What is the advantage and disadvantage to have a high value of USD for USA?

China and Japan always want to keep their currency low as oppose to USA.


When the USD is highly valued, it allows people from the home country, the United States in this case, to purchase goods relatively cheaply from abroad and put pressure on domestic firms to have low prices. From a consumption standpoint, this may be advantageous.

A high value USD may also make goods from the United States more expensive relative to goods from other countries, so the quantity demanded of U.S. goods abroad decreases.

Thus, the high value USD may increase the quantity demanded of foreign goods domestically and reduce the quantity demanded of U.S. produced goods abroad. Together, this can, but not necessarily, have long term consequences on the current account if imports are greater than exports over the long term.

The weak Chinese yuan renminbi allows China to export many goods cheaply and, thus, accumulate a positive current account and become richer relative to the rest of the world. In fact, China's monetary policy has been subject to criticism in the past for actively managing the renminbi's value.


There is another factor.

A lot of people outside of the US, consider that paper US money to be a lot safer method of storing wealth then what their governments promote. Therefore a lot of US money is kept under the bed and never spent.

This has the effect of allowing the US to print money without increasing the money supply, e.g. to borrow lots of money at 0% interest.

If the value of USD every goes down a lot, would these people still want to keep it under their beds?


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