Why do US interest rates matter far beyond the US?

Much of the world's debt and trade is in dollars

Why the world runs on dollars

You may never hold a US dollar, but it shapes your prices. It's on one side of almost 90% of all currency trades, so even swapping rupiah for pesos often goes through dollars.
Oil, gold, copper and most commodities are priced in dollars, and a large share of world trade is invoiced in it.
More than half of the world's central bank reserves are held in dollars, mostly as US Treasury bonds.
Real example: in 2022, as US rates jumped, the dollar hit a 20-year high. One dollar went from about 103 yen to over 150 (chart), and the Indian rupee fell to record lows.
A strong dollar makes imports and dollar debts more expensive for everyone else, so US interest rates affect borrowing costs almost everywhere.
Common mistake
Mistake: “the dollar will collapse soon.” People have predicted it for decades. Its share of reserves is slowly slipping, but no rival is close yet. In panics, investors still rush into dollars as a safe haven.
Key takeaway
The dollar is the world's money. When US rates and the dollar move, the whole world feels it.

Roughly what share of all currency trades has the US dollar on one side? Almost 90%Most currency trades go through the dollar, even between two other currencies.
A strong dollar makes imports for other countries... More expensiveThey need more of their own currency to buy the same dollar-priced goods.
In a panic, money often moves into... US dollarsThe dollar is widely seen as a safe haven, even when the crisis starts in the US.
Why do US interest rates matter far beyond the US? Much of the world's debt and trade is in dollarsHigher US rates mean a stronger dollar and costlier dollar loans worldwide.