The writer is head of emerging markets economics at Citi
Developing countries live their economic lives at the mercy of the US Federal Reserve. This may sound blunt, but that makes it no less true.
When US monetary conditions are loose, capital is pushed towards emerging economies, making it easier for these countries to fund themselves. And when the Fed tightens, as it is doing these days, the wave reverses course as capital seeks higher yields back in the US.
This cycle is usually understood as resulting from the impact of higher or lower US interest rates on capital flows to developing countries. Yet it’s not just the yield on US assets that affects these countries; the dollar exchange rate also plays a big role in this drama.
Here are four ways in which a stronger dollar makes life tough for emerging economies.
First, a stronger dollar tends to depress global trade growth. It is the dominant currency for invoicing and…
