"Weak dollar" does not sound good — particularly if you have a bank account full of dollars. But the dollar is indeed getting weaker. It's been falling all year, and it hit a new, post-crisis low today.
In simple terms, this means that a dollar (or $10, or $100) doesn't buy you as many euros (or British pounds, or Japanese yen) as it used to. In more practical terms, it means that imports are more expensive, which tends to drive up inflation over time.
But despite the falling dollar, U.S. inflation is still pretty tame by historic standards. Prices have risen less than 3 percent over the past year (that's total inflation, including food and energy prices).
What's more, there's a big upside to a weak dollar: It makes U.S. exports cheaper, which encourages people and businesses around the world to buy more of our stuff. Increasing exports is key to increasing U.S. economic growth without relying too heavily on domestic consumer spending.
In fact, lots of countries around the world want to have weaker currencies.
The U.S. is often on China's case for keeping its currency too weak relative to the dollar, in order to boost exports.
There's a good argument that troubled European economies like Greece and Portugal would be better off right now if they could make their currency weaker,which would make their exports more competitive and boost domestic employment.
And when Brazil's finance minister spoke of a "currency war" last year, he was talking about countries around they world fighting to make their currencies weaker.Those countries saw a weaker currency as a key step toward continued export growth and broader economic health.
FAQs
A weakening dollar means that imports become more expensive, but it also means that exports are more attractive to consumers in other countries outside the U.S. Conversely a strengthening dollar is bad for exports, but good for imports.
What are the advantages of a weak dollar? ›
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 that are conducting business in foreign markets.
Where should I put my money if the dollar collapses? ›
What To Own When the Dollar Collapses
- Traditional Assets. ...
- Gold, Silver, and Other Precious Metals. ...
- Bitcoin and Other Cryptocurrencies. ...
- Foreign Currencies. ...
- Foreign Stocks and Mutual Funds. ...
- Real Estate. ...
- Food, Water, and Other Supplies. ...
- Stability and Trust.
Investing in U.S. exporters, tangible assets (foreigners who buy U.S. real estate or commodities), and appreciating currencies or stock markets provide the basis for profiting from the falling U.S. dollar.
What are the disadvantages of a weak currency? ›
Here are some of the main disadvantages:
- Imported Inflation: Devaluation leads to an increase in the cost of imports since it takes more units of the local currency to buy foreign currencies. ...
- Reduced Purchasing Power: As the value of the domestic currency decreases, the purchasing power of consumers diminishes.
A weakening dollar implies several consequences, but not all of them are negative. A weakening dollar means that imports become more expensive, but it also means that exports are more attractive to consumers in other countries outside the U.S. Conversely a strengthening dollar is bad for exports, but good for imports.
Who is hurt by a weaker dollar? ›
A falling dollar diminishes its purchasing power internationally, and that eventually translates to the consumer level. For example, a weak dollar increases the cost to import oil, causing oil prices to rise. This means a dollar buys less gas and that pinches many consumers.
What happens to my 401k if the dollar collapses? ›
If the dollar collapses, your 401(k) would lose significant value. Exponential inflation would result if the dollar collapsed, decreasing the real value of the dollar compared with other global currencies, which, in effect, would reduce the value of your 401(k).
What happens to my savings if the dollar collapses? ›
In the event of a dollar collapse, diversification becomes a critical strategy for safeguarding assets. Relying solely on fiat money, such as the United States dollar, Euro, or the Japanese yen, exposes investors to the risk of inflation and depreciation, eroding the purchasing power of their savings.
What happens to real estate when the dollar collapses? ›
Real estate is one of the few investments that is unlikely to lose a lot of value if the dollar collapses — in fact, home values tend to rise during inflation. In other words, even though dollars would be worth less, tangible assets like homes would be worth more.
' According to this view, the decline in the value of the dollar raises the dollar price of imported goods and, therefore, the prices paid by U.S. citizens as well. The con- sequence is inflation.
Is it better to have a strong or weak currency? ›
In short, a stronger U.S. dollar means that Americans can buy foreign goods more cheaply than before, but foreigners will find U.S. goods more expensive than before. This scenario will tend to increase imports, reduce exports, and make it more difficult for U.S. firms to compete on price.
What would most likely happen if the value of the U.S. dollar fell? ›
Answer and Explanation: If the value of the U.S. dollar declines, the price of the goods produced in America decreases.
Why is a weak dollar good for commodities? ›
This is because a weak dollar makes it cheaper for other countries to buy commodities, which leads to an increase in demand and, in turn, an increase in prices. Conversely, a strong dollar makes commodities more expensive, leading to a decrease in demand and, in turn, a decrease in prices.
What are the advantages and disadvantages of a strong dollar? ›
A strengthening U.S. dollar means it can buy more foreign currency than before. For example, a strong dollar benefits Americans traveling overseas because $1 buys more; however, this would disadvantage foreign tourists visiting the U.S. because their currency would buy less.
Who would benefit from a stronger U.S. dollar? ›
Simply put, almost everybody in the country. A key benefit of a stronger dollar is that it lowers the cost of importing stuff. That's a big deal for the U.S., a country that imports more than it exports.
Is it good to have a strong or weak currency? ›
A strong currency is good for people who like to travel abroad, and people who like imported products, because those will be cheaper. However, it can be bad for domestic companies. When currency is weak, that can be really good for jobs, but it's bad for people who want to travel abroad or use imported products.
