4 pages/≈1100 words
Should the United States pursue a weak or a strong dollar (Essay Sample)
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Should the United States pursue a weak or a strong dollar?
As a strategy to lift America from the global recession President Obama’s administration viewed encouraging exports as the most appropriate way to address the rising unemployment rates. Increased employment promotes purchasing power and industries thrive from the local markets ability to purchase locally produced goods and services. This consequently encourages a stable economy from the local consumer’s ability to sustain industries without heavy reliance on imports as more industries are set to satisfy the local consumers demand for goods and services. The US government should pursue a relatively weakened dollar as a sound economic policy that ensures support for local industries.
Depreciating the value of the dollar against its primary trading partners encourages exports because it results in their affordable market prices. This is viewed as necessary in the American current account as well as in boosting efforts for economic recovery from the recession. A strong dollar on the other hand makes exports too expensive and imports become too cheap. This renders US producers at a disadvantaged position in the global market. Cheap imports may lead to rampant importing causing a trade deficit and reducing job availability. Opponents of a weaker dollar argue that it is counterproductive to have a weaker dollar in the long term because it may result in higher lending interest rates. Higher interest rates repel foreign and domestic investors because of increased borrowing costs and slow economic recovery. They also cite deteriorating confidence in a strong dollar among foreign investors who may resort to the euro as their preferred core currency. This would cause a further dip in the value of the dollar and subsequently raise borrowing costs further.
The US dollar has been on a gradual depreciation trend and between 2002 and 2007. It registered a depreciation rate of 30 per cent against its major trading currencies such as the Canadian dollar, the euro and the Korean won. However, the dollar has appreciated against Asian currencies, which maintain their currencies at a devalued rate. Sustaining a relatively devalued dollar stimulates demand for US produced exports such as agricultural produce (Shane & Liefert, 2007). Between 2003 and 2004, the dollar registered a 30 percent loss in value which led to an increase by $12 million exports of Tennessee automotive and industrial machinery industries to Canada, Eurozone and Japan and a twenty eight percent increase in state exports in 2004 (Lobo, Allara, Osbourn, & Santos, 2005).
A relatively weakened dollar results in important benefits of a competitive market for domestic goods and imports. This is because it results in increased prices for imported goods as compared to locally produced goods and services. This creates a better opportunity for local go...
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