Pros and Cons of a Weak Currency
Posted On July 29, 2022
A weak currency may help a country’s exports gain market share when its goods are less expensive compared to goods priced in stronger currencies. The increase in sales may boost economic growth and jobs while increasing profits for companies conducting business in foreign markets. For example, when purchasing American-made items becomes less expensive than buying from other countries, American exports tend to increase. In contrast, when the value of a dollar strengthens against other currencies, exporters face greater challenges selling American-made products overseas.
Currency strength or weakness can be self-correcting. Because more of a weak currency is needed when buying the same amount of goods priced in a stronger currency, inflation will climb as nations import goods from countries with stronger currencies. Eventually, the currency discount may spur more exports and improve the domestic economy, provided there are no systematic issues weakening the currency.
In contrast, low economic growth may result in deflation and become a bigger risk for some countries. When consumers begin expecting regular price declines, they may postpone spending, and businesses may delay investing. A self-perpetuating cycle of slowing economic activity begins and that will eventually impact the economic fundamentals supporting the stronger currency