![]() Understand Inflation and How It Affects You interest rates were what set off the catastrophic debt crisis in Latin America in the 1980s. Poor countries often have no choice but to repay loans in dollars, no matter what the exchange rate was when they first borrowed the money. The most vulnerable face the biggest blowback. “I can’t remember the last time when the issue was that a strong dollar was a way the United States was exporting inflation, extinguishing some of its own, but by adding more of it around the world,” said Jason Furman, an economics professor at Harvard who was a chief economic adviser in the Obama administration. Cheaper imports are helping keep American inflation in check. A €50 box of Belgian chocolates has gone from $58.50 to $48.32. Last year, a £12 tin of tea from Britain cost $16.44, and today it costs $13.03. Today - purely because of the strengthening dollar - that same $100 payment costs 1,950 Egyptian pounds 143,158 won and 43,650 naira.Īmerican buyers, meanwhile, are getting a bargain. Still, they must pay more for essential imports like oil, wheat or pharmaceuticals as well as for loan bills due from billion-dollar debts.Ĭonsider that a year ago, $100 worth of oil or a $100 debt payment cost 1,572 Egyptian pounds, 117,655 Korean won, and 41,244 Nigerian naira.Īssume there had been no price increases or inflation. The dollar is clobbering other currencies as well, including the Brazilian real, the South Korean won and the Tunisian dinar. The euro, used by 19 nations across Europe, reached 1-to-1 parity with the dollar in June for the first time since 2002. Roughly 40 percent of the world’s transactions are done in dollars, whether the United States is involved or not, according to a study done by the International Monetary Fund.Īnd now, the value of the dollar compared with other major currencies like the Japanese yen has reached a decades-long high. So is a lot of the debt owed by developing nations. Energy and food tend to be priced in dollars when bought and sold on the world market. That is because the dollar is the world’s reserve currency - the one that multinational corporations and financial institutions, no matter where they are, most often use to price goods and settle accounts. When it comes to global finance and trade, though, its influence is outsize. The United States is a superpower with the world’s largest economy and hefty reserves of oil and natural gas. Policy decisions made in Washington frequently reverberate widely. At the same time, he said, the Fed has no choice but to act aggressively to control inflation: “Any delay in action could make things potentially even worse.” “For the rest of the world, it’s a no-win situation,” said Eswar Prasad, an economics professor at Cornell and author of several books on currencies.
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