ADB on impact of US-China trade conflict on dollar rate - EXCLUSIVE

ADB on impact of US-China trade conflict on dollar rate

US-China trade war will make the US dollar stronger, economist at the Asian Development Bank (ADB) Economics and Research Department Donghyun Park told Report.

"Well, this is a big trade conflict that affects the entire world. When you have such big negative shocks, that usually strengthens the dollar even if the US is directly involved. For example, you remember the global financial crisis. It was a big negative shock that originated from the US. You might remember that dollar actually strengthened and strengthened significantly. Because when there is a big shock such as the global financial crisis, such as the US-China trade war, people usually buy dollars. Because it is world’s number one reserve currency. It is a safe currency, that people will sell. So we would expect something like the US-China trade war to have a positive effect on the US dollar. In other words, it will make the US dollar stronger," he said.

"Until few weeks ago there was a lot of prospects (opportunities) that conflict will end. But in fact US changed the course and imposed very heavy tariffs on China. This persistent trade conflict between US and hina is casting deep dark cloud over Asia's economical prospects. Now another negative big risk for the Asian economy is that extreme volatility has returned to most for vulnerable emerging market. For example Argentine peso and Turkish lira have weakened somehow in recent months. This is imposing financial instability on emerging markets," Park said.

The US-China trade war heated up in early May. US President Donald Trump threatened Xi Jinping with the imposition of a 25% duty on imports of Chinese goods worth $500 billion - almost all Chinese imports to the United States. On May 10, 10% duties on Chinese goods worth $200 billion a year already entered into force. Later, on May 11, Trump instructed to begin the process of increasing customs duties on goods imported from China worth another $300 billion. Beijing responded by imposing a duty of 5–25% on imports from the United States worth $60 billion. They will take effect from June 1.

U.S. Commerce Secretary Wilbur Ross said that the United States could impose additional duties on countries that deliberately underestimate the value of the national currency against the dollar.

The Ministry of Trade also added that they will develop criteria for determining the countries that manipulate the exchange rate of the national currency.

Earlier, the head of the Central Bank of Russia, Elvira Nabiullina rejected the US suspicions of exchange rate fraud. Nabiullina stressed that Russia adheres to a floating exchange rate of the ruble, and the Central Bank conducts purchases of currency within the framework of the “fiscal rule”, which is aimed at ensuring the independence of the Russian economy from oil prices.

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