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Why a strong U.S. dollar could be great for some and harmful to others


Thanks to inflation, the U.S. dollar's value is eroding at home. But when you trade your dollars against other currencies overseas, its value is growing. Adrian Ma and Wailin Wong, our colleagues over at NPR's The Indicator, explain who benefits and who doesn't.

ADRIAN MA, BYLINE: According to a couple of popular indicators that track the value of the dollar against a whole bunch of other currencies, the dollar has appreciated somewhere between 8 and 13% just in the past year. When we were looking around for a guest to help explain why the dollar is getting stronger, our producer found an economist from the Brookings Institution named David Dollar. And we thought, come on.

DAVID DOLLAR: Right. So there's a word for this, you know - an aptronym - someone whose name is appropriate for their employment. So like, a Baker who's a baker. So I have an aptronym. I'm an economist, focusing very much on the international economy, named Dollar.

WAILIN WONG, BYLINE: So he's a perfect person to explain why the dollar is stronger right now.

MA: Yeah. And David says a big reason for it is that, well, there's a lot of turmoil and uncertainty in the world right now.

DOLLAR: So whenever there's a big, unexpected event in the world, people tend to come into dollars. We call it a safe haven currency.

MA: And we're talking about money being moved from big institutional investors, like banks and retirement funds. They're looking for a relatively stable place to park that money.

WONG: On top of seeking safety, though, investors, as always, are looking to make money. And that's another reason the dollar is up.

DOLLAR: Right now. Our U.S. government 10-year bond is paying 2.8%. And that's a big increase just in the last few months.

MA: But in order for international investors to get that sweet, sweet U.S. government bond yield, they have to buy U.S. bonds. And to do that, they've got to get their hands on some U.S. dollars. And so that is where investors turn to the foreign exchange markets.

WONG: One thing worth emphasizing here - a stronger dollar is usually not great for consumers in other countries. It means American goods and services are more expensive.

MA: And here's one other group that is also hurt by a stronger dollar - multinational corporations like Apple and Tesla or Procter & Gamble. Because they get so much of their revenue from consumers in other countries, big shifts in the exchange rates could influence where and how they do business.

DOLLAR: If you're serving the world, what you do in the United States is now going to be more expensive, and what you do in other countries is going to be less expensive in a sense. So you might shift some activities out of the United States. You know, for example, if you have multiple plants and you have a little bit of excess capacity, you might idle a plant in the United States and rely more on plants in other countries.

WONG: Obviously not good for the American workers in those plants.

MA: Yeah. And that is a really good point. Also, a stronger dollar can be a drag on the economies of a lot of different countries. It could mean U.S. goods get more expensive for them or their debts in U.S. dollars get harder to pay off. And that is not great, especially for emerging market economies. And then, on top of that, through the push and pull of the global financial ecosystem, that can bounce back to the home of the dollar, the U.S.

WONG: Wailin Wong

MA: Adrian Ma, NPR News.

(SOUNDBITE OF MOKHOV'S "GOLDEN WAVES") Transcript provided by NPR, Copyright NPR.

Wailin Wong
Wailin Wong is a long-time business and economics journalist who's reported from a Chilean mountaintop, an embalming fluid factory and lots of places in between. She is a host of The Indicator from Planet Money. Previously, she launched and co-hosted two branded podcasts for a software company and covered tech and startups for the Chicago Tribune. Wailin started her career as a correspondent for Dow Jones Newswires in Buenos Aires. In her spare time, she plays violin in one of the oldest community orchestras in the U.S.
Adrian Ma
Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.