# [ELI5] What does it really mean to have a “strong dollar”?

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How does it help? Or does it not? Who does it hurt? How does all of this work?

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It simply means 1 USD is worth more foreign currency than has been normal in the recent past. It helps people who are importing goods and hurts people who are exporting them. It can also really hurt poorer countries that issue dollar denominated debt.

A “strong dollar” (or any “strong” currency) means you have a favourable exchange rate against other currencies…your currency buys more of another currency than it used to, your ability to buy things internationally in other currencies has gone up.

It generally helps importers…they things they want to buy overseas become cheaper. It hurts exporters…their stuff becomes more expensive.

Note that does NOT mean that the exchange rate is a really big, or really small, number…the fact that 1 USD is worth about 1,000 Japanese yen doesn’t mean the USD is 1000 times stronger. “Stronger” or “weaker” refers to *changes* in exchange rates…if your currency is buying more than it used to, then it’s getting stronger.

It means your currency is worth a lot more of someone else’s currency. It means that it’s a lot easier for the strong country to buy from the weak country, but it’s also a lot harder for the weak country to buy from the strong country. But once the weak.country has that strong dollar from the string country, they can buy from another weak country using that same strong dollar.

Let’s say country A uses \$A as their currency. A loaf of bread from country A costs 1\$A

Country B, loaf of bread costs 5\$B

If the exchange rate from \$A to \$B is 2:5, then in country B, a loaf of bread costs 2\$A. That means someone from country B can buy a loaf of bread from country A for 2.5\$B instead of 5\$B. So the person from country B saved money. And now the person from country A has \$B money that they can then go spend.

In this case, \$B is the stronger currency because it has more buying power than \$A.

To make a currency strong, it just needs to undergo inflation slower than the majority of other currencies. Inflation is the devaluation of currency, so if your inflation is faster than everyone else’s, by comparison, your money is weaker.

Look for how much of a particular foreign currency you can sell your dollar for today, compared to what you could have sold it for a few months ago.

E.g. Today, if you sell 100 dollars, you can get around 103 euros. Back in March, you’d have got less than 90.

And today you’d get around 710 Chinese yuan. Again in March you’d have got around 640.

So over the past few months the amount of euros and yuan you get have increased.

Either the dollar is “stronger” and you can buy more foreign currency than you used to be able to (usually strong performing economy or political news making the dollar a safe investment – more buyers equals higher price)

..Or just those foreign currencies are “weaker” (sort of cheaper) (again, maybe because of poorly performing foreign economy or political news making that currency a risky investment – more sellers equals lower price).

Usually it is a combination of many things!