ECONOMICS REPORT - The Falling Value of the Dollar

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ECONOMICS¹ REPORT - The Falling Value of the Dollar
By Mario Ritter

Broadcast: Friday, January 02, 2004

This is Steve Ember with the VOA Special English Economics Report.

The falling value of the dollar has become a major story in international finance². The value of a country's money is often thought to show the strength of its economy. But experts say this is not always the case. Changes in the value of currency help some parts of the economy and hurt others.

When people go to foreign countries, they have direct experience with the exchange rate of money. International travelers must use their own money to buy the currency of the country they are visiting. For example, Americans on holiday in a foreign country can buy more currency when the dollar has a high exchange value.

So a high exchange value is good for vacationers. It is not so good for exporting. A strong dollar means that American exports are more costly³. Other countries are less likely to import products from the United States because they are too costly. American agricultural goods, computers and airplanes all are more costly on the world market when the dollar is strong.

However, sellers⁴ of foreign goods within the United States are helped by a strong dollar. A strong dollar means that American companies can buy more with the same amount of money. They can sell goods at a low price in the United States and still make a profit.

This means that Americans can buy more. Low prices increase demand for foreign goods in the United States. American companies and individuals then continue to buy less costly foreign goods. This helps to increase the American trade deficit⁵.

A weak dollar helps American companies that do business overseas. For example, the American computer industry gains because its products are less costly to foreign buyers. Financial magazines report that technology companies like Intel and Microsoft have increased profits because of the weak dollar. Increased trade helps reduce the American trade deficit.

The United States Commerce⁶ Department keeps information on America's imports and exports. Information on the third quarter of two-thousand-three shows that America's trade deficit did fall. American exporters should gain the most from the falling dollar. But, the affect of the weakening⁷ dollar on the United States trade deficit remains⁸ to be seen.

This VOA Special English Economics Report was written by Mario Ritter. This is Steve Ember.