Lately the U.S. dollar has been depreciating against other currencies. What impact has this had on U.S. consumers?
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In general, consumers in the United States should be hurt by a depreciation in the US dollar. This is due to the fact that much of what we consume comes from other countries. If our currency depreciates relative to theirs, it becomes more expensive to buy the products they make.
The imported goods that we buy have been bought by American firms using foreign currency. If, for example, Wal-Mart wants to buy clothing from China, it needs to first buy Chinese currency. It uses dollars to do this. When the dollar depreciates relative to the yuan, more dollars are needed to buy the same amount of yuan. This means that a given quantity of clothing will cost Wal-Mart more dollars than it had before the dollar depreciated. Of course, this means that Wal-Mart will need to pass on the cost increase to its customers.
When the dollar depreciates relative to a foreign country’s currency, American consumers are generally going to have to pay more for any product which is imported from that country.
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