Monthly Briefing on the World Economic Situation and Prospects, No. 31

• International oil prices increased further amidst continued unrest in the Middle East
• The United States dollar fell to historic lows
• Many emerging and developing countries are tightening monetary policies

The value of the United States dollar continued to fall in April against a?large number of other currencies. Measured by the trade-weighted nominal?exchange-rate index vis-?-vis other major currencies, the dollar has reached?its lowest level since the 1970s. The dollar has also depreciated?against the currencies of many emerging economies. The current dollar?depreciation trend is being driven by a confluence of factors. Firstly, the?process of ?flight to safety? amidst the uncertainties in the aftermath of the?crisis has now given way to a revived appetite for riskier and higher returns.?As other economies raise their interest rates, the United States of America?maintains its policy rate near zero, causing international interest-rate differentials to become increasingly more unfavourable for financial investments?in the United States. Concerns about the sustainability of the public debt of?the United States have also been transformed into expectations for a weaker?dollar. Even though the external deficit of the United States has narrowed,?it continues to contribute to further increases in the vast accumulated net?foreign liability position of the country, putting continued downward pressure on the dollar. As a result of the dollar depreciation, the loss in the book?value of dollar reserve holdings of many emerging economies is substantial?when measured in their local currencies.