By. Dr. Lynn Reaser
Q: Should the U.S. try to weaken the dollar?
No: The dollar has strengthened recently as the U.S. has become a “safe haven.” While America certainly has its problems and interest rates are at rock-bottom levels, we look safer than many other regions. Questions over the ability of Greece to avoid default and the very survival of the Eurozone make the euro unattractive. A global recession could pummel many of the developing countries.
But, should the U.S. hope for or work for a weaker currency? The U.S. economy really needs stronger household and business spending both domestically and abroad. While a lower value of the dollar might provide some boost to exports, subsequent efforts by other countries to depreciate their currencies to maintain competitiveness would be sharply counterproductive.
A weaker dollar would produce winners and losers. Manufacturers and farmers would likely benefit from stronger sales abroad. Investors would see higher returns on their overseas investments. Consumers, however, would likely pay higher costs for imported goods and domestic substitutes, while foreigners might be more reluctant to finance our deficit if they expected the dollar to continue to slide.
The U.S. needs to continue to improve its competitiveness through investing in technology, encouraging innovation, and improving its education system. A cheaper currency is not the answer.