The Volume of the Dollar in the World Increased by 24.5% in 2020

Compared to the number of dollars in circulation last year, the volume has increased by 24.5 in 2020. Analysts think that the dollar is going through a cyclical phase of weakness. It’s similar to the relative depression during the 1970s and 1990s, and the great financial crisis in the late 2000s. 

The first effect of this new money supply in circulation is that it could generate inflation in the United States.

The second is an accelerated devaluation of the dollar against many currencies, which will offer an unexpected delay to Latin America’s economies, devastated by the effects of the covid-19 pandemic.

In some countries of the region, the effects will be felt strongly; others have so many challenges, that a 10-15% decline in the dollar against their currencies will not impact them.

How will Latin American countries benefit from dollar devaluation?

Latin American currencies are generally broad beneficiaries of the depreciation of the dollar. This effect is particularly relevant for highly indebted countries such as Argentina.

Keith Wade, a chief economist at Schroders, states that the region’s countries significantly benefit through easier financing that reduces pressure on their currencies. This allows for more flexible domestic monetary policies and also reduces the burden of dollar-denominated external debt.

The Argentine economy excessively depends on the dollar. A huge volume of public debt is issued in a dollar instead of pesos.

When the peso/dollar exchange rate rose, the burden of those obligations was increasing. Now that the dollar is falling, it is easy to wonder how this might affect the hard currency portion of your debt.

According to Claudia Calich, a specialist in emerging markets from M&G Investments, the challenges Argentina has at the moment are quite significant. A weakening of the dollar between 10 and 15% will not make any substantial change.

The country has yet to continue negotiating debt restructuring with the IMF, and the state of its finances has very little room for manoeuvre to deal with the ravages of covid-19.

On the other hand, Mexico is one of the leading commercial partners of the United States. The country could be one of the main winners for the most considerable amount of dollars in the market. 70% of its exports go to the US manufacturing industry, which benefits greatly from the weak dollar.

Finally, we must not forget that if global economies reactivate, we will likely see a rise in oil prices. We have already seen a small rebound in a barrel of crude. That could be beneficial for Mexico and indirectly for its state oil company, Pemex, Calich says.