Currency Crises: Deja vu all over again
Interesting article by Carmen Reinhart via Project Syndicate on the return of the currency crash. Economists say a country experiences a currency crisis when its currency depreciates by more than 15% over 12 months.
According to Reinhart, since 2014 nearly 90 countries have experienced annual depreciations in excess of 15%.
The average cumulative depreciation versus the US dollar has been almost 35% from January 2014 to January 2016. For many emerging markets, where depreciations have been considerably greater, weakening exchange rates have aggravated current problems associated with rising foreign-currency debts.
What is different today from past emerging market currency crises is of course China. As Reinhart points out:
What distinguishes the Chinese case from others is the sheer size of its economy relative to world GDP, as well as its effects on numerous countries across regions, from suppliers of primary commodities to countries that depend on Chinese funding or direct investment. The broader point is a simple one: Emerging markets now account for around 60% of world GDP, up from about 35% in the early 1980s. Restoring global prosperity requires a much broader geographical base than it did back then. The return of the currency crash may make achieving it all the more difficult.
