What are the pros and cons to having a weak dollar?

Asked on by yemawe52

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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When the dollar is weak, it is good for some parts of the American economy and bad for others.  Let us examine how this is so.

When companies import goods, they have to use their own country’s currency to buy the currency of the country from which the goods are coming.  This means that American companies that import goods from China have to use dollars to buy yuan.  When the dollar is weak, American companies have to use more dollars to buy those yuan.  This means that goods that we import from China come to be more expensive.  Thus, a weak dollar typically hurts American consumers because it makes goods from other countries more expensive.

On the other hand, a weak dollar can be good for American companies that export.  When a Canadian country, for example, wants to buy American goods, it must buy American dollars to purchase those goods.  When the American dollar is weak, it costs the Canadian company less to buy them.  Therefore, American exports to Canada become cheaper for the Canadians to buy.  When American export goods become cheaper, other countries will tend to buy more of them.

Thus, a weak dollar tends to be good for American exporters but bad for American consumers.

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