Editing Strong dollar policy (section)

== Background ==
=== What 'strong' vs. 'weak' dollar means ===
A stronger dollar benefits US importers as imports become relatively cheaper. It also benefits foreign exporters as they export products priced in dollars. Notably, a strong dollar harms US exporters as it makes exporting from the US less profitable. A stronger dollar also harms foreign importers as the cost of imports rises. When the dollar weakens, the opposite of what was just mentioned occurs.<ref>{{Cite web |title=The Federal Reserve Bank of Chicago-Strong Dollar/Weak Dollar |url=http://faculty.nps.edu/relooney/3040_258.htm}}</ref><ref name=":4" />
{| class="wikitable"
|+Strong Dollar
!Advantages
!Disadvantages
|-
|Consumer sees lower prices on foreign product/service
|U.S. firms find it harder to compete in foreign markets
|-
|Lower prices on foreign products/services help keep inflation low
|U.S. firms must compete with lower priced foreign goods
|-
|U.S. consumers benefit when they travel to foreign countries
|Foreign tourists find it more expensive to visit the U.S.
|-
|U.S. investors can purchase foreign stocks/bonds at lower prices
|More difficult for foreign investors to provide capital to U.S. in times of heavy borrowing
|}
{| class="wikitable"
|+Weak Dollar
!Advantages
!Disadvantages
|-
|U.S. firms find it easier to sell goods in foreign markets
|Consumers face higher prices on foreign products/services
|-
|U.S. firms find less competitive pressure to keep prices low
|Higher prices on foreign products contribute to a higher cost-of-living
|-
|More foreign tourists can afford to visit the U.S.
|U.S. consumers find traveling abroad more costly
|-
|U.S. capital markets become more attractive to foreign investors
|It is harder for U.S. firms and investors to expand into foreign markets
|}

=== Status quo ===
{{See|International use of the U.S. dollar}}

Global use of the dollar results from the post-WW2 economic order where the United States came out of the war relatively unscathed unlike other developed nations at the time.<ref name=":5">{{Cite web |title=The Dollar: The World’s Reserve Currency |url=https://www.cfr.org/backgrounder/dollar-worlds-reserve-currency |access-date=2024-04-02 |website=Council on Foreign Relations |language=en}}</ref> The dollar system as it is structured today originates from the [[Nixon shock|Nixon Shock]], when the former [[Bretton Woods system|Bretton Woods]] system ended. Global trust in the dollar results from the United States being the world's largest economy and having the most stable and liquid financial markets globally.<ref>{{Cite journal |last=Bertaut |first=Carol |last2=Beschwitz |first2=Bastian von |last3=Curcuru |first3=Stephanie |date=2021-10-06 |title=The International Role of the U.S. Dollar |url=https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html |language=en}}</ref> Global demand of dollars results from most if not all trade globally being priced in dollars, meaning that countries must acquire dollars in order to import goods and countries collect dollars when they export goods. Additionally, the dollar plays a large role in global financial markets where there are many borrowers of dollars, contributing to global dollar demand.<ref>{{Cite journal |last=Eren |first=Egemen |last2=Malamud |first2=Semyon |date=2022-05-01 |title=Dominant currency debt |url=https://www.sciencedirect.com/science/article/pii/S0304405X21002932 |journal=Journal of Financial Economics |volume=144 |issue=2 |pages=571–589 |doi=10.1016/j.jfineco.2021.06.023 |issn=0304-405X}}</ref> As the global 'producer' of dollars, the United States plays an important global role by providing dollars (dollar liquidity) to the rest of the world in the form of financial assets that foreigners purchase, bringing money into US financial markets. This is beneficial for the US economy as it allows the US to borrow at more favorable rates than the rest of the world.<ref name=":5" /> The aforementioned factors help strengthen the dollar, all else equal. 
=== Exchange rate weapon ===
The term "exchange rate weapon" was introduced by Professor of International Economic Relations at the [[American University School of International Service|School of International Service]] at [[American University]] Randall Henning to describe the threat of manipulating the exchange rate of a strong country's currency with that of a weak country's currency, in order to extract policy adjustments from their governments and central banks.<ref name=":0">{{Cite book |last=Henning |first=C. Randall |title=International Monetary Power |date=2006 |publisher=Cornell University Press |isbn=978-0-8014-4456-2 |editor1=David M. Andrews |pages=117–138 |chapter=The Exchange-Rate Weapon and Macroeconomic Conflict |jstor=10.7591/j.ctt1xx45w.11}}</ref> The strong dollar policy arose in response to the use of the exchange rate weapon.{{by whom|date=May 2020}}