🎧 Listen: In today's episode of The Journal podcast, JAVerlaine explains what the dramatic increase in the value of the U.S. dollar means for the United States and other countries
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.Speaker 2: The dollar may be on track for it's best year ever.
Julia Verlaine: And if you kind of want to run through some numbers, like year to date, pound is down over 20%. The Japanese yen has lost over 25% against the dollar and the euro is down around 15%.Julia Verlaine: Currencies are always relative.Julia Verlaine: Basically a strong currency requires political stability and good economic forecast. And it's basically people's perception of that country, and it's reflected in the currency.
Ryan Knutson: One reason people have faith in the US economy is because the Federal Reserve is going so aggressively after inflation. Inflation is bad for currencies because the currency literally becomes less valuable. You can't buy as much stuff with it. Ryan Knutson: For Americans traveling abroad right now, it's a little bit like that scene from the 2004 movie Eurotrip, which was about a group of recent grads who went to Europe and found themselves basically out of money.Ryan Knutson: In the next shot the travelers are living large in a fancy hotel, being served by butlers, all for $1.83.Ryan Knutson: The strong dollar isn't just a benefit for Americans traveling abroad though. It also makes foreign imports cheaper.
Ryan Knutson: So it sounds like a strong US dollar could be a good thing, but it actually might have a bite back effect on businesses in the economy if it means lost sales.Ryan Knutson: And as the dollar gets stronger, that feedback loop can get even worse. That's next. While a strong dollar is a mixed blessing for the US, it's generally a bad thing for other countries.
Ryan Knutson: So if the dollar is stronger, and I'm South Korea converting my currency into US dollars, that means that I have to spend more of my own currency in order to get those dollars. Ryan Knutson: One example of a country being hurt by this is Sri Lanka. In July we made an episode about how the economy there is collapsing. The country imports a lot of its food and energy, both of which became very expensive this year. And then on top of all that the government is also struggling to pay off billions of dollars in debt.
Ryan Knutson: Is there anything that the US or other countries could do to fight back against a strong dollar? Ryan Knutson: But if the dollar keeps getting stronger, and other countries keep feeling the pain, this is where that feedback loop can get worse and come back to hurt the US too.
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