The U.S. dollar has declined sharply against the Euro, a basket of major currencies, and gold since mid-May. What does it mean? I don’t know, you should ask the experts! But I’ll try to figure it out.

First, the actual numbers. The dollar has declined sharply, but the actual exchange rate at the moment is around the middle of a band the dollar has traded in since 2014 or so, and it has declined sharply during that time only to recover. So the fluctuations could be random about some long-term mean, or in response to events, but followed by a reversion to the mean with random fluctuations thrown in.

Second, the textbook answer to whether a strong (or weak) dollar is good or bad. All other things being equal (which they are not), investors would trade other currencies for U.S. dollars if they could get a better interest rate on U.S. dollars than on their home currencies. This might be the case in recent years, as interest rates have been low around the world, and even negative in Europe, but slightly higher in the U.S. All other things (including interest rates) being equal, investors in other countries would trade their currencies for U.S. dollars if they thought this was a safe place to put their long-term savings. Most governments (maybe the Swiss) don’t actually keep enormous vaults full of gold bars hidden under mountain fortresses any more. This has been exactly the case since the 1997 financial crisis, with developing countries and China in particular buying and stashing enormous quantities of U.S. dollars. This might be changing for a few reasons. China may be gaining more confidence in its own currency. Europe has decided to pull together and start backing its currency with EU bonds rather than just bonds from individual countries. Countries also have the option of holding baskets of foreign currency rather than just the U.S. dollar, and also the option of forming sovereign wealth funds with more diversification and potentially much higher returns than currency reserves alone. Finally, the long-term health and stability of the U.S. financial and political systems look shakier than they have in a century or so.

Third, is it good? It’s good for exporters, bad for ordinary people paying higher prices for things that have to be imported, maybe good for home-grown industry which could be more competitive with pricier imports. It’s bad for Americans living and traveling abroad, as I found out from personal experience, but that is a small fraction. So on balance, the main risk domestically seems to be price inflation, and that seems somewhat unlikely in the midst of a historic recession. Exploding debt and low or no growth for an extended period of time could lead to a problem making interest payments down the road, but we need to get through the current crisis before there is a long term to worry about.