US's attempt to counter domestic inflation by coming out of the zero rate era led to severe distortions in the global currency markets due to the dollar strengthening.
Image: Shutterstock
The tremendous hold of the US dollar—which along with the Euro, is 80 percent of the world's reserve currency assets—has become increasingly problematic for economies worldwide. This was already an issue after the 2008 financial crisis and the subsequent zero percent rate era, leading to distortions of asset prices. The post-pandemic era has aggravated the issue.
First, the weaponisation of the dollar by the US, especially seizing Russian reserve dollar assets, reminded the world of the reach and dependence on the dollar.
[This article has been reproduced with permission from SP Jain Institute of Management & Research, Mumbai. Views expressed by authors are personal.]