The Flip Side of a Weaker Currency - Chicago Gold and Silver ...

A reason why some countries choose to weaken (devalue their currency) is that now their goods become cheaper to foreign countries whose currencies have become stronger. They are now able to buy more of your goods at a cheaper price. Because they can buy at a cheaper price, they buy more and the countries exports to foreign countries increase and thus helping the local economy.? Also, if the national government is heavily indebted, the government can pay off its debt using money which they have more of.

That is the theory any way. But it is not that easy. What about the business who imports more foreign goods than they export? For example Wal-Mart. They purchase so much goods from China that they now resell at their retail establishments in the states. With a weaker dollar, the price of those goods costs more now. Wal-Mart suffers and it's retail buyers suffer from having to pay higher prices.

So the flip side of a weaker currency is that its citizens have to pay more for goods from foreign countries. Devlauation is in essence a tax to its citizens in the form of higher prices.

Currency devaluation has happened recently in Belarus and in Switzerland. The US devalues it's currency every month with QE3. As more countries choose to devalue, a wiser place to put their currency may be in real money such as gold and silver.

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Source: http://neilski.typepad.com/chicago_gold_and_silver_i/2012/11/the-flip-side-of-a-weaker-currency.html

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