Interview: Global economy needs to bolster non-dollar financing options: economist

The outsize impact of U.S. monetary policy on the global economy should lead the international community to pursue non-dollar alternative financing sources, says a Venezuelan economist.

"There needs to be a solid well-backed currency ... that can counter the benchmark of the dollar," Venezuelan economist Tomas Sanchez said in a recent interview with Xinhua.

Most observers agree the U.S. Federal Reserve's recent decision to hike interest rates for the first time in nearly 10 years will have repercussions worldwide, but especially for countries with close trade ties to the United States.

The decision to raise rates by 0.25 percent makes borrowing and existing debt more expensive, and could spark substantial outflows of money toward the U.S., all cause for concern among developing and emerging economies.

As long as the dollar continues to serve as the global benchmark currency, most financial transactions will have to abide by the monetary policies of the United States, and suffer its consequences, said Sanchez.

The interest rate hike had an immediate impact on the price of oil, which was already in a tailspin, he noted.

On Dec. 16, the day Fed announced the move, the price of Brent oil dipped 3.34 percent to land at 37.44 dollars a barrel, while West Texas Intermediate (WTI) dropped 4.81 percent to close at 35.56 dpb.

Oil is not the only sector affected, said Sanchez, noting the euro has also taken a hit.

"Given the trade exchange between the United States and Europe, (the euro) will always be affected by the dollar's performance," said Sanchez, who believed the euro's reliance on the dollar makes it a poor substitute for dollar as a global benchmark currency.

In Latin America, countries that do the most trade with the U.S. are at risk of suffering the consequences of the rate hike.

"Brazil and Colombia, which have high levels of imports and exports with the United States, and whose currencies depend a lot on the fluctuation of the dollar, will be most affected in Latin America," said Sanchez.

Investment rating agency Moody's has forecast that emerging countries such as Brazil, South Africa and Russia "could experience capital flight," which would in turn affect investor confidence.

Venezuela will be less directly affected by the hike, "since it doesn't rely as much on the U.S. financial sphere," but its reliance on oil exports could lead to a "deficit" in the oil sector, said Sanchez.

Venezuela's big advantage compared with other regional countries, he said, is its solid ties with China.

"We have our sources of financing through agreements with China and other countries," said Sanchez.

"China can promote its currency as a future benchmark, since it's a country that has the capacity to back it up, from an economic perspective, and also has substantial trade with other countries," said Sanchez.

To that end, the International Monetary Fund's decision to confer reserve currency status on the Chinese yuan, or renminbi, represents a step in the right direction, he said. Endi