Over the past five years, the U.S. dollar has become noticeably stronger compared to many other world currencies. As a transfer student observing the economy, I find this trend both fascinating and concerning, having seen both sides of the world. On one hand, it shows the strength and stability of the U.S. economy. On the other hand, it brings challenges for businesses, trade, and even everyday Americans in certain situations. 

Why has the dollar increased in value?

The dollar’s rise can be attributed to several reasons. 

Firstly, the United States has maintained relatively high interest rates compared to other countries to combat inflation in recent years. Higher interest rates attract investors from all over the world who invest in U.S. government backed bonds (essentially a loan by investors to the government at a fixed interest rate), which at a higher rate provide a higher rate of return on invested capital.

Secondly, global uncertainties, such as economic slowdowns in Europe or geo-political conflicts have made investors see the United States as a “safe haven”, a land of financial stability. The relative financial stability in holding the dollar leads to investors assigning a premium to its value (i.e. its value increases due to increased demand).

Finally, the strong U.S. economic performance in certain sectors, like technology,

healthcare, and finance has led to a spike in capital inflows (international investments in the U.S.). The growth of these industries makes the U.S. economy appear stronger relative to the European Union, which only saw a 1.5% increase in its GDP in the 2nd quarter of 2025.

This encourages more investment in dollars. 

It’s quite beautiful how connected the world economy is—changes abroad can directly affect the value of money at home. But it certainly raises the question: is this change for the better or worse?

Yay or nay: do we want a stronger or weaker dollar?

A stronger dollar has some clear benefits. For travelers, it makes foreign trips cheaper. For instance, if a Stevenson student wishes to study abroad, a strong dollar means tuition, housing, and living costs paid in another currency may be slightly lower. This is a result of exchange rates. If the dollar is stronger relative to foreign currencies, it can be exchanged for much more of those currencies. Even at home, imported goods, like electronics, clothes, and other everyday items also become cheaper for domestic consumers. 

Additionally, a strong dollar reflects global confidence in the U.S. economy. It signals to investors that America is financially stable, which can attract more foreign investment. For a country trying to maintain its leadership in business and technology, this confidence is valuable.

However, there are also significant downsides. A strong dollar makes American exports more expensive for foreign buyers. Companies that rely on selling products overseas, such as tech firms or manufacturers may see a lessening of demand for their products. This slows down growth and even affects jobs in industries that depend on exports. For example, if a U.S. software company sells its services in Europe, foreign customers have to spend more euros to buy the same services. For consumers abroad, it becomes a no-brainer to find similar services elsewhere (a concept in economics called substitute goods). 

The increased domestic demand for foreign goods coupled with the lessening of international demand for domestic goods, also leads to net exports (exports – imports) decreasing under a strong dollar regime. In fact, the current U.S. net export sits at -$850 billion, meaning capital flows out of the U.S. economy, lessening its domestic GDP, according to the St Louis Federal reserve. 

More importantly, a stronger dollar can disadvantage developing countries across the world. Many developing nations borrow money in dollars to fuel economic growth through projects or domestic investments. When the dollar rises, their debt repayments become more expensive, which creates global economic instability. For example, Sri Lanka entered a severe crisis in 2022, facing $8.6 billion in repayments that year with only $1.9 billion in foreign reserves. This forced it into default as the rising dollar made repayment far more expensive. 

Even though a stronger dollar may not affect me directly as a transfer student (given my spending of the dollar occurs domestically), I understand that it can have long-term consequences for global markets and trade, and disadvantage American allies dependent on this financial backing by the U.S. In fact, in 2023, the U.S. disbursed $71.9 billion in foreign aid to countries abroad, according to Pew Research.

Given all this, the rise of the U.S. dollar is a double-edged sword. While it is a sign of economic

strength and stability, which benefits consumers and travelers, at the same time it creates

challenges for businesses, exporters, and international trade. The U.S. government and federal reserve should focus on policies that balance these effects—keeping the dollar strong enough to maintain confidence, but not so strong that it harms American businesses and the economy’s

competitiveness. Through this we achieve a happy equilibrium: a business friendly environment coupled with consumer confidence.

Students must pay attention to these trends because the strength of the dollar affects tuition costs, travel, and even job opportunities in the future. Whether it be reading articles, watching the news, or scrolling on social media, staying updated on these issues is crucial. Many argue the U.S. is on the brink of removal as the global exchange currency, without understanding the reasons behind it, we may never fix such issues.

Understanding currency fluctuations helps us see how interconnected global economies are and why economic decisions at the national level matter to ordinary people. In the end, the future can only be controlled by those who have a stake in it. 

The rise of the U.S. dollar over the past five years shows both the power and the complexity

of the American economy. It is important to see both sides of the story. We should celebrate the stability of the U.S. dollar but remain aware of the hidden costs that come with it.