Sunday, November 15, 2009

A Weaker Dollar Is Beneficial

Since March of this year, the value of the dollar, relative to the currencies of the US’s major trading partners, has sunk by almost ten percent. This downward movement has produced the usual hyperbole from chattering political leaders. For example, Timothy Geithner repeats the mantra that a strong dollar is very important to a healthy US economy. http://economix.blogs.nytimes.com/2009/11/12/the-great-shrinking-american-dollar/ However, the benefits of a weaker dollar, within a range, cannot be ignored.

For example, a deteriorating dollar encourages foreign firms to expand or to locate facilities in the US. Recently Christof Romp, head of the turbine division of a German machinery manufacturer, stated that, “If the dollar carries on declining, we might be forced to move more of our production to the US.” http://online.wsj.com/article/SB125809667186946819.html

Furthermore, a weaker dollar makes US goods sold abroad cheaper strengthening US manufacturing and farming. Since the fourth quarter of 2007, the US trade deficit has plunged by more than 50 percent. A large share of this decline was due to a softer Us dollar. It is certainly politically appealing to rail against the dollar decline. Such arguments, however, are not grounded in economic reality.
Ernie Goss

1 comment:

Rajesh said...

Nice post on the value of Dollar.
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