Category: 

What Is Weak Currency?

Article Details
  • Written By: Jim B.
  • Edited By: Rachel Catherine Allen
  • Last Modified Date: 22 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
The Argentinian resort town of Epecuén was submerged by flooding for years; it is now populated by one elderly man.  more...

December 5 ,  1933 :  Prohibition ended in the US.  more...

Weak currency is a financial term for what occurs to the currency of a country when it becomes devalued in comparison to the currencies other countries. When this occurs, the currency loses some of the buying power that it once had. A nation with a weak currency is generally suffering from certain economic problems, such as budget deficits, stagnant economic growth, or high unemployment. The main effect of having a devalued currency is that it becomes more difficult for businesses to import goods from other countries with stronger currencies, although it benefits manufacturers within the country for the short-term since they can make goods at lower costs than their foreign competitors.

A currency is the standard for monetary transactions within a single country. As the world's economy has become more and more globalized, different currencies tend to react to one another. When one weakens, it is generally a sign that others might be strengthening. If a specific currency devalues to the point where it is significantly weakened compared to others, it can be a sign of severe economic distress. At that point, it can be difficult to revive a weak currency.

Ad

It is important to realize that a currency is usually measured in comparison to other currencies across the globe. The United States Dollar (USD) is generally used as the benchmark currency against which all other currencies are measured. When a weak currency is in effect, it loses its buying power in international transactions, indicating a serious financial situation in the country in question.

If a weak currency stays in the doldrums for a long period of time, it can be a sign of national economic problems that show no signs of improving. When an economy stagnates, it can be difficult to maintain employment levels. In addition, struggling countries may tend to borrow to stimulate the economy, thus raising the budget deficit. This cycle of economic turmoil can be exacerbated by foreign investors avoiding the devalued currency so that their own investments don't suffer.

In some cases, countries may try to stimulate a weak economy by pumping more money into the economy by lowering interest rates or buying back government bonds. While this may prove effective, the larger amount of money in circulation can weaken the currency even further since supply outweighs demand. On a manufacturing level, exporters in countries with a weak currency have an advantage over importers, since the exporters can make goods at low prices which are desirable to foreign buyers.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email