Why Printing Dollars is Making America Richer and Everyone Else Poorer

The US dollar is the world’s reserve currency, relied upon by countries globally for trade, debt settlement, and safeguarding wealth. This unique role gives the USA significant advantages in the global economy, but it also carries responsibility. Dollar supply decisions made in the USA impact economies worldwide, especially in emerging markets.

PRINTING DOLLARS — DOMESTIC BENEFITS, GLOBAL STRAIN

As the world’s reserve currency, the dollar is foundational to international trade and finance. Countries hold reserves of dollars because it’s stable and universally accepted, making it essential for emerging nations to buy commodities, conduct trade, and manage debt. When the USA increases the dollar supply, driven by stimulus or monetary policy, it impacts everyone: domestically, it fuels growth, while abroad it often creates financial strain, forcing other countries to adjust currency values and economic stability.

When the USA creates new money, this unbacked expansion stimulates the American economy by boosting spending, employment, and investment. Yet, it also generates inflation domestically, leading to higher prices for American consumers. Despite this, Americans have several ways to protect and grow wealth in an inflationary environment. For instance, preferential fixed-rate mortgages allow for long-term investment in real estate without the risks of rising interest rates. Additionally, tax-advantaged retirement accounts, like 401(k) plans, enable Americans to build wealth with some protection from inflation’s erosive effects. These programs create a buffer, sustaining wealth and investment opportunities domestically even as the dollar’s global reach affects purchasing power abroad.

Since the dollar circulates globally as the primary reserve currency, its increased supply affects more than just the USA. While printing dollars may reduce domestic purchasing power, it often strengthens the dollar against other currencies due to high global demand. To curb inflation domestically, the USA often raises interest rates, but this also raises borrowing costs worldwide. Emerging markets bear the brunt, facing higher debt service costs and capital outflows, which weaken their economies. Thus, rather than easing global financial burdens, USA monetary policy often amplifies challenges for other countries.

Imagine a poker game where everyone starts with a set number of chips. If the USA keeps adding chips to its pile, other players’ stacks feel smaller, even if they haven’t lost any chips. Their purchasing power decreases, and their economies bear the strain. For foreign economies dependent on dollar reserves, this can result in reduced purchasing power in international trade and higher import costs.

Globally, an increased dollar supply can weaken foreign currencies, raise prices, and push up inflation. For many countries, this shift makes it harder to maintain their reserves’ value, creating a dangerous cycle of currency depreciation. In the worst cases, countries may struggle to repay their dollar-denominated debt, risking default and potentially facing economic collapse.

THE DOLLAR DILEMMA FOR EMERGING MARKETS

Emerging economies face unique challenges with the dollar. They often rely on it for borrowing, as the dollar’s stability and relatively low interest rates make it attractive. But when the USA increases its dollar supply, inflation and interest rates can rise, making it harder for these nations to manage dollar-denominated debt. Higher inflation in the USA can lead the Federal Reserve to raise interest rates, creating another layer of pressure. For emerging markets, this means that the cost to borrow in dollars and to service existing dollar-denominated debt rises even further, potentially leading to domestic inflation and weakened local currencies. Moreover, international institutions like the World Bank and IMF, in their efforts to support struggling economies, often provide loans in US dollars. This further ties these nations to the dollar’s fate, increasing their vulnerability to dollar fluctuations and rising debt costs.

Take Turkey or Argentina, for instance. When the dollar strengthens, their dollar-denominated debt costs rise relative to their local currency. They need more of their currency to cover the same dollar debt, leading to inflation and a weaker currency. If this cycle continues, these economies risk financial distress, devalued currencies, runaway inflation, and potential defaults, all of which limit economic growth and prolong hardship.

In addition to global inflationary pressures, increasing the dollar supply can make USA assets like stocks and bonds more attractive. This often draws capital into the USA and away from emerging markets, potentially leading to underfunded local markets in those regions. As capital exits these markets, it weakens local currencies further and diminishes their economic stability.

STRONGER USA AT THE EXPENSE OF THE WORLD

Printing dollars benefits the USA economy by keeping credit cheap and boosting consumer spending and investment. But the rest of the world feels a different effect. As more dollars circulate, American assets become more attractive, drawing capital into the USA and sometimes leaving emerging markets underfunded.

“The dollar is our currency, but it’s your problem.”  — John Connally, former US Treasury Secretary at G10 in 1971

This imbalance enriches the USA while other nations struggle. As inflation rises, local currencies weaken, and purchasing power declines, countries dependent on the dollar face escalating financial pressures, sometimes leading to extreme currency depreciation and destabilized economies.

WHEN DOES IT ALL BREAK?

The USA’s monetary policies have global consequences, and while the world has adapted so far, the question remains: How long can this approach last?

“A global economy requires a global currency, but that currency must be managed responsibly, with awareness of its worldwide impact.” — Paul Volcker, former Federal Reserve Chairman

The world may rely on the dollar for now, but the strain on emerging markets — seen in weaker currencies and rising debt — suggests this arrangement may not be sustainable. As US monetary policies continue to influence global interest rates and liquidity, other economies bear increasing pressure. Eventually, the world may need to decide whether to endure these impacts or, despite USA’s efforts to maintain dollar dominance, support an alternative currency that could challenge the dollar’s role.