New Study: Climate Change Could Crush Major Global Currencies
While discussions of climate change-fueled natural disasters typically focus on the humanitarian and environmental impacts, a recent study found a destructive outlook for the global economy as well.
Barclays Plc. Has published a model of emissions scenarios and their potential impacts for how foreign exchange markets will be affected. In the worst-case scenario versions, rising sea levels, air pollution and crop failure could cause both the Chinese yuan and Japanese yen to drop by more than 50% by 2070.
For China, air pollution and the prioritization of rapid economic growth over the environment could result in a 5-7% depreciation in the yuan over the next 10 years, worsening to 10% per decade after that. In the worst case of a 5-degree Celsius rise, the yen could fall by an average of 11% each decade due to the risks to densely populated cities like Tokyo, vulnerable to rising sea levels.
Meanwhile, “openness to trade” was a noted as big reason why some economies and exchange rate would be better able to adapt. The euro and the Australian dollar may benefit from this – the model predicted a 3.9% increase per decade for the euro and 2.1% for the Australian dollar in the worst-case scenario. And because the U.S. dollar is less exposed to climate change risk, it has the potential to adapt and even benefit from exchange rates.