Share

Why world can’t stop borrowing US dollars

COMPANIES and governments around the world can't seem to stop borrowing US dollars. This could be a problem, both for them and for the Federal Reserve.

Not long ago, it seemed as though a global boom in dollar borrowing had to be reaching its limit. Encouraged by near-zero interest rates, non-US borrowers had binged on trillions in new dollar-denominated debt. With the central bank aiming to increase rates and the US currency rising, strains were beginning to show, as companies struggled to pay back the dollars with devalued local-currency earnings.

Yet the party keeps going, perhaps thanks to the Fed's extremely gradual pace of rate increases and a related decline in the dollar's exchange rate. According to the Bank for International Settlements, total dollar borrowing outside the US reached $10.7trn in the first quarter of 2017, up about 6% from a year earlier and up 83% from 2009.

About a third of the debt is owed by companies and governments in emerging markets, where the relatively high volatility of earnings and exchange rates can make dollar borrowing particularly risky. Here's the dollar-denominated debt of the countries that the BIS tracks, as a percentage of their GDP:

To be sure, some of the debt might not be too burdensome if borrowers have a lot of dollar revenue from, say, oil exports (think Russia and Saudi Arabia). But to the extent that the obligations aren’t hedged, they will make the world more sensitive to the Fed's interest-rate moves. And if future rate increases trigger belt-tightening and defaults abroad, the malaise could easily spread back to the US, complicating the Fed's efforts to keep growth on track.

So the world is becoming increasingly exposed to the Fed, which leaves the Fed increasingly exposed to the world.

  • This column does not necessarily reflect the opinion of the editorial board or Bloomberg and its owners.
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.97
-0.3%
Rand - Pound
23.97
-0.3%
Rand - Euro
20.48
-0.1%
Rand - Aus dollar
12.36
-0.1%
Rand - Yen
0.13
-0.4%
Platinum
911.60
+1.6%
Palladium
1,012.97
+1.1%
Gold
2,214.54
+0.9%
Silver
24.90
+1.0%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.9%
Resource 10
57,251
+2.9%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders