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The Dollar Dilemma Sri Lanka as a Model
Economic 09/04/2024
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Many countries, or rather emerging or rising economies, share the phenomenon or feature of the fluctuation of the dollar exchange rate and other impacts on their economies and their exposure to financial and economic crises periodically.
Naturally, the size and extent of the impact of the fluctuation of exchange rates varies from one country to another, depending on the strength of its economy. The percentage of impact in rentier countries that depend on oil as a major source of their resources is relatively lower and adopt a fixed exchange rate system, whether in an international currency such as the dollar or linked to a basket of currencies, unless oil prices fall. Here, countries may be equal in impact and may sometimes be in favor of non-oil countries, depending on the impact on their balance of payments.
The main indicator of the size of the impact is the rate of inflation in a country, and some may be surprised that the decline in oil prices may be in favor of non-rentier countries that depend on the volume of their exports of their other local products.
Here I give an example of this phenomenon, when oil prices rise, the Turkish economy is affected by this due to its impact on production costs, which leads to the absence of some products on the one hand, and on the other hand, we find that during the outbreak of the Russian-Ukrainian war and the imposition of the blockade on Russia, Russia was forced to reduce oil prices to compete and obtain revenues, so Turkey was among the countries to which Russian oil was supplied in addition to China and others, so there was a recovery in the Turkish economy at that time, which led to a reduction in the costs of Turkish production of goods.
Returning to the issue of the dollar problem and the fluctuations in its exchange rates, due to the linkage of the exchange rate process of those countries to the dollar, which made them suffer from the existence of more than one exchange rate outside the state pricing system.
Here, a number of economic experts advise the necessity of changing the exchange rate system and trying to find exchange rates for the currency basket (i.e. for each foreign currency in the components of the basket and with a specific relative weight according to the trade areas to which the country is linked externally) in order to get rid of or reduce parallel prices and bring them to a state of balance with the official exchange rate.
These solutions prompted the BRICS group to attempt to get rid of the dollar's dominance in financing global trade, and it is continuing with this project.
It has achieved simple results from cooperation, especially in the field of settling cash payments through its currencies, and it is hoped that it will be able to break the dollar monopoly in the long term.
There is the experience of Sri Lanka, how it was able to control the exchange rate?
Sri Lanka has limited dealing in dollars exclusively to banks and prohibited its use and even carrying it, considering it a legal violation of the dollar of unknown origin punishable by law, i.e. a strict monetary policy against (dollarization), through which that country was able to achieve exchange rate stability and keep it away from dollarization problems and deal with the internal economy in two currencies, one of which is subject to a foreign monetary system.
Other than that, some countries are trying to achieve a balance between the official and parallel price through the process of regulating imports, preventing the entry of many goods that do not affect the citizen's food and postponing personal desires, such as preventing the import of cars and luxury items for a period of time, which is what the laws of the World Trade Organization allow, i.e. postponing the import of some goods to address the country's economic situation.
In conclusion, the issue of fluctuating exchange rates is a global phenomenon that is not limited to a specific country, and everyone is trying to address it in their own way.
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