The Strength Of The US Dollar Is Now Hurting Everyone Else

Across the last year, the US dollar has been growing relatively consistently. Although there have been dips now and again, as you'd expect with any currency, it was reportedly up by 13% in July 2022 compared to 2021. This might seem like a good thing to the average American looking to go abroad on vacation. After all, it means that money should go a lot further when overseas. 

However, a strong US dollar is actually bad news for a lot of people, as the rest of the world is currently finding out. From struggling with bills on imported goods to issues repaying debts, the US economy may be doing more harm than good for everyone else.

What's contributed to the strength of the US dollar?

Given world events over the last few years, it might seem surprising that the US dollar is apparently growing stronger. However, there are several good reasons why this is happening. One of them is tied to the speed at which interest rates have increased to deal with the continuing issue of inflation. This was reportedly at a four-decade high in July 2022, proving it's something that isn't going to disappear at the drop of a hat. With the US Federal Reserve acting so quickly to increase interest rates, many investors have allegedly been enticed by the US dollar. These investors reportedly view the currency as a safe haven in a time of decline for the global economy, thereby helping the strength of the US dollar grow.

How does the strength of the US dollar hurt everyone else?

What's unique about the US dollar is it seems to grow stronger whether the US economy is doing well or not. This increase at both ends of the scale is referred to as the "dollar smile," but it doesn't leave a grin on everyone's face. That's because a strong US dollar can cause plenty of issues around the world, including the fiscal strain placed on countries that need to pay debts. If they can't borrow money in their local currency, they often have to do it in dollars, so when that rises, their ability to pay it all back decreases. There are also issues with importing essential goods like fuel, food, and medicine. Plus, the fact that the strength of the US dollar isn't currently tied to economic growth will be problematic for any emerging markets exporting goods here.

What countries have already been affected by the strength of the US dollar?

It's easy to see how the US dollar is now hurting everyone else by looking at countries like Sri Lanka, Pakistan, and Egypt. Regarding the first, the country is apparently experiencing its worst economic crisis in decades. President Ranil Wickremesinghe reportedly admitted that the economy has "completely collapsed" thanks to its foreign exchange reserves plummeting severely. This has led to an inability to pay for essential imports, causing national shortages. In Pakistan, there's the issue of the rupee being one of the worst performing currencies in the world. The large divide between that and the US dollar is allegedly pushing the country towards default. As for Egypt, a mass departure of foreign investment and a shortage of dollars has reportedly proven too much to handle amidst rising food prices.

The strength of the US dollar shouldn't be anything to be upset about. Unfortunately, because it's developed from a relatively weak economy at a time when the global economy is also struggling, it's proven to be a big problem around the world. There's the potential for more countries to follow in the wake of Sri Lanka and the others, but we can only hope it won't come to that.