How are countries escaping U.S. financial pressures?

Pars Today – The British newspaper Financial Times recently examined how countries are navigating U.S. financial pressures.

The Financial Times reported that developing countries are increasingly reducing their reliance on dollar-denominated debt and turning to lower-interest currencies such as the Chinese yuan and the Swiss franc. According to Pars Today, these shifts are a response to rising interest rates set by the U.S. Federal Reserve and the pressures resulting from the high cost of dollar financing.

According to the report, countries such as Kenya, Sri Lanka, and Panama are converting part of their dollar-denominated debt into cheaper currencies to reduce financial pressure on their governments and manage their emergency budgets.

Expensive dollars and difficult financing

Armando Armenta, Deputy Head of Global Economic Research at the investment firm AllianceBernstein, said: “The high level of U.S. interest rates and the steep yield curve of U.S. Treasury bonds have made dollar financing difficult for developing countries, even when the interest rate differential is relatively small.” According to him, these countries are seeking cheaper and more sustainable options to ease financial pressure.

The role of the “Belt and Road” initiative

The British newspaper Financial Times reported that another factor driving the shift toward the Chinese yuan is the international Belt and Road initiative, through which China has provided substantial financial assistance to developing countries for infrastructure projects.

Countries such as Kenya and Sri Lanka are converting part of their dollar-denominated debt into yuan, as the cost of dollar financing has risen significantly, strengthening the incentive to change currencies.

Thilina Banduwala, an economist at Frontier Research in Colombo, told the Financial Times: “It seems that the high cost of financing is the main reason for the shift toward the yuan.”