Weak Currencies Push Trade in the Global Marketplace

AMA12-6-13The dong, the rial, and the leone – these exotic names may not be as familiar as the dollar, the yen or the euro, but these weak currencies may be changing the global financial picture more than their stronger counterparts. The complex relationship between the weak and strong currencies of the world affect virtually all aspects of international trade, travel and finance.

What makes a currency strong (or weak)? Currency values are constantly fluctuating, due to a variety of political and economic factors. And even though a currency’s value is essentially defined by a group that chooses to use it, when it’s used outside that arena, its value becomes relative, defined by how much it “costs” in terms of other currencies.

War, natural disasters and political instability all play a rode in making –or keeping – a country’s currency stable and strong. That’s why major currencies such as the dollar and the pound sterling remain relatively strong in international markets, while the currencies of countries such as Indonesia and Sierra Leone are considered among the world’s weakest.

That’s why currency trading is volatile, and why international financial markets keep a close watch on the performance of “strong” currencies, as well as what’s going on with countries whose currencies are considered weak, or trading in double digits against those dominant ones.

It takes more of a weak currency to buy a given item than it does a strong one. As currency markets take on new value, it costs more to “buy” those monies – as travelers converting to local currencies have long known. That’s why it’s easy to feel like a millionaire when dollars are converted to, say, leones, the very weak currency of Sierra Leone – or the dong, the currency of Vietnam

But, according to a recent Reuters report on the global expert market, those weak currencies may actually help boost trade opportunities for the emerging countries involved. Even as the weakest currencies in the world have lost up to 20 percent of their value in recent months relative to the dollar, world money watchers see the decline as opening doors for a flood of cheaper exports from those countries.

And that could in turn stimulate the economic recovery in the United States, Europe and even China, as those economies look toward cheaper markets for a variety of goods and supplies. The opposite holds true, too – as well as encouraging exports, a weaker currency can also discourage imports, which forces a country to fall back on domestic goods and products.

The comic impact of the world’s weak currencies may have both an upside and a downside. And complicating an already complicated financial picture is the emergence of digital currencies that aren’t backed by a government’s reserves.

But for travel and trade, the decline of a nation’s sovereign currency isn’t always a bad thing – and in the constantly fluctuating world of global money markets, it pays, as Jason Hartman says. to pay attention and stay informed.  (Top image: Flickr/SqueakyMarmot)

The American Monetary Association in the source for financial and monetary policy news you can use. Read more from our archives:

Can Cybercurrency Change the World?

All Hail the World’s Weakest Currencies

The American Monetary Association Team

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