Consequences of fall in US credit rating

Wednesday, August 17, 2011

Consequences of fall in US credit rating

Standard & Poor’s assessment of US credit rating has severely affected the trend of how business will be conducted in the near future. Many banks feel that it is time to cut down on Dollar holdings. It will be a shift, which will not take place overnight, but it is bound to take place in the near future. The fall in US currency has led economists to believe that many countries that have high number of exporters might not be willing to trade in Dollar. They will like to push for some alternative sources.

If not dollar, then what? Euro too, has been suffering as a result of economic draught in European countries. There seems to be a third alternative cropping up. Countries like India, who has a high number of exporters and they do have a flourishing trade with countries from Africa, South American and even West Asia might push for their own currency to trade with third world countries. 

Exporters in India are high sceptical about the future of dollar valuation in terms of a rupee after the US credit rating downgrade. The way things are heading, dollar could fall to as low as close to 40 rupees per dollar by the end of 2012, or the fall may take place even earlier. In such circumstances, any trade in dollar would be a loss for exporters. 

Trading in dollar looks bleak. Indian exporters might well like to choose rupee as the next alternative. Since, Euro too is depreciating with each passing month the fall in European economy is not helping the cause, either. Unless, there is a sharp improvement in the European market Euro will also continue to decline further. The US credit rating downfall has opened the eyes of many banks across the globe. It will not be a surprise anymore, if banks across the globe will overlook dollar in the aftermath of US credit rating downfall.

There is a question, which will now come up more often, as should banks trade in alternative currency, especially banks in those countries where exports rule the roost.

1 comment:

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The financial industry has a complex mechanism. You have to be aware of its changes throughout the local and global trading market.

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