Ella 
The strength of a country’s currency is a crucial determinant of its economic performance. A strong currency can result in numerous benefits for a nation’s economy, while a weak currency can lead to significant disadvantages. The United States dollar (USD) is the world’s predominant reserve currency and is heavily traded in global currency markets. A stronger USD could impact various sectors positively or negatively. In this article, we’ll explore who benefits from a strong dollar and examine the impacts on individuals, businesses, and the global economy.
Benefits for Individuals:
A strong dollar can benefit individuals in several ways. One of the direct effects of a strong dollar is that it makes imported goods cheaper. This means that Americans can purchase foreign-made products at lower prices than they would with a weaker dollar. For instance, if the USD strengthened against the Euro, American tourists traveling to Europe would find that their dollars go further. They would be able to enjoy a higher standard of living, including better accommodations, meals, and entertainment.
Moreover, a strong dollar can attract foreign investment into the United States, which can create job opportunities and boost economic growth. When foreign investors invest in U.S. assets, such as stocks and properties, they need to convert their currencies into USD to make these investments. This increased demand for USD will drive up the value of the dollar, resulting in a “snowball” effect of more investments coming in. This influx of foreign capital leads to a stronger economy, generating job opportunities for Americans.
Furthermore, a stronger dollar can also help stabilize inflation. With a strong dollar, American consumers can buy more goods and services at a lower cost. This increase in purchasing power means that consumers have more money to spend, which stimulates economic growth and reduces the risk of inflation. A strong dollar can also help reduce borrowing costs for consumers. As interest rates on loans are typically tied to the value of the dollar, a strong dollar can lead to lower borrowing costs.
Benefits for Businesses:
A strong dollar can also benefit businesses in several ways. For one, businesses that import goods or raw materials will enjoy lower costs when the dollar is strong. This is because they can purchase foreign currency at a cheaper rate, allowing them to buy more goods and services at a lower cost. Similarly, businesses that export products may benefit from a strong dollar as it increases their competitiveness in foreign markets. A strong dollar makes U.S. exports more affordable, which can lead to increased sales and profits.
Moreover, a strong dollar can lead to lower energy prices. Oil and natural gas are priced in USD, which means that a stronger dollar can result in lower energy prices for American businesses. Lower energy prices translate into lower production costs for businesses, allowing them to be more competitive in global markets. The lower production costs can also help improve profit margins, allowing businesses to invest in new research and development projects or hire more employees.
Finally, a strong dollar can make investing in U.S. assets more attractive to foreign investors. This increase in foreign investment can provide businesses with access to capital, making it easier to fund growth and expansion projects, develop new products, and hire additional employees. Overall, a strong dollar can create a favorable environment for businesses to thrive.
Impacts on the Global Economy:
The impacts of a strong dollar on the global economy can be mixed. Countries that export goods to the United States may experience reduced demand as the cost of their products becomes more expensive due to a stronger dollar. A stronger dollar can also make it more difficult for countries to pay back debts issued in USD, as the cost of debt servicing rises.
On the other hand, countries that import goods from the United States may benefit from a stronger dollar as the cost of imported goods becomes cheaper. It can also lead to increased foreign investment in the United States, providing opportunities for growth and development.
Another impact of a strong dollar on the global economy is its influence on commodity prices. A stronger dollar can lead to lower commodity prices, as commodities are priced in USD. This can impact producers of commodities negatively but benefit consumers who enjoy lower prices.
Finally, a strong dollar can also result in a reduction in the value of other currencies in international markets. This can make it more difficult for countries with weaker currencies to trade internationally, leading to reduced economic activity and growth.
Who can be hurt by the strong U.S. dollar?
U.S. companies that sell a great deal of their product abroad. The stronger dollar causes a price increase for the U.S. produced goods in the foreign markets, making the products less price competitive and maybe less attractive.
U.S. dollar investors who invest their portfolios in non-U.S. capital markets. The strong return of the dollar versus the other currencies gets subtracted from the local market returns in stocks and bonds.
Non-U.S. manufacturers that rely on American-made products/services as part of their business process. The U.S. products/services are now more expensive and will likely reduce profit margins for the company.
While the total impact of these currency influences can be difficult to measure, the impact on investment returns is a little more straightforward. For instance, for a global equity portfolio (represented by the MSCI World Index) in 2014, the strong dollar caused the U.S. denominated return to trail the local currency return by 5%. This is a significant swing, but it does tend to reverse course and level out over time. The global equity return streams in U.S. dollar and local currency differs by only 30 basis points per year over the last 10 years.
Conclusion:
In conclusion, a strong dollar has both advantages and disadvantages depending on the perspective one takes. Individually, a strong dollar can lead to cheaper imported goods, attract foreign investments, stabilize inflation and reduce borrowing costs. Businesses also benefit from a strong dollar through lower costs of production, increased competitiveness in foreign markets, and access to capital. However, the impacts on the global economy can be mixed, resulting in reduced demand for exports, increased difficulties in paying back debts issued in USD, and fluctuations in commodity prices.
