Geograpies 15The United States: The upside for growthWhile the short-term outlook is upbeat, the risksto the U.S. economy are quite elevated. Yet 2010 will be a much improved year with salesgrowth returning and profitability performance surprising many businesses on the upside.19China: Growing bigger faster Growing domestic demand coupled with recovery inexports is expected to drive growth through most of 2010, possibly propelling China toreplace Japan as the second largest economy in the world this year. Still, risks remain: anexisting asset price bubble and potential for future inflation.23India: Strengths outweigh weaknesses India’s growth will be strong in 2010 basedon strong domestic demand, a stable financial system, and growing foreign investorconfidence. There are some concerns, however, including global economic weakness andinflationary pressures.
Geograpies (cotiued)Japan: Treading waterJapan, despite being the first of the G7 countries to emergefrom recession, appears to be the most fragile among these economies, with numerouschallenges to its sustainability. It will take at least till mid-2010 to show sustainable recovery.Eurozone: Patchy progressThe Eurozone has officially emerged from recession, but therecovery remains uneven. Industrial countries in the region’s core are setting the pace,while others remain mired in recession.The United Kingdom: A slow recovery beckonsThere’s a slow return to growth in2010 with exports and manufacturing output driving the U.K. recovery. But the recoveryfaces headwinds from rising unemployment, limited credit supply, and a squeeze ongovernment spending.Brazil: The toast of South AmericaBrazil, unlike the rest of the world, had a modestrecession followed by a quick recovery. Although it still faces risks, the country will most likelysee strong economic growth, modest inflation, and continuing global inflow of investment.
AppedixCharts for major countriesGDP growth rates; inflation rates; major currencies vs. theU.S. dollar; yield curves; composite median currency forecasts; composite GDP forecasts;OECD composite leading indicators.
Dr. Ira Kalish is
the Director of
Global Economics atDeloitte Research
The future of the dollar
Amidst the good news of global economic recovery,concerns about things that could go wrong arebecoming more prevalent. Of particular interest tofinancial markets is the potential path of the U.S.dollar. Questions have arisen as to the impact ofmassive U.S. fiscal and monetary stimulus on the valueof the dollar, and the impact of the dollar on inflation,interest rates, trade flows, the composition of foreignexchange reserves, the prices of commodities, and theoverall economic dominance of the U.S. Given theseconcerns, it is worthwhile to examine some of the basicquestions that are being asked.
But first, consider a few simple facts. The dollar has fallen to sell dollars in order to secure higher returns elsewhere,about 15 percent in value during the past eight months especially in Europe. Thus, the low value of the dollar isagainst a trade-weighted basket of major currencies. Yet not a new story. Still, investors are concerned about wherethat brings it roughly back to where it was prior to the we go from here. Hence, these questions:start of the economic crisis. That is because the dollarFigure 1: U.S. Dollar Trade-Weighted Index Jan 1997=100rose sharply when the crisis began in late 2008. Still, thedollar is near a low point in recent history. Most of the140drop in the dollar, however, occurred over a seven-year130span beginning in 2002. Since then, the dollar has fallenabout 40 percent as financial market participants became120concerned about the sustainability of the large U.S. trade110deficit. They expected that only a considerably lower dollar100would boost U.S. exports sufficiently to put the U.S. deficiton a sustainable path. Knowing that other investors had90similar expectations, they pushed the dollar down lesth t caught holding over-valued dollars. In addition,80t ey ge2000 2001 2002 2003 2004 2005 2006 2007 2008 2009historically low U.S. interest rates encouraged investorsSource: Federal Reserve Bank of St. Louis
Gloal Ecoomic Outlook 1st quarter, 2010
Wy as te dollar falle lately?The drop in the dollar in the past eight months largely reflectsa reversal of the flight to safety that began in September2008 when global credit markets nearly shut down. The flightto safety entailed a huge increase in the difference betweenmost market interest rates and the rate on risk free assetssuch as U.S. Treasuries. This difference, or risk spread, roseto levels not seen since the Great Depression as investorsbecame worried about holding any but the safest assets.Since markets deem U.S. government securities to be thesafest asset, the demand for dollars rose sharply.Since then, governments and central banks have massivelyinjected liquidity into the banking system, re-capitalizedbanks, stimulated the market for securitized assets, andincreased the transparency of the financial system throughstress tests of banks. The result is that risk spreads havenot only declined, they have fallen below the level thatprevailed prior to the start of the crisis. In other words,the flight to safety is over and investors are well into theprocess of diversifying their portfolios. That means sellingU.S. Treasuries and purchasing riskier assets, includingnon-dollar denominated assets. Hence, the drop in thedollar back to where it was prior to the crisis.Will te dollar cotiue to fall, ad wy?On a trade-weighted, inflation-adjusted basis, the dollar isnow roughly near the low point it reached on a few prioroccasions such as 1979 and the late 1990s. Given thatfact, some might expect the dollar to rise once again asit did in the past. Yet the principal factor that caused thedollar to rise in the past — tightening monetary policy— is not in effect now nor is it imminent. Instead, thereis a strong argument to expect the dollar to fall further.Moreover, it would largely be a good thing.The problem is that, in the past decade, U.S. householdsand businesses consumed more than they produced,or invested more than they saved (this difference isthe current account deficit, similar to the trade deficit).Historically low inflation, combined with massive flowsof liquidity into the United States from China, led to verylow interest rates. This, in turn, encouraged excessiveinvestment in housing, which caused a rise in housingprices. The housing bubble caused households to feelwealthier, thus negating a need to save. The paucity ofsaving led to a need to borrow from overseas to fundinvestment and consumer spending. In the course of suchborrowing, the U.S. economy accumulated a large foreigndebt, the servicing of which is exacerbating the external(current account) deficit. Moreover, although the privatesector has de-leveraged in the face of massive debt, thepublic sector has taken on new debt in order to offset thenegative impact on economic activity.
Going forward, the current account deficit will haveto decline lest the debt service payments becomeunsustainable. This means that consumption will have toshrink relative to production. That could come about froma permanent state of recession, yet this is hardly desirable.It could come about from a sizable increase in saving. Yetalthough private saving is up, public saving is down in theform of a government budget deficit. Cutting the budgetdeficit would help with the current account deficit, butdoing so will have a negative impact on economic activity aslong as the economy is operating below capacity. Moreover,cutting the budget deficit quickly does not seem likely.Instead, cutting the current account deficit will, in part,require a lower valued dollar. This would raise importprices and, thereby, cut the growth of imports. Moreimportantly, it would lower U.S. export prices and, hence,increase U.S. exports (this is already happening). In thisscenario, since financial market participants understandthat this must happen, they will push the dollar downuntil they are confident it has reached a level that willrender the current account deficit sustainable. Investorswill be unwilling to purchase dollars if they expect it tofall. Thus, it will fall until investors are willing to make suchpurchases. Moreover, expectations of decline will causeinvestors to diversify their portfolios away from dollars,thereby pushing the dollar down further. On the otherhand, fear of the impact of offsetting policy actions willkeep the dollar from falling faster.Wat aout te dollar carry trade?Due to the near-zero interest rates in the United States,some investors are borrowing in dollars and purchasinghigher yielding assets in other currencies. This “dollar carrytrade” can only exist if investors expect that the dollar willnot fall sufficiently to offset the higher return on non-dollarassets. Why is there such an expectation? The answer isthat some Asian governments (primarily China and Japan)continue to intervene in currency markets to prevent theircurrencies from rising against the dollar. As long as thispersists, the dollar carry trade will be profitable. Yet itbrings risks. It is probably the culprit behind the huge risein equity and property prices in Asia. In other words, easyU.S. monetary policy, rather than causing an asset pricebubble at home, is causing a potential bubble overseas.This has policymakers concerned. If China were to allowits currency to rise, the dollar carry trade might shut downleading to a bursting of the asset price bubble in Chinaand huge losses for investors active in the carry trade.If those investors are heavily leveraged, the losses couldcascade across the global economy.
Wat impact will U.S. fiscal ad moetary policyave o te dollar?Many observers are concerned that the aggressive natureof U.S. monetary and fiscal policy will ultimately lead to arun on the dollar. Why?First, aggressive monetary policy has meant extremely lowinterest rates and a huge increase in the size of the FederalReserve s balance sheet. The latter has come about dueto Fed purchases of government bonds, agency bonds,and other securitized assets. This quantitative easing”was necessary in order to prevent a destructive drop in themoney supply at a time when bank lending seized up andcredit markets shut down.The fear, however, is that once financial market behaviorreturns to normal, all the liquidity created by the Fed willlead to high inflation. If that happens, the dollar wouldprobably fall as investors worry about the decliningpurchasing power of the dollar. However, there are twoproblems with this scenario. First, the Fed has powerfultools for mopping up excess liquidity. In fact, the Fedis already planning to use such tools to unwind thelarge positions it has taken. Also, despite the aggressivemonetary policy, the money supply itself has not yetincreased at a rapid pace. So it seems unlikely that U.S.inflation will get out of hand anytime soon. Second, evenif the Fed fails to act quickly enough to remove liquidity,rising inflation would likely be met by a tightening ofmonetary policy. The latter would have the effect ofincreasing the value of the dollar.Second, the large fiscal deficits of the U.S. governmentcould bode ill for the dollar. With large deficits, theU.S. government may need to borrow large sums fromforeigners — especially if domestic saving is insufficient.If foreigners are unwilling to lend to the United States atgiven interest rates, they will either require higher interestrates or a cheaper dollar. Hence, the expectation of largefuture budget deficits could lead to further downwardpressure on the dollar. If, on the other hand, the U.S.government develops a credible plan to reduce futuredeficits, the dollar would likely be unaffected.Finally, other governments such as those of WesternEurope are also facing large budget deficits. Given thelarger size and liquidity of the market for U.S. governmentdebt, investors might be less concerned about U.S. deficitsthan those of other countries. If that were to be true, therecould be upward pressure on the dollar.
Wat impact will a fallig dollar ave o iflatio ite Uited States?In theory, a falling dollar should be inflationary for theUnited States, all other things being equal. Yet in practice,a moderate rate of dollar depreciation may not necessarilybe inflationary. The principal vehicle by which a fallingdollar affects inflation is through its impact on importprices. If the dollar falls, and the foreign currency cost ofimported goods remains unchanged, then the dollar costof purchasing those goods should increase. Yet businessesthat export to the United States can change their pricing inorder to preserve or gain market share — even at the costof reducing profit margins. In the longer term, they canshift the location of production in order to take advantageof lower wages or transport costs. For example, manyapparel and footwear manufacturers in China are alreadyshifting production from factories in the coastal cities tothose in China’s interior where wages are much lower.Hence, they can offset a rising Chinese renminbi by takingadvantage of lower wages in alternative locations. Indeed,during the period from 2002 to 2007 when the dollarfell roughly 40 percent against a basket of currencies,import prices in the United States rose roughly 24 percent.Instead, the larger impact of a falling dollar has been onexport prices, thereby stimulating the volume of exports.
Gloal Ecoomic Outlook 1st quarter, 2010
What impact will a falling dollar have on trade flows?The global economy has been seriously imbalanced duringthe past decade. This has entailed a large U.S. currentaccount deficit in which the United States has consumedexcessively relative to production and borrowed fromabroad to make up the difference. At the same time, Chinaand other surplus nations have saved excessively, exportingtheir excess saving to the United States. As this imbalancehas become unsustainable, it will likely unwind, in partthrough a decline in the value of the dollar.As the dollar falls, U.S. export growth will accelerate.Surplus countries like China, Japan, and Germany willhave to shift toward growth based on domestic demandrather than to focus on exports. Failure to do so maycondemn these countries to slower economic growth.That is because they will not be able to depend on the U.S.consumer to underwrite their growth.The bottom line is that a falling dollar has the ability toplay a major role in reversing the large imbalance in theglobal economy. The biggest obstacle to this is the factthat, for now, the value of the dollar is not decliningagainst the Chinese renminbi. As such, the dollar is fallingagainst other major currencies. A change in China’s policyin this area would take pressure off of such currencies asthe euro and the yen.Wat if tere is a ru o te dollar?Although there is a strong case to be made that a fallingdollar is nothing to worry about, and although there arenot necessarily fundamental reasons for a large drop inthe value of the dollar, strange things can still happen.Financial markets respond not only to fundamentals butto market psychology. Herd trading — where investorsfollow the behavior of others lest they miss an opportunityor get left holding the bag — happens more frequentlythan models predict. Most models of financial marketsinclude the assumption that asset price movements followa normal shaped bell curve in which large movementsare low probability events along the long tails of the bellcurve. Yet experience has shown that asset markets areoften characterized by big tails. That is, large asset pricemovements come in clusters associated with herd trading.This happens when asset prices rise (bubbles) and whenthey fall (crashes).The point here is that the dollar could suddenly move rapidlyin a particular direction — most likely downward. It couldcome about if a particular news item confirms fears thatalready haunt the markets. If that were to happen, thedollar could come under attack. Investors would sell dollarsin order to avoid losses, leading to a further decline in thedollar. Difficulty in selling dollars would drive up long-terminterest rates in the United States and the economy could
come under serious pressure. Policymakers would probablyundertake efforts to stabilize currency markets, even ifthat meant raising short-term interest rates. At the end ofthe day, the dollar would be stabilized, but at the cost ofundercutting U.S. and global economic recovery. This is nota happy or desirable scenario, but it is certainly plausible.Will te dollar e replaced as a reserve currecy?Concerns about the value of the dollar have causedconcerns about the future role of the dollar as a reservecurrency. First, a few basic facts about reserves: Historically,central banks have maintained a reserve stash of foreigncurrencies in order to maintain a fixed exchange rate. Theywould utilize their reserves to intervene in currency marketsto prevent their currency’s value from shifting beyond acertain range. They also held reserves in order to coverthe cost of imports when export revenue declined. Whendeveloped countries switched to a regime of floatingexchange rates in 1973, these countries no longer neededsizable reserves. Yet most emerging countries continued totarget the value of their currencies. Either they kept theircurrencies overvalued in order to keep imports cheap, orthey kept their currencies undervalued in order to boosttheir exports.In the 1990s, many emerging countries attempted tokeep their currencies overvalued in order to keep capitalimports cheap. The result was that countries had tocontinually sell reserves in order to prevent their currenciesfrom falling in value. When several countries faced nearlydepleted reserves, a financial crisis ensued. Countriesdevalued their currencies, thereby increasing the cost ofimports, and raised interest rates in order to quell newinflationary pressures. Since that episode, most majoremerging countries have chosen to maintain low-valuedcurrencies in order to generate trade surpluses and thusprevent future crises. The result was that China, Korea,Taiwan, Singapore, and others have accumulated vastsupplies of reserves — far beyond the need to cover thecost of imports during a crisis. In fact, these reserves haveessentially become investment vehicles for emergingcountry governments. Many have diverted funds from theirreserves for use as sovereign wealth funds.For decades, most countries have held their reserves mostlyin the form of U.S. dollars. This was due to the high degreeof dollar liquidity, itself a consequence of the large andliquid market for U.S. government bonds. In recent years,as countries have accumulated such vast reserves, theyhave started the process of diversifying away from dollars.In doing so, they have contributed to the downwardmovement of the dollar. Such diversification will likelycontinue as countries view their reserves as investments.Yet the question arises as to whether the dollar’s role asthe principal reserve currency is threatened.
pressure on the dollar. According to some, concern aboutcapital losses on dollars will drive central banks to switch toother currencies. But which currency would they hold? Theeuro is the most likely candidate. Yet unlike the United States,the Eurozone lacks a single fiscal authority and therefore lacksa large, single market for government bonds. Today, someEurozone countries face serious concerns about the riskinessof their debts. Thus holding sizable reserves in euros couldbe problematic in terms of liquidity and sovereign risk. Onlywhen Europe creates a single fiscal authority (unlikely anytimesoon) will the euro be a serious contender for dominantreserve currency.Some observers, including members of China’s leadership,suggest the IMF’s Special Drawing Rights (SDRs). Yet theseare nearly completely illiquid and are, essentially, a basketof major currencies. Finally, some people have suggestedgold. Indeed the central banks of China and India have latelyincreased their purchases of gold. Yet there is no returnon holding gold and its value is historically volatile. Gold’sexperience as a reserve currency in the past turned out to betroubled. Moreover, the value of gold is easily manipulatedby those who produce it (Russia, South Africa) and thosewho hold vast reserves already (the U.S. government).
Finally, even if the dollar falters as a reserve currency inthe future, it will probably take a very long time for thisto occur. It took decades for the British pound to loseits cherished status even after Britain was no longer theworld’s dominant economy.
In sum, the role of the dollar as a reserve currency seemsunthreatened. Confidence in the dollar was evident when,during the financial crisis that started in September 2008,there was a rush to hold dollars as part of the flight to safety.
Will more trade take place i oter currecies?As long as the dollar is the principal reserve currency, it is likelyto remain the principal currency for the denomination oftraded goods. The same reasons hold. The dollar is the mostliquid currency, the United States has the largest and mostliquid financial market, and the market for U.S. governmentbonds is far larger and more liquid than the markets for anyother country’s debt. Although emerging countries havelately engaged in currency swap arrangements in order toencourage trade in their own currencies, it is unlikely thatexporters in emerging countries will desire payment in thecurrencies of other emerging countries.
Why are people worriedabout this? The answer isthat the fear of U.S. inflationas well as concerns about theability to finance large U.S.deficits creates the potentialfor downward pressure onthe dollar.
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