Pros And Cons Of Having A Weak Dollar

Eric McDevitt
Professor Freedman
Macro
MWF1
Strong and Weak Dollar “A falling dollar will mean a faster U.S. recovery” written by Martin Fledstein argues in favor of the weak United States Dollar while David Malpass argues in favor of the United States Dollar being strong. Both men present valid reasons as to why they believe the United States currently should be weak or strong compared to other countries’ currencies. This ongoing debate is extremely important because it reflects the United States economy. The United States Dollar is the most actively traded currency in the world and if we had a strong dollar there would be growth in the economy. The pros of having a strong dollar outweigh the pros of a weak dollar even though some people believe that a weak dollar solidifies the
foundation for stabilization.
In the year 2013, the total number of bills exchanged with foreign countries was 5.02 trillion dollars. More than half of them were imported dollars that were being exchanged between the United States and foreign countries. With a strong dollar the economy would benefit immensely due to the value of our currency compared to the other countries currency. If the dollar was weak then it would create the cost of imports to increase and in turn make the prices of all the good we imported to increase for the consumers. The US being the largest importer means having a strong dollar is essential. China, the European Union, Canada, Mexico, and Japan are the main importers to the US. Having a strong dollar may reduce their profits, but the demand is so high that they couldn’t stop working with the US. When growth is strong you typically will see an increase in the value of the US
dollar because at that time the stock market is performing well and attracting foreign investment. Just to clarify, when investors buy or sell a specific currency they do so because they expect the value of the currency to be higher relative to another currency; This impacts companies spending. With a strong dollar companies purchasing power increases because when converting dollars to Euros or Yen foreign companies become cheaper compared to US based or domestic companies. A strong dollar doesn’t only benefit company spending, but also consumer spending without the threat of inflation. Consumer spending equates to almost 60% of overall growth and a strong dollar allows them to stretch their dollar a little more. A strong dollar also allows for the consumer to spend more money on imported goods or items purchased abroad. If the US dollar was weak it would make consumers less confident thus also slowing the economy down. With a strong dollar citizens could feel wealthier and spend more freely. Vacations and trips to foreign countries are cheaper as well with a strong dollar. Purchases of a luxury handbag or a car that was once too expensive could be more affordable due to a higher exchange rate. Although a weaker dollar would keep spending more domestic, the consumer will not be as comfortable spending. The debate between having a strong and weak dollar will always be up for debate. The argument generally depends on the country and where they are at with their economy. Like everything, there are advantages and disadvantages among both viewpoints. I personally believe that the United States would benefit more from a strong dollar as opposed to a weak dollar. Due to the spending habits of the citizens and the amount of goods that are imported, the United States should be in favor of a strong dollar.

Work Cited
"United States Imports." TRADING ECONOMICS. N.p., 1 July 2012. Web. 23 Apr. 2014. .

amadeo, kimberly. "What Does the U.S. Import and Export?." About.com US Economy. N.p., n.d. Web. 22 Apr. 2014. .

lee, richard. "Stronger Dollar ? Good or Bad For the US?." GoCurrencycom. N.p., 22 Feb. 2007. Web. 23 Apr. 2014. .

rosenbush, steve. "The Pros and Cons of a Weak Dollar." Bloomberg Business Week. Bloomberg, 11 Nov. 2004. Web. 23 Apr. 2014. .