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Why a strong US dollar is bad for ‘rest of the world’


When the US dollar hit a record high in September 2022, many low-income countries that relied on the currency were struggling and in some cases embroiled in an economic crisis. economic and political.

The US dollar is the world’s dominant currency and plays an important role in global trade.

While that may seem like good news to Americans, it’s bad news for much of the world.

“So this is a paradox. The rest of the world looks down on dollar dominance, but they look to the US dollar, because there really aren’t many alternatives.” Eswar Prasad, economist at the Brookings Institution and professor. and Cornell University.

Despite constant predictions of a dollar demise, almost 60% of the world’s central banks’ foreign exchange reserves are kept to cover unexpected financial emergencies. – is invested in assets denominated in dollars.

The share of the US dollar as a payment currency worldwide is more than 40%, while it accounts for more than 60% of international debt and 50% of loans globally.

Besides being the currency for international financial transactions, commodities like oil are also bought and sold in US dollars.

The dollar’s dominance in transactions also extends to the US banking system, which in turn is influenced by US monetary and financial policies.

“This will ultimately reinforce dollar dominance,” Prasad said. “It’s certainly a serious problem for low-income countries with high levels of external debt, especially dollar-denominated debt.”

Watch the video above to learn how a strong dollar contributed to the economic and political crisis in Sri Lanka.

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