Strong currencies have plenty of pros; however, weak currencies have benefits too. Let’s take a look at the typical good and bad points of both strong currencies and weak currencies, but before we do, it is crucial to understand what determines a currency’s strength.
How is a Currency Strength Figured Out?
Currency strength is relative. In other words, a currency is viewed as being strong if it is more valuable than the currency of other countries. In the same way, a currency is considered to be being weak if it less valuable when compared to other countries.
Various factors come into play in determining currency value in general, and they are grouped into the following factors:
- Interest rates
- Economic policies
The Pros of a Strong Currency
Now that we understand how currency is valued and what makes a strong or weak currency let’s see each one’s pros and cons. We will begin by looking at the benefits of a strong currency.
Your Money Goes Further When Traveling
When you have a strong currency and travel to a country where the currency is weaker, your money will go further. This opens up more travel options since the expenses will be on the lower side. Not only does this benefit travel for recreation, but it can also open many doors for business travel.
Imported Goods are Cheaper
If your home currency is strong, imported goods such as cars and goods will be cheaper for you to purchase. This can give you a much wider choice of goods to choose from, all within your budget.
The Cons of a Strong Currency
The pros outlined above may make you think that having a strong currency is only a good thing; however, there is a significant downfall.
If your home country has a strong currency, other countries will struggle to buy products made in your country. Hence exports will decrease. This puts producers in your country at a disadvantage since foreign countries will look elsewhere for less expensive products.
The Pros of Having a Weak Currency
More Domestic Purchases
When the currency is weak, it is harder for people to purchase goods from foreign countries; this leads to people purchasing domestic goods. Such domestic sales can boost the country’s economic growth and increase jobs within the country, particularly within the field of manufacturing.
An Increase in Exports
Having some of the weakest currencies places domestic goods in a more competitive position within the global market. This can encourage exports and hence boost the economic growth of the country.
The Cons of Having a Weak Currency
More Expensive to Travel
When your home country’s currency is weak, it means that traveling outside of your country is likely going to be expensive for you. This can have serious implications, not only for recreational travel but also for business travel, and can reduce the opportunities to increase business by traveling abroad for meetings or following up on sales opportunities.
Imports are Expensive
When the country’s currency was strong, as outlined above, it meant that imported goods were cheap. The opposite is the case when the currency is weak and imported goods become very costly. The likes of electronics and cars from other countries may be out of budget for many people when they live in a country that has a current weak currency.
The Bottom Line on Strong Currency Vs. Weak Currency
As can be seen from the comparison above, an individual or family’s pros circumstances will ultimately determine whether they view a strong or a weak currency as being the greater advantage.
Now that you are more informed on how currency is valued, what makes a currency strong or weak, and the typical pros and cons that come with each side, it may help you to make wise choices so that you make the best use of the current economic situation within your country.
It will also help you to move with the economic times and know how to use your money wisely whether your currency happens to fall into the strong category or the weak category at any given time.