US prepares for massive 'destruction' of dollars

The policy of a weak dollar, carried out by the Federal Reserve is coming to an end. More and more factors indicate that in the near future the price of the US currency will begin to increase, while its supply in the market will be reduced, writes the Russian portal Ridus.



Investors have been frightened by the results of the last meeting of the Central Bank of the USA where it was decided that it was time to tighten monetary policy. According to the Federal Open Market Committee, financial conditions - higher share prices, lower bond yields, relaxed credit terms - are too lax at the moment.

The Federal Reserve has also made clear that it is ready to begin the 'quantitative adjustment', perhaps already in September, CBS reports.


The only way to solve the problem is to get the dollars left over from the US financial system, Ridus continues.

In the first stage, they plan to 'destroy' 10 billion a month, after which this amount will be increased to 50 billion, according to the desire of the members of the Federal Open Market Committee.



In the view of US financial officials, the surplus of readily available dollars has led to large-scale speculation and the formation of market bubbles. Thus, in August, US financial indices have set a record: the S & P 500 since November has grown by 16% and during these 10 months has never fallen more than 3%.

Among the quantitative easing programs undertaken in response to the global crisis of 2008, the Federal Reserve launched about $ 3.5 trillion to the world market. As a result, the financial system was flooded with cash.

As for the consequences of the Fed's planned withdrawal of dollars, most of its burden will fall on the shoulders of developing countries, it is highlighted in the publication.



According to JP Morgan, the Federal Reserve for three years may reduce the balance by $ 2.2 trillion. This, in turn, will lead to a capital outflow of emerging markets for some $ 220 billion. According to Sonja Gibbs, senior director of the Institute of International Finance, every dollar withdrawn by the Fed reduces the inflow of capital to developing countries by 10 cents.

An expensive dollar, in turn, is a negative development for the oil market, which is already under pressure due to overproduction, experts say.

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