“Rising interest rates are inevitable, but the damage to the US dollar will be greater than in the 1980s” By Hankyung

© Reuters. “Rising interest rates are inevitable, but the damage to the dollar will be greater than in the 1980s”

Maurice Obsfeld, professor at UC Berkeley (pictured), former chief economist at the International Monetary Fund (IMF), warned that “the negative ripple effect of the recent dollar appreciation will be greater than in the 1980s.” An increase in interest rates to control inflation is inevitable, but analysts believe that rapid monetary tightening without coordination will lead to a large-scale economic recession.

Professor Obsfeld spoke as a keynote speaker at the G20 Global Financial Stability Conference held at the Plaza Hotel in Sogong-ro, Seoul on the 21st.

Professor Obsfeld compared the year 2022, when countries were implementing massive monetary tightening policies to eliminate high inflation, with the early 1980s, when the world was plagued by high inflation due to the oil shock from the Middle East. He said, “US and world austerity measures to control inflation in the early 1980s led to a deep economic recession and debt crisis in emerging countries in 1982.

He also warned that “countries could fall into a ‘prisoner’s dilemma’ situation where countries compete to appreciate their currencies and export inflation.” When country A raises interest rates and appreciates its currency in response to inflation, the price of goods produced in country A rises, and country B, which imports goods from country A, also raises interest rates to stabilize its own prices and values ​​its currency. All of them are plagued by inflation and economic slowdown. “This does not mean that interest rates should not be raised to catch inflation,” he said, but he emphasized that “if the policies of central banks are not coordinated, eventually it will lead to poverty in each other.”

Professor Obsfeld said there is no need to worry too much about the recent increase in the win-dollar exchange rate. He said, “The sudden increase in the exchange rate is not a weakening of the earnings itself, but a phenomenon caused by the strong dollar following the rate increase by the central bank of the United States (Fed). Better to do it,” he said.

Correspondent Hwang Jung-hwan jung@hankyung.com

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