Briefing: The sinking dollar

The value of U.S. currency has been on a downward spiral, slowing the economy and driving up prices of everything from oil to tuna. Why is the dollar so weak?

What does it mean to say the dollar is ‘weak’?

In the realm of currency values, everything is relative. A currency is described as weak if it purchases fewer goods or services than other currencies. By that standard, the U.S. greenback is far weaker now than it was in the 1990s. The Economist has a clever way to gauge the relative purchasing power of the world’s major currencies: Its “Big Mac index” measures how much currency is needed to buy the signature McDonald’s sandwich in various countries. Eight years ago, it took roughly the same number of dollars to buy a Big Mac in Rome or London as it did in the U.S.—in other words, the dollar’s purchasing power was about equal to the purchasing power of the British pound or the euro. But now, a Big Mac in the U.S. costs $3.57; in London, the same sandwich costs the equivalent of $4.57, while in Rome, it costs the equivalent of $5.34.

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