Introduction
Every word carries with it an implicit meaning or connotation. Since "strong" and "weak" are typically viewed as antonyms, one might assume it is preferable to be strong rather than weak. Values of national currencies are not so simple to refer to, however. The opposite of "strong" is not always "weak," and vice versa. Currency values (like the U.S. dollar) are measured against those of other currencies using the terms "stronger" and "weaker" (such as the euro). When one currency can purchase more of another, that currency is said to have strengthened or appreciated.
You may be able to think of a few reasons why it would be beneficial to increase your foreign currency holdings. However, just because a country's currency is stronger does not mean its citizens are better off. When one unit of a currency can purchase fewer units of another currency, the depreciated currency is said to be weak. The depreciation of a currency does not necessarily affect the living standards of all citizens.
Strong Dollar or Weak Dollar, Which is Best
It is said to be strong if the dollar appreciates in the foreign exchange market. When the dollar rises in value, it can be exchanged for a greater amount of other currencies.
Understanding the Strong Dollar
The value of the world's major currencies is allowed to fluctuate freely against one another. The value of the U.S. dollar is often used as a benchmark against which other currencies are evaluated. If the dollar's value is high, then the exchange rate between it and the foreign currency is favourable, and vice versa. A strong dollar is good for shoppers because it makes imports, like electronics and cars, more affordable. Foreign visitors to the United States can save money as a result.
On the other hand, American exporters lose out when the dollar weakens because their products and services become more expensive for their overseas customers. That could put American manufacturers at a competitive disadvantage in international markets. When the dollar is strong, tech firms typically have the most exposure. Some factories have relocated to countries with lower labour costs to stay competitive. To sum up, a strong dollar can have a negative impact on employment in the United States.
The Meaning of a Weak Dollar
The dollar's decline means that consumers will have to spend more of their hard-earned money to purchase imports from other countries. Costs for imported items continue to rise. On the other hand, a weak dollar makes exports more competitive in global markets, which could help preserve some jobs. Additionally, emerging markets that require U.S. dollar reserves benefit from a weak dollar. They are now in a better position financially to buy U.S. dollars. When a major trading partner like China keeps its currency artificially weak, it harms the balance of payments because Chinese imports become cheaper than domestically produced ones. The weakening of a foreign competitor's currency may benefit shoppers in the short term, but it hurts U.S. manufacturers in the long run.
Implications of a Strong Currency
The benefits and costs of a strong currency should not be overlooked. Let's look at the U.S. dollar to illustrate the effects of a strong currency on the economy and your finances. An increase in the dollar's value lowers the price of consumer electronics, automobiles, and even foodstuffs imported into the country. There are, after all, always two sides to every story. A strong dollar makes it more expensive for other countries to purchase goods made in the United States. As a result, fewer goods will leave the country.
This hurts American manufacturers overseas because other countries will start looking for cheaper alternatives. Even if the cost of living in the United States stays the same, a strong dollar can make imports from other countries more affordable than those made at home. Possible job losses in the United States shortly. It might cause factories to be moved to other countries in the long run. That's not a good thing, by the way.
Implications of a Weak Dollar
The benefits and drawbacks of a weak currency are also worth considering. The good news is that a weaker dollar makes U.S. exports more competitive worldwide. In addition, as the price of imported goods rises, domestically produced goods will become more appealing. If sales are up, that could be good news for the economy.
Conclusion
Words like "strong" and "weak" can mislead people into thinking that a rising currency is always better for the economy than a falling currency, but this is not always the case. Indeed, you can't just extrapolate an economy's health from the health of its currency. Yet, the dollar's value compared to other currencies does have varying effects on different people. At the same time that it benefits American consumers of foreign goods (imports), a stronger dollar hurts American exporters and firms that might not export but compete with imports. In addition, the weaker dollar helps U.S. exporters and domestic companies compete with imports by making foreign products (imports) relatively more expensive for American consumers. There are benefits and drawbacks to having a strong dollar in circulation. It helps some people out, but it hurts others.
