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.

And now, the value of the dollar compared with other major currencies like the Japanese yen has reached a decades-long high. The euro, used by 19 nations across Europe, reached 1-to-1 parity with the dollar in June for the first time since 2002.

The dollar is clobbering other currencies as well, including the Brazilian real, the South Korean won and the Tunisian dinar.

One reason is the string of crises that have rocked the globe, including the coronavirus pandemic, supply chain chokeholds, Russia's invasion Ukraine and the climate disasters that have imperiled the world's food and energy supplies.

The United States is a superpower with the world's largest economy and hefty reserves of oil and natural gas. In global finance and trade, though, its influence is outsize.

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.

Energy and food tend to be priced in dollars when bought and sold on the world market. So is a lot of debt owed by the developing nations.

IN Nigeria and Somalia, where the risk of starvation already lurks, the strong dollar is pushing up the prices of imported foods, fuel and medicine. The strong dollar is nudging debt-ridden Argentina and Kenya closer to default and threatening to discourage foreign investment in emerging markets like India and South Korea.

''For the rest of the world, it's a no-win situation,'' said Eswar Prasad, an economics professor at Cornell University in New York State and the author of several books on currencies.

At the same time, he said, the Fed has no choice but to act aggressively to control inflation domestically : ''Any delay in action could make things potentially even worse.''

STRONG DOLLAR weighs very heavily abroad, especially in the struggling economies. Campaigns against inflation pumps up U.S. currency, and raises prices elsewhere.

The U.S. Federal Reserve's determination to crush inflation at home by raising interest rates is inflicting profound economic pain in other countries - pushing up prices, ballooning the size of debt payments and increasing the risk of deep recession.

Those interest rate increases are pumping up the value of the dollar - the go-to currency for much of the world's trade and transactions - and causing economic turmoil in both rich and poor nations. In Britain and across much of the European continent, the dollar's acceleration is helping feed stinging inflation.

THIS very Monday, the British pound touched a record low against the dollar as investors balked at a government tax cut and spending plan. And China, which tightly controls its currency, fixed and renminbi at its lowest level in two years while taking steps to manage its decline.

Policy decisions made in Washington frequently reverberate widely. In an anxious world, the dollar has traditionally been a symbol of stability and security. The worse things get, the more people buy dollars.

On top of that, the economic outlook in the United States, however cloudy, is still better than the outlooks in most other regions.

This Essay continues into the future. The World Students Society thanks author Patricia Cohen and Flavia Milhorance.


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