What the strong dollar and inflation mean around the world : Planet Money When it comes to international trade and finance, everyone pretty much speaks one language: the U.S. dollar. So when the Federal Reserve hikes interest rates and the dollar suddenly gets strong, it can cause huge headaches all over the world.

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The high cost of a strong dollar

The high cost of a strong dollar

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YURI CORTEZ/AFP via Getty Images
Bank notes of Mexican pesos and US Dollars are pictured in Mexico City, on November 8, 2016. The dollar tumbled against the yen and euro while the Mexican peso fell off a cliff as polling results in the knife-edge US presidential race pointed to a strong showing by Donald Trump. / AFP / YURI CORTEZ (Photo credit should read YURI CORTEZ/AFP via Getty Images)
YURI CORTEZ/AFP via Getty Images

The U.S. dollar is not just the currency of the United States; it's also, in many ways, the currency of the world. Around half of all global trade and finance is done using dollars. So when the U.S. Federal Reserve takes actions that affect the value of the dollar, it has spillover effects on countries around the world.

In the 1970s, many countries in Latin America borrowed heavily in U.S. dollars. Then, in the 1980s, the Fed hiked interest rates to record-high levels, which helped strengthen the dollar and, in turn, made it increasingly difficult for countries to repay those debts. Countries like Mexico, Chile, and Argentina fell into financial turmoil, and what followed was a period of economic turbulence and stagnation known as "the Lost Decade."

Now the Fed is hiking interest rates again, and the dollar is at its highest level in 20 years. So, how much has changed since 1982? We look at three countries in Latin America to see how the strong dollar is affecting them.

Music: "Brooklyn Rhythm," "Cutie Pie," "Caviar," and "Big on Ziggy."

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