Economic Perspective: Is It Better For The Dollar To Be Strong Or Weak?
“Today’s program asks if it is better for the dollar to be strong or weak. Mike, recently it was reported that President Trump asked one of his advisors a simple question. In terms of international valuations, is it better for the dollar to be strong or weak? If you had been asked that question, what would you have told the president?”
“Well, first I would have started by telling president that that’s an excellent question, and it really is an excellent question because there’s not an apparent answer. In fact, the report further said that the advisor who got that question from the president said, ‘I’m going to have to check on it.’ This is a little complicated.”
“On one hand, we would think that strong dollar just in terms of the term there, strong dollar, means good things. And indeed, a strong dollar does have some good effects on the economy. One big effect is it attracts foreign investments. So people around the world who are looking where to invest their money, if the dollar is strong that tends to indicate a good economy in the west, a growing economy. Also they’re going to make more money on that dollar when they convert it to their own currency. So strong dollar tends to attract foreign investment which of course means jobs and we like that”
“ On the other hand, a famous economics phrase, a weak dollar helps our exports. It makes our exports less expensive in foreign countries, and so we tend to see, for example, manufacturers in the U.S. who are exporting products like our tech sector here in North Carolina or our Ag sector. They like a weak dollar because they’re able to see more sales in foreign countries.”
“So, you have a two-edged sword here. In some situations a strong dollar is good and in some situations a weak dollar is good. Where economists tend to come down in general if our economy is struggling, particularly if we have a high unemployment rate, and we want to generate jobs we like to see a weaker dollar because that will generate jobs in the short run. It’ll mean factories will be able to produce more and sell more. On the other hand, in the long run we tend to like a stronger dollar because it does attract foreign money to be invested here. It makes our economy more productive, but an excellent, excellent question.”
Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.