Sunday, August 16, 2020

Is the 10% dollar depreciation good or bad?

Project Syndicate reports that the depreciation helps US producers (but hurts US consumers):

 In the US, meanwhile, the dollar’s depreciation has been welcomed as an overwhelmingly positive development for the economy, at least in the short term. After all, economic textbooks tell us that a weakening dollar boosts US producers’ international and domestic competitiveness relative to foreign competitors, makes the country more attractive for foreign investors and tourism (in price terms), and increases the dollar value of revenue earned overseas by home-based companies. That is also all good for US stock and corporate bond markets, which benefit further from the greater attractiveness of dollar-denominated securities when priced in a foreign currency.

 ...but it hurts foreign producers (but helps foreign consumers):

But the reaction has been less welcoming in the other advanced economies. Japan and eurozone member states, in particular, fear that currency appreciation could threaten their own economic recovery from the COVID-19 shock. 

Of course, it also depends on what caused the depreciation, i.e., it could be that a third factor is like a decline in US interest rates is causing the dollar depreciation, and you have to take account of that as well.  But even if you can figure that out, there is the additional complication that every producer is also a consumer, so the answering the good or bad question is complicated.     

1 comment:

  1. Thanks for sharing the blog, seems to be interesting and informative too. Can you suggest some of the interesting places to visit for Health App Singaporep