Strong dollar or weak dollar?

Experts say that the dollar’s actual worth at the moment is down to 63 cents. The dollar has fallen so fast that it lost nearly 15 percent of its value between June 2007 and June 2008. The weakening dollar has affected industries in a good and bad manner. Good in a way that goods from the U.S. are less expensive for foreigners thus resulting to a boost in sales. Bad for Americans, because foreign imports and travel overseas will be expensive.

Now the question is, should the dollar be strengthened or will a weak currency help the troubled economy?

The dollar began to depreciate in 2002 when the euro (EUR) came in the same year. Reasons cited for this decline include U.S. budget deficit, war spending and slow economic growth of the country. Day to day price of the dollar is set by foreign exchange traders while its worth is determined by the U.S. Federal Reserve Bank and the central banks of other countries.

Though the currency weakness may hit the U.S. economy in the form of inflation, a high demand for American products will emerge thus becoming a shock absorber for the economy said economist Michael Englund  of Action Economics. The growth of U.S. exports can also cut down trade deficit. Recently, government data reported that U.S. trade deficit fell 28.7 percent in November 2008—the lowest level in over five years. The “competitive dollar” as argued by Michael Feldstein can be good for America.

However, many are not in favor of the “competitive dollar”. Here are a few reasons why a weak dollar hurt America as written by Carl Delfeld of forbes.com.

·         A weaker dollar lessens the spending power of Americans.

·         A weaker dollar weakens the role of the U.S. dollar as the world's reserve currency.

·         A weaker dollar increases the cost of imports.

Though the U.S. dollar continues to struggle against other currencies from European Union, Japan and China, it remains as the word’s benchmark world currency. Oil is still purchased in dollars and it remains as a key player in the majority of foreign exchange transactions. Hopefully with Barack Obama’s turn as the head of the state, the U.S. dollar will bounce back to its original supremacy.

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