A strong dollar versus a weak dollar
Historically, the United States Treasury secretaries have stated that a strong dollar is more beneficial for the economy. For University of San Diego students studying abroad, the strong dollar brings many benefits, Recent trends, however, may be pointing a different direction.
The dollar is at its strongest right now in response to the global economy. The European Central Bank recently loosened its monetary policy, which drove down the euro, but brought up the value of the dollar. Dollar value has risen by 19 percent since May and this upward trend is continuing.
A stronger dollar brings in benefits. It lowers interest rates, which in turn lowers mortgage rates and makes assets, like houses and stock, more valuable.
Since the dollar is worth more in foreign currency, it allows travellers to buy more at a lower price and it brings down the cost of imported goods.
This was good news for students travelling abroad. Sophomore Alaina Studt, studied abroad in Guatemala over intersession.
“The exchange from dollar to quetzal was insane.” Studt said. “I could buy about five dinners in Guatemala with the money I would spend on one dinner here in the United States.” The exchange rate from dollar to quetzal is currently 1 to 7.67.
Sophomore Meagan Sherrington experienced both the drawbacks and advantages of a strong dollar.
“Buying things in Europe is at its prime,” Sherrington said. “But, trying to exchange euros back to dollars is not beneficial because you end up losing money.”
The current exchange rate for dollar to euro is 1 to 0.88, while Sherrington was travelling the exchange rate was 1 to 1.27 and dropped down to 1 to 1.11.
However, there are some drawbacks. Corporate debt tends to be dollar-dominated and having a strong dollar will result in debt becoming more expensive in foreign countries, which could heighten financial stresses. Exports also tend to become more expensive abroad, which could drive down the economy due to fewer purchases.
Also, transactions between American and foreign countries can result in fewer dollars when the currency is exchanged. A stronger dollar, which means that a dollar is of more value in foreign currency, could also result in the undoing of the positive effects of a weaker dollar, which means that the dollar is depriciated and more dollars are needed to buy a unit of foreign currency..
Although a weaker dollar means that it is not worth as much, it brings in some unforeseen benefits. It means that American exports are more competitive in world markets and that the consumption of imported goods declines because the exchange between foreign currency and the dollar is much more comparable since the dollar is not worth as much.
The result of exports increasing and imported goods decreasing are: a trimming of American trade and budget deficits, a stimulation of the economy, and job creation.
This calls into question whether a strong dollar is better than a weak dollar when it comes to the impact on the local and global economy.
Whatever the answer, the fluctuation in the strength of the dollar will be something that the American populace will need to learn to deal with.