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Strengthening of the dollar has not yet affected the Serbian economy

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The share of public debt in the American currency is only 11.5 percent, and loans are not adjusted according to the American currency.

The euro and the US dollar are equal for the first time in the last 20 years. It is dynamic in the currency market, as on Thursday the euro briefly fell below one dollar and traded at $0.9952 to the euro, only to recover yesterday to the level of $1.00245. This is undoubtedly an indicator of turbulence in the world economy, but ours is not worried about it. The share of public debt in American currency is only 11.5 percent, loans are not adjusted according to the dollar. Exporters to that market, it’s true, profit, because they get more money, but there are far fewer of them than those who sell to the EU and surrounding countries, which are our main market.

Mališa Đukić, a professor at the Belgrade Banking Academy, says that changes in the exchange rate of the dollar against the euro are not important even from the aspect of the exchange rate of the dinar against the euro.

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“It should be borne in mind that things are changeable and if we go back a bit in the past, we will notice that due to changes in some circumstances, the dollar can not only strengthen, but also weaken again,” Đukić told Tanjug. He added that it is difficult to predict further developments, because the factors that caused the strengthening of the dollar and the weakening of the euro are still present and no one can claim with certainty that they will be removed.

The National Bank of Serbia (NBS) believes that no significant immediate impact should be expected since the Serbian economy is more linked to the euro than to the dollar. The strengthening of the dollar against the euro, and thus against the dinar (given that the exchange rate of the dinar against the US dollar is determined on the basis of the exchange rate of the euro against the dollar on the international market, while the stability of the exchange rate of the dinar against the euro is preserved) is not reflected to a greater extent on growth of public and foreign debt, since the share of debt in dollars has been significantly reduced in previous years, and in addition, public debt in dollars is largely protected from foreign exchange risk by the activities of the state.

“The trend of the strengthening of the dollar against the euro, which has been going on since the middle of last year, was initially, to the greatest extent, a consequence of market participants’ expectations that the US Federal Reserve (FED) will start withdrawing the stimulus measures of monetary policy, and due to the growing inflation in that country and in the world, as well as the strong recovery of their economic activity and employment, after the great disruptions caused during the epidemic. In March of this year, the FED began the process of increasing the reference interest rate and at the same time announced a series of further increases in this year and the next (so far the rate has been increased by 1.5 percentage points). Also, the FED has started reducing the volume of assets within its balance sheet, which is also a measure in the direction of tightening the monetary policy”, they state.

The escalation of the conflict in Ukraine contributed to the additional strengthening of the dollar against the euro, as the US economy is less exposed to this crisis than the countries of the euro zone. The strong rise in the prices of raw materials and energy, which was especially pronounced after the beginning of the conflict, additionally contributed to the growth of inflationary pressures and expectations of a stronger reaction in the direction of monetary policy tightening. On the other hand, there was also a strong acceleration of inflation in the euro zone, where the European Central Bank has not yet increased interest rates, and it is almost certain that this will happen at the meeting on July 21. As for the purchase of assets from banks, a decision was made to end this program, but a new program was announced that partially eases the tightening of financial conditions in the eurozone.

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The uncertainty surrounding gas deliveries from Russia to European countries further complicates the situation in the euro zone both in terms of inflation and the decline in economic activity, which is largely reflected in the weakening of the euro.

Eight percent of exports and 14 percent of imports in dollars

The participation of the dollar is not important in the structure of foreign trade exchange. On average, in the last five years, about eight percent of exports are charged in dollars and about 14 percent of imports are paid in dollars, and above all we are talking about primary agricultural products in the case of exports, or energy sources in the case of imports. At the same time, it is important to emphasize that due to the high integration of Serbia into global production chains, the influence of the exchange rate on net exports weakens, and thus the effect of price competitiveness, while structural competitiveness gains importance, and in the case of Serbia, it has significantly increased thanks to investments in export-oriented sectors in previous years, as evidenced by the share of exports of goods and services in GDP, which in the last ten years increased by more than 20 percent and reached close to 55 percent last year, Politika writes.

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