Strong or Weak Currencies?

Day 402, 19:17 • Published in USA Bulgaria • by Jewitt

The following is a discussion made by Jewitt at the opening of the 13th Congress, at which he is representing Tennessee. It covers a very testy debate that the last congress failed to resolve: Should the USD be "strong" (worth a lot) or "weak" (worth little).



So many in the 12th Congress had wondered why the United States Dollar (USD) should be “strong” and not “weak.” Other learned businessmen and politicians cry for a “strong” currency, but they cannot back up why it is better. Now, with the 13th Congress convening, I hope to bring a little light to the question.

Instead of giving a big explanation, I’ll just let it be known that countries that cannot supply its own goods (major importers) require strong currencies while countries that are nearly self-sufficient (exporters) do better with weaker currencies. How is this possible?

Let’s say we have two countries: Merica and Anada [Guess who!]. Merica has a very strong currency, worth exactly twice as much as the currency of Anada. Unfortunately, this is bitter sweet because Merica only has the basics to survive, and does not have extras [Let’s say diamonds and iron for giggles!]. Anada, on the other hand, has everything it could ever need aside from a few low-demand goods.

Few know this, but a laissez-faire system allowed to work itself out (and somehow without monopolies or oligarchies rising) will do just this: The highly supplied country will have a weak currency while the poorly supplied country will have a stronger currency. How does this happen? I’m not explaining that, but I will say why it’s good.

Merica is suffering a massive shortage of diamonds and iron, and need it to continue its survival [or supremacy]. In response, it turns to its trading partner Anada to buy from. Anada’s currency is weak and small, so it is cheap to produce these goods compared to Merican standards. Even if it is not as cheap to produce these goods, Merica’s currency has a conversion rate so superior to Anada’s that Anadan businesses will make a lot of money back home when they convert it.

Now, this has two good affects and two bad affects for both sides. Anada gets a lot of money, and businesses grow. As usual, super companies form and threaten the smaller companies. However, despite this, more workers are employed and more workers are paid more. With this extra money, also brings expansion. Unfortunately, expansion will kill off other industries and may make it to where the nation is geared towards producing surplus of only a few resources (Example: eRep Spain with iron).

Merica is slightly better off, but still gets a bad taste in its mouth. It did not have to spend a lot of its money, so it pays a fairly good price. Unfortunately, this also means there is no incentive [or profitability!] to fill in these gaps in the market. With such a strong currency, Merica will eventually become completely reliant on imports to meet these needs. All of its strong businesses, of course, will do well but its struggling businesses (such as iron and diamond companies) will be smothered and unable to compete; especially in the international market.

Another problem with a strong currency is that when the stronger industries (for instance: grain or wood) attempt to export; they have difficulties due to their currency being worth a lot. This translates to having to pay high wages and other production expenses while foreign markets require lower prices to compete.

Which does the eUS want? Does it want a strong and powerful currency, to grab up all the goods of the market cheaply? Or does it want a weak currency to export to the masses and stock up not on goods, but on readily available funds?

Then, when debating Strong vs. Weak currencies, one has to take into consideration the government’s intervention to get its share. With a strong currency, the government can tax more on imports to allow its businesses to compete (even if so struggling), but cannot tax on domestic income least it would cripple its own businesses. A nation such as Anada with a weak currency would have to provide almost no import taxes (It already is producing very cheap goods and what it cannot produce cheaply it should welcome into its markets at low and competitive prices) but, to prevent hyperinflation, would have to impose authoritarian income tax laws.

With that, I give the 13th Congress this: Decide.




-Jewitt, Chief Editor