What are the consequences of a currency appreciation?

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pohnpei397 eNotes educator| Certified Educator

When a nation's currency rises in value, it is generally good for the country's consumers but bad for its industries.

When a nation's currency appreciates (let's use the US as an example), it becomes cheaper for the people of that nation to buy imports.  The imports become cheaper because each dollar can buy more of the imports than it previously could.  However, the flip side to this is that foreign consumers and companies will have a harder time buying US exports.  The exports will rise in price because it will cost them more of their currency to buy each American dollar.

Therefore, an appreciating currency is a mixed blessing.  It tends to show that an economy is strong and it helps consumers.  At the same time, though, it can hurt a country's ability to export.