Here are the positives: One of the most obvious advantages is that if a Fordham student were to study abroad, the stronger purchasing power of the U.S. dollar will allow the foreign goods they purchase to be cheaper. Therefore, now is a great time to study abroad , while it is relatively inexpensive to live and buy things outside of the U.S.
Additionally, there is no need for the Federal Reserve to cut interest rates. With stable interest rates, inflation is not a huge concern.
Another benefit is that imported goods are cheaper. This concept is similar to the previous one; a strong U.S. dollar compared to foreign currencies means the goods of those foreign countries will be relatively less expensive, and, in turn, provide the U.S. market with a wide variety of goods.
All of this provides enormous leverage for to the average American consumer, who will have a wide variety of cheap goods to choose from, whether they are purchased domestically or abroad.
On the other hand, there are numerous drawbacks to a strong dollar. As mentioned previously, corporations have to compete against foreign markets.
With a strong currency, U.S. exports are more expensive for foreign countries. This damages the United States’ overall productivity levels, and they may have to lay off some workers in order to maintain profit.
Many of the major stock indices, such as the Dow-Jones and the S&P 500, are primarily comprised of multinational corporations. U.S. goods will not seem as attractive to foreign markets when the U.S. dollar’s value is high. Since a great deal of U.S. business’ profits come from these foreign markets, the corporations will not do as well as they would have with a weaker U.S. dollar. The domestic demand for U.S. goods and services will not be high. Furthermore, the major stock indices will decline and, as American consumers interpret them as economic health indicators, will result in a loss of faith in the U.S. economy.
As one can see, while the word “strong” typically has positive connotations, a strong U.S. dollar may not be necessarily beneficial for the economy. The dollar’s rise in recent months should have some economists worried. Taking in all this information one can understand why countries such as China would intentionally set the value of their currency lower than the market exchange rate.