+do your arguments hold in current times?
What are the advantages and disadvantages of a low exchange rate? Watch
- Thread Starter
- 08-12-2010 21:26
- TSR Support Team
- Political Ambassador
- 08-12-2010 22:22
its all about imports & exports .. me thinks
Advantage:your exports would be cheaper for other countries to buy, they would want to buy from you.. increasing demand & increasing trade revenue
Disadvantages: your imports would become expensive to buy. you'd have to pay more than usual for foreign goods, this would be discouraging and you may look towards buying the cheapest good .. so quality of goods would suffer just to compensate for price
- 09-12-2010 10:40
i probably prefer to say undervalued and overvalued exchange rates.
for undervalued rate, as the currency makes the dosmestically produced goods cheap, the exporters gain advantages in international competition, just like what china has done. Also, the foreign invester may decide to invest in the country because the low exchange rate makes the costs of manufacture low and exports hence become more profitable, like that Hon Hai, an iphone manufacturer, does in China.
But the undervalued exchange rate is not the free meal. Still take China an example, the weak RMB causes China's firm more money to expand internationally. Meanwhile, the domestic comsumers, who earn RMB, have to pay more for import good, e.g. studying overseas used to look unaffordable for chinese students and the recent appreciation of RMB let those people save a lot.
You can see the undervalued or overvalued exchange rates actually do the work of transferring benefits or welfare from one social group to another, such as exporters to consumers. interesting isn't it?