Is it more beneficial for a country to have a strong national currency or to have...

Is it more beneficial for a country to have a strong national currency or to have a weak national currency?

Expert Solution

This question can be very debatable. In order to undersant it let us first know the meaning of strong and weak national currency. The weak currency means that the value of the currency has decreased in comparison to other currencies. Whereas strong currency means the value of the currency has increased in comparison to other currencies.

Looking at definition one can say that devaluation of home currency will have a negative impact on the growth of the country and its always good when the currency of a nation is strong. But this is not always true. There are many reasons when the devaluated currency can be very beneficial for the country.

Some of the reasons are given below:

Its good in oder to boost the country exports- If the currency of nation is devaluated than other country will prefer to buy their goods. This will increase the export of that country. Therefore discourage the import. This can be a very good strategy for a nation but it can be applicable in short run only. As in long run other countries may also devaluate their currencies in order to encourage the export of their home country products.

It shrinks the trade deficits- Due to the increase in exports and decrease in imports the trade deficits shrinks. The balance of payments get improved. But if this happens for a longer duration it can be harmful for the nation as the level of debt can cripple the economy.

Reduce the Sovereign debt burdens- We know that if a government has lots of government-issues sovereign debt it will encourage a weak currency. Weaker currency makes the payments less expensive over the period of time. This will decrease the cost of interest payments.

Now its very important to understand that the weak currency can help the country to achieve economic policies like boost exports, decrease trade deficits and decrease the cost of interest payments. However, it can also create recession in the country. Their can be currency war among the countries. So, it’s always very important for a country to take all the factors into account.

At the end it totally depend on the situation of a country that whether a weaker currency will be good for it or the strong currency.

Rahul Sunny answered 2 years ago

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