Being currently dominated by the U.S. dollar and Western European nations’ currencies, the currency markets operate by performing trading in pairs. Thus, the acts of purchasing one currency and selling another currency occur simultaneously (Greenlaw et al., 2017). Such markets work without physical locations and by connecting to a global network of individual/corporate clients and banks. The exchange rate fluctuates, which results from a currency’s appreciation or depreciation stemming from the peculiarities of the global business environment, policy, political situation, countries’ public debt, and similar factors (Li et al., 2020). Importantly, a “strong” currency refers to a currency whose value in relation to other prominent currencies is improving steadily.
The U.S. economy and the various involved parties can benefit from having a strong or a weak national currency under different conditions. A strong dollar has positive effects on the U.S. economy when the country needs to emphasize imports and maintain the status of the world’s reserve currency (Wolla, 2015). A weak currency might be beneficial for the U.S. economy if it needs to increase the demand for its goods abroad and boost the growth of GDP through exports (Wolla, 2015). In an economy, a strong dollar benefits U.S. tourists entering other countries and foreign businesses exporting to the U.S. (Greenlaw et al., 2017; Wolla, 2015). Conversely, a weak dollar places them in a disadvantageous position while benefiting U.S. firms exporting goods to countries with stronger currencies, non-residents coming to the U.S., and the country’s investors abroad.
Finally, based on the discussed currency’s value over the past decade, the U.S. dollar has strengthened compared to some more expensive currencies, such as the euro. In the first quarter of 2011, €1 was equal to $1.375 and reached its peak value relative to the U.S. dollar, $1.439, in the second quarter of that year (European Central Bank, n.d.). In the last months of 2021, one could get only $1.1435 for €1 (European Central Bank, n.d.). Thus, due to some short-term periods of success, the U.S. dollar has managed to grow relative to Europe’s leading currency.
References
European Central Bank. (n.d.). Statistical data warehouse. Web.
Greenlaw, S. A., Shapiro, D., Dodge, E., Gamez, C., Jauregui, A., Keenan, D., MacDonald, D., Moledina, A., Richardson, C., & Sonenshine, R. (2017). Principles of macroeconomics (2nd ed). OpenStax.
Li, J., Lan, L., & Ouyang, Z. (2020). Credit constraints, currency depreciation and international trade. Journal of International Money and Finance, 104, 1-22. Web.
Wolla, S. A. (2015). Is a strong dollar better than a weak dollar? Page One Economics, 1-3. Web.