The Implications of the COVID-19 Pandemic for International Currency System

 


 

In 2020, COVID-19 swept across the world, severely impacting the global economy, with global stock markets, crude oil prices, gold prices, etc., all plummeting. The global economic outlook is worrying. On April 3, the International Monetary Fund and the WHO held a joint conference, and the IMF predicted that the worst global recession since the Great Depression would occur this year (Gita Gopinath, 2020). What about the impact on the international currency system? This article will attempt to explore the implications of the COVID-19 pandemic for international monetary system.

 

March 27, the United States introduced a total of about 2 trillion US dollars of fiscal stimulus package, to prevent the US economy by the new coronary pneumonia epidemic impact into a deep recession. Common sense would dictate that the Federal Government is putting out so many dollars that the dollar should be diluting inflation and acting like the dollar is depreciating, yet with 4 stock market crashes, the dollar has skyrocketed. After World War II, because the United States maintained the world's largest gold reserves, the dollar became the world's most stable and strongest currency. Today the US dollar is the world's main currency in circulation, reserve currency, settlement currency, and investment currency. Despite the massive increase in the supply of dollars, there are trillions of dollars in the market for dollar-denominated debt overseas and it needs to be repaid on time to avoid default, so there is no hyperinflation.

 

During the epidemic, the price of gold was also treacherous. The price of London gold fell because of the outbreak of the dollar drought. Because the Federal Reserve cut interest rates to expand the table to buy junk debt and the outbreak of the epidemic led to a shutdown, the physical gold supply chain tension, the price of gold soared. However, due to the rebound of the new coronary outbreak, the US stimulus package stalled, the dollar and gold rare synchronous decline.

 

Due to the spread of the coronavirus, countries have introduced mandatory measures to restrict the movement of people, the global demand for refined oil products has fallen sharply, and some refineries have even stopped working completely. The oversupply will inevitably lead to a rapid decline in international oil prices, and on April 20, oil prices fell below zero (K. Tuayeva, 2020). Currency exchange rates in oil-sensitive countries fell rapidly, such as the Norwegian kroner and the Canadian dollar (Kenzie Shultz, 2020).

 

On July 8, Chancellor of the Exchequer Rishi Sunak announced a £30 billion spending plan to mitigate the impact of the outbreak and boost public confidence, while protecting the badly affected UK job market. The pound accumulated almost 80 points against the dollar to a daily low of 1.2937 during the European market session on October 15. The number of Covid-19 cases spiked with the autumn and London is set to be designated as a high-risk area for the outbreak, raising fears that a new wave of outbreak closure initiatives could slow the global recovery.

 

In the particular 2020, most countries' currencies were negatively affected, but a few countries' currencies benefited. The direction of the international currency system is also full of unknowns because of the uncertainty of the epidemic.


By Liyuan Duan









References



Gita Gopinath, 2020. The Great Lockdown: Worst Economic Downturn Since The Great Depression. [online] Available at: <https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/> [Accessed 18 October 2020].
 

K. Tuayeva, 2020. The Global Oil Market and Economic Diplomacy Under the Coronavirus. International Affairs, 66(004), pp.144-155.



Kenzie Shultz, 2020. The Impact Of A Global Pandemic On World Currencies. [online] The Fox Magazine. Available at: <https://thefoxmagazine.com/featured/the-impact-of-a-global-pandemic-on-world-currencies/> [Accessed 18 October 2020].

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