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Here’s What’s Going on With Global Currency During the Pandemic

The Federal Reserve said Friday it would increase the frequency of dollar swap operations agreed upon with other Western central banks, increasing its efforts to ease a global shortage of dollars in financial markets.

The move would normally make trading between nations more efficient, but the flow of goods has been severely disrupted by the global pandemic.

“The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing a coordinated action to further enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements,” the Fed said. “To improve the swap lines’ effectiveness in providing U.S. dollar funding, these central banks have agreed to increase the frequency of seven-day maturity operations from weekly to daily. These daily operations will commence on Monday…and will continue at least through the end of April.”

The news comes at the end of a week when the dollar has rocketed against both developed and emerging market currencies as investors around the world have sought safety in the world’s most liquid financial asset. The dollar, trading against a basket of currencies, improved from a loss of 3.5 percent for March last week to showing a nearly 5 percent monthly gain at week’s end.

The coronavirus pandemic has led to a sharp sell-off in the equity markets and initially investors rushed to safe-haven assets such as gold and the Japanese yen, according to an analysis by FX Empire.

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But the dollar-yen currency exchange has recovered a bulk of its losses, indicating investor preference over the dollar versus the yen. On Friday, the dollar was trading at .94 euros, up from a recent low of 0.87 euros on March 9.

The Indian rupee was trading at 75.07 to the dollar, up from a low of 71.65 on Feb. 27. According to Indianivesh, an Indian currency trader, the Reserve Bank of India has been selectively intervening because the rupee has not yet gone into a free fall.

This week, the Indian textile industry sought a relief package to help mitigate the negative impact of the COVID-19 pandemic. Shri T. Rajkumar, chairman of the Confederation of Indian Textile Industry (CITI), requested government action to support the struggling textile sector.

Rajkumar pointed out that demand for textile products and domestic sales has “come down to a grinding halt due to the panic situation created by the outbreak of COVID-19,” which has spread to the European Union and U.S., which are the main exports markets for textile products manufactured in India.

India isn’t the only emerging market country to suffer from the coronavirus’ economic impact.

“The COVID-19 outbreak has created an even more challenging environment for emerging markets,” IHS Markit said this week. “Most do not have the financial or healthcare resources to deal with this pandemic. Fortunately, to date, only one country (Iran) in the emerging world has been hit hard. That could change very rapidly. Meanwhile, much lower global growth and commodity prices will hurt prospects everywhere. Few, if any, countries will be immune to the economic damage.”

The dollar was trading at 7.09 Chinese yuan on Friday, up from a low on March 9 of 6.92 yuan, meaning higher prices on Chinese imports if they can reach U.S. consumers during a virtual nationwide lockdown of retail and delays in e-commerce shipments.

Currencies like the Vietnamese dong and the Bangladeshi taka have continued the usual pattern of flat exchange movements.