The U.S. dollar is getting too strong for some countries. Early warning signs suggest another emerging markets currency crisis.
Brazil’s currency, the real, hit a 12-year low Monday. Currencies in Southeast Asia are at their worst points since the region’s last financial crisis in the late 1990s. Mexico and South Africa’s exchange rates are at their lowest levels ever compared to the dollar, according to Capital Economics.
The dollar’s gains should make history nerds shake in their boots. Its rally in the early 1980s helped trigger Latin America’s debt crisis. Fifteen years later, the greenback surged quickly again, causing Southeast Asian economies, such as Thailand, to collapse after a run on the banks ensued.
A large scale currency crisis could be a real hit to the global economy, even the United States. The world is a lot more integrated today than it was in the 1980s and 1990s.
To put it another way, China’s stock market plunge might just be the beginning of the troubles for emerging markets.