– How can inflation be hitting this hard in the US, when the dollar is getting stronger around the world when compared to other currencies like the Euro?
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What does the price of bread in India have to do with the cost of a milk bottle in USA? (This isn’t as complicated question as you’d imagine, the answer is “nothing”)
Inflation related to the value of money in the market that uses it. If euro and dollar were tied together as 1€ = 1$, then even if there is massive price inflation going on in USA, the buying power of Euro in Europe stays the same. (Ok not that simple).
If you give me 100 USD right now as cash. Then it would have very little value to me, even if it was a stronger currency. Why? Because I can’t buy anything here with a 100 dollar bill, I’d have to go exchange it for Euros. How much bread you can buy in USA with a dollar is not relevant to how it costs to make milk in Finland.
America like to think that they and their dollars are the centre of the universe. When in reality they are not. Yes all the big economies on this planet influence each other. But strong dollar is meaningless to me because I’m not buying bread from USA or paying rent in Dollars. (Well because dollar is basically the default oil currency, I am in a rounabot way, but this is ELI5!).
When a currency is strong, like Dollar is now. People will want to exchange their currency for dollars. This means the currency they are trading in drops in value and the one they are buying goes up. This is simply because more of it is in circulation, and less there is of the other. However as long as USA keep making dollars to meet this demand or banks releasing their reserve dollars, the value drops. And for a while people wanted Euros. And then Yen. And then Rubles. And the cycle goes on.
Buying power and value of dollar in USA is only relevant in USA and to those who traded with them abroad. Like I know my father has plenty of different currencies he gets when they are cheap and uses them to buy things abroad. Money isn’t any different as a commodity than ton of steel or stocks in a company.
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