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The dollar is strong and getting stronger, hitting 20-year highs relative to a basket of other currencies. As my Bloomberg Opinion colleague Tyler Cowen recently noted, this is a vote of confidence in the US.
But history demonstrates that it’s also likely to be a harbinger of hard times for much of the rest of the world.
When the dollar appreciates, the cost of servicing debt in other countries, particularly emerging markets, can easily become unsustainable because their debts aren’t denominated in their own currencies; instead, they owe in dollars, or in earlier eras, gold or pounds sterling. As those instruments gain in value, crisis and collapse often follow for the debtors, and have for a century-and-a-half.
The economists Barry Eichengreen, Ricardo Hausmann and Ugo Panizza have dubbed this problem “original sin.” In a series of now-famous articles, they showed how the dependency on…
