Cairo, 24 Aug (Xinhua) -- Since the beginning of this year, the US Federal Reserve has ended its ultra-loose monetary policy and raised interest rates four times in a row, resulting in continued turmoil in the international financial market. Many countries in the Middle East are challenged by severe inflation, local currency depreciation and capital outflows, and the cost of debt repayment is high.
Experts from many countries believe that the evil consequences of US financial hegemony are gradually emerging in the Middle East. Some Middle Eastern countries refuse to be "harvested" by the United States and are exploring a "de-dollarization" path by promoting bilateral monetary agreements and diversification of foreign exchange reserve assets.
This is the Federal Reserve building photographed in Washington, U.S.A., on June 22. Photo by Xinhua News Agency reporter Liu Jie
The economies of many countries in the Middle East are burdened by the irresponsible monetary policy of the United States
The Fed will introduce a series of ultra-conventional quantitative easing monetary policies from 2020 onwards. The data shows that the size of the Fed's balance sheet has increased from less than $4 trillion in March 2020 to nearly $9 trillion this year. From 2020 to the present, the various fiscal stimulus policies of the US government involve about $10 trillion.
With the hegemony of the US dollar, the high domestic inflation caused by the "flood irrigation" monetary and fiscal policy of the United States continues to spill over, bringing continuous impacts to the Middle East. Problems such as rising foreign debt and capital flight have ensued, leaving many Middle Eastern governments in a dilemma.
The data showed that Israel's annualized inflation rate reached 5.2% in July, the highest level since October 2008. Egypt's annualized inflation rate reached 13.6% in July, the highest level since May 2019. International rating agency Moody's revised Egypt's economic outlook from "stable" to "negative" in May.
The Lebanese government declared bankruptcy in April. Lebanon was facing the "worst financial crisis" in more than 30 years, with annualized inflation of 210 percent in June, released by the country's Biblus Bank in July. As of the end of March 2022, Lebanon's total public debt reached $100.7 billion.
Constrained by the hegemony of the US dollar, many countries in the Middle East are struggling to adjust their monetary and financial policies. The Bank of Egypt raised its benchmark interest rate twice in March and May. Walid Jabala, an economist at the Egyptian Political and Economic Association, told Xinhua that egypt has been forced to follow the Fed's interest rate hike this year to prevent hot money from flowing out, but more than $20 billion of foreign capital has withdrawn.
Tunisia was saddled with a huge external debt and needed substantial external financing. Tunisia's central bank governor Marbán Abbasil said Tunisia's budget deficit this year will increase to 9.7 percent of gross domestic product (GDP) from a previous forecast of 6.7 percent, owing to a stronger dollar and sharp rises in grain and energy prices. By the end of 2022, Tunisia's public debt will be 82.6% of GDP. Tunisia faces an even more difficult situation in resuming economic growth and reducing poverty.
Imported inflation and the depreciation of the national currency have caused people to suffer
For the people of the Middle East, the most intuitive shock of US monetary policy comes from the imported inflation and exchange rate fluctuations associated with the US dollar. "Increasingly unable to afford things" has made the local people miserable.
Tunisia's annualized inflation soared to its highest level since October 1991 in June. Lhasa de Vanes, a taxi driver in the country's El Yanai province, told reporters that the price of a lamb exceeded his monthly salary. During Eid al-Adha, many families can only buy a sheep with relatives and friends for the festival.
"Prices put a heavy strain on everyone." Zakia Khatib, a waiter at a confectionery shop in Beirut, Lebanon, told reporters that because raw materials have to be purchased in US dollars, the sharp depreciation of the Lebanese currency has led to soaring prices, and high prices have made many people abandon the tradition of buying candy and pastries to entertain relatives and friends.
People line up to buy bread in Tripoli, Lebanon, on July 10. Xinhua News Agency (Photo by Khalid Khabashti)
On August 21, the Turkish lira fell to 18.09 to 1 against the dollar, depreciating by more than half compared to a year ago. Gasoline and diesel prices in the country have more than tripled over the past year. Kemal Edem, a 65-year-old Turkish taxi driver, said the purchasing power of existing revenues had been severely reduced by rising oil prices and that "about 70 percent of revenue was spent on fuel."
U.S. columnist Frida Guitis argues that U.S. monetary policy is creating new problems for other economies and their citizens that have been hit consecutively.
The call for "de-dollarization" is stronger
Experts from many countries believe that the Abuse of Financial Hegemony by the United States has brought turmoil to the world economy, and "de-dollarization" has become a practical need of more and more Middle Eastern countries. Iran, Turkey and other countries have begun to explore the use of bilateral and multilateral monetary agreements in international trade to settle transactions, and Israel, Egypt and other countries have promoted the diversification of foreign exchange reserves to further reduce the proportion of the US dollar.
Iran's Supreme Leader Khamenei in July called for the replacement of the dollar with his own currency or other currencies in global trade. The Iranian foreign exchange market launched trading in the Iranian rial/Russian ruble currency on July 19. Russia has since said it will gradually abandon the use of dollars in trade with Iran.
Turkish economist Mustafa Senmetz told reporters that the dollar hegemony has a huge impact on Turkey. To reduce the use of dollars, Turkey is negotiating a bilateral currency agreement with Russia that includes Turkey's use of rubles to buy Russian energy and accept Russian tourists to spend in rubles in Turkey.
This is a Turkish lira banknote photographed in Istanbul, Turkey, on June 9. Photo by Xinhua News Agency reporter Shadati
At the same time, many countries in the Middle East began to reduce their holdings of US debt, promoting the diversification of foreign exchange reserve assets.
The Bank of Israel began adding the Canadian dollar, Australian dollar, yen and renminbi to its foreign exchange reserves this year, compared with the previous holding of only three currencies: the US dollar, the British pound and the euro. At the same time, the country's central bank plans to reduce the dollar's share of its foreign exchange reserves from 66.5% to 61% to reduce its exposure to the dollar.
The Bank of Egypt has maintained a diversified portfolio strategy. According to the World Gold Council, the Central Bank of Egypt bought 44 tonnes of new gold in the first quarter of this year, adding 54% to the country's gold reserves.
"Getting rid of dollar hegemony is not an easy goal to achieve, but this process has already begun, and the momentum will become more and more obvious and stronger." Turkish economist Maheffi Ejlmez said.