Why a Strong Dollar Matters to You

(tenaciousme)

A statement we frequently hear from economic analysts is that America needs a “strong dollar.” And most of the time, the non-economically savvy segment of the population blankly nods in agreement. Lacking a deep understanding of why a strong dollar is beneficial (or even what a strong dollar means), most people nevertheless prefer a strong dollar to a weak one. However, the words “strong” and “weak” are the source of much confusion on this issue. In virtually every other area of life, strength is categorically, universally preferred to weakness. Using such language to describe fluctuations in the value of a currency invests emotional meaning into the situation, implying that a strong dollar is always preferable. In fact, the strong dollar/weak dollar debate is more complicated than it initially seems to be. Most experts, for instance, agree that a strong dollar (as commonly defined) is better in a normal, prosperous economy. Yet the very same experts – with data and convincing arguments – contend that a “weak” dollar can actually accelerate recovery from a recession, such as the one we find ourselves in today. Naturally, both of these positions require a firm grasp of both what a strong and weak dollar actually means, and why each of them lead to different outcomes depending on the state of the economy.

Today, we’ll address the strong dollar/weak dollar debate into perspective and explain what each of them means for you.

Strong & Weak Dollars Defined

For those who are not already aware, let’s define what a strong dollar actually means. Very simply, a strong dollar is one that, “…can be increased for a large or growing amount of foreign currency”, according to InvestorWords.com. Typically, a strong dollar is seen as a good thing because it means American citizens and businesses can get more foreign goods and services for the same amount of money. An American citizen could bring $1,000 to France, for example, and buy more there than she could here. This matters because imports are usually paid for in the currency of the country doing the importing. Consequently, America as a whole …