A concise explanation of how the US exports inflation to developing countries.

“The… thing about inflation in developing countries … it’s usually the case of external inflation that’s imported when you import food or fuel or whatever resources a particular country has. So, when you look at most developing countries, you realize that the reason they lose their monetary sovereignty is because they have structural economic issues, structural trade deficit issues. And when you zoom in, in most countries, those tend to be two reasons. One is a deficit related to food imports that just don’t have enough food production domestically.

So, they have to import food on a systemic basis. And number two, it’s energy or fuel trade deficit related.

So, they have to import fuel to fuel their economy. And those are things that, no matter what you do as a central bank, you’re not going to eliminate those structural issues unless, as a country, you start investing in renewable energy so that you don’t have to import fossil fuels anymore. Or you invest in a sustainable agricultural policy so that you have food self-sufficiency.

So, if you have that hole in your trade deficit every single year, if you don’t borrow in a foreign currency, as a developing country, if you don’t borrow in dollars or euros, what’s going to happen is that your exchange rate is going to depreciate. And, then, the next morning or the next month, when you as a country try to import food or fuel, you’re going to import it at a higher price. So, you’ll be importing inflation into your domestic economy.”

Fadhel Kaboub