An interesting article on the sheer dominance of USA and US Dollar.
Here’s an interesting question: Take a look at the interest rate of the Indian Market (comparable to the Fed rate in the U.S.). In 2011, while the U.S. offered a whopping 0.25%, the Indian Markets offered 8.5%. In simple terms, if you had put your money in a money market account in the U.S., you would’ve got a 0.25% return per year, and in India, you would’ve got 8.5% per year6.
In other words, it will take only ~8 years to double your money in an Indian account compared to ~288 years in a U.S. account. So why shouldn’t an investor just keep their funds in India instead of the U.S.?
The answer lies in currency and country risk.
In 2005, 1 USD was equal to 44 Indian Rupees. Fast forward 20 years, now 1 USD is worth 86 Indian Rupees. So, the Indian Currency has roughly lost half its value (49%) when compared to the US Dollar.
So, even if you gain some additional interest rate by parking your fund in an emerging market, if that currency depreciates against the US dollar, your net gain will shrink dramatically. Plus, you now also have to deal with country risk.