I have always wonder why its so much stronger ? when you go to Japan, everything is cheaper in a sense and the U.S dollar means more in Japan. Why is that ?
In: Economics
The dumbest thing you are going to hear is something about how yen are worth less than dollars and that makes things different somehow. It doesn’t. Exchange rates are just a thing you multiply to find value – a coefficient. It doesn’t make any difference if a Big Mac costs 10 of your currency or 20,000. What matters is changes over time in those exchange rates and in how many goods and services they buy.
And the US is unusual there.
In the 20th century, the US won or came out ahead in about four world wars while sustaining essentially no losses on its home continent (The Spanish-American war, WW1, WW2, and the Cold War) and emerged as a military and trade empire with no equal in the world, forming advantageous agreements with most of the world, becoming everybody’s banker or corporate partner, inventing container shipping and the oil industry and the automobile and early-modern mass production.
We insisted on conducting most of this trade in terms of nominal dollars, especially the oil trade through our proxies in the Middle East. While retaining the ability to print more dollars in theory, we have obsessed over dollar value stability, repeatedly crashing our economy to maintain it.
When other countries or companies or dictators or drug lords want to put away some funds because they don’t trust their own way of storing assets or don’t trust their own currency, they have for many decades now bought primarily dollars (or dollar denominated assets within our economy). When they trade with each other or loan each other money, it often comes in the form of a dollar value exchange. The US Dollar became the “anchor currency” and intermediary for most global trade in the second half of the 20th century, both benefitting from its stability and contributing to its stability by being seated in so many unrelated and uncorrelated economic activities.. Today US Dollar-based “financial clearing/settlement networks” represent some of the infrastructure that allows countries and companies with different currencies to trade in goods & services..
That status is slowly fading as the Euro and the Renminbi rise to prominence.
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