What is a Dollar Shortage?
A dollar shortage occurs when a country does not have enough dollars to pay for imports from the United States. This is often a concern in emerging markets, but depending on a country’s fiscal policy, it can affect more mature markets as well. However, for those emerging markets, the dollar shortage can be especially critical. As investors invest and and businesses deposit money in foreign banks, the dollars available in the country increase. However, if there is concern about the financial system, or if investors see a better deal elsewhere in the world, it could trigger a massive demand for those deposits to be returned: a mass withdrawal. Of course, these banks are usually not sitting on the money, but have reinvested and lent the dollars to borrowers. If the demand exceeds the ability to pay in dollars immediately, a dollar shortage develops. If there are not enough dollars to pay for importing U.S. goods, there is a chance those goods will not be delivered because the supplier is
