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Barcoo,
So this country has no name & doesn't exist?
OK, let's give a couple of names that do exist.
Case 1. USA
World's Strongest currency. Was competitive for a while during the 90's. Now it is either in recession or very close to it. Ballooning national debt. Job layoffs and cutbacks reaching epidemic proportions. Major indices have shown significant deterioration over the past couple of years.

Case 2. Australia.
Weak currency. Currency has fallen from around 80c US in '97 to around 50C now. Inflation low. Interest rates relatively low. Company profitability probably as good as it has ever been. All Ordinaries trading at near record highs. Employment growing. Unemployment is relatively high since growth has yet to absorb the higher unemployment of past years.

Case 3. Malaysia
Currency pegged to the world's strongest currency. KLSE Composite has fallen from 1400 to about 750 now. Interest rates high, about 10%. Unemployment high. Those who are still employed are either on reduced working hours or have taken significant pay cuts. That's in a country whose major trading partner is the US. If it's major trading partners had currencies that fell relative to the Malaysian ringgit, its plight would be even worse.

Case 4 Japan:
Not sure about the strength of its currency -- probably somewhere in the middle of this group. Runs government and trade supluses. Most imports are used for processing (value adding) and exporting, not for loocal consumption. As a result low currency value would increase cost of raw materials, reduce operating expenses, and increase returns from exports sales. A high currency would do the opposite. It is squeezed either way. Economy has been flat for a decade because better return on investment was available in non-productive resource -- land speculation. Now banks especially have a dilemma. If they foreclose on bad and doubtful debts, they will bankrupt themselves. If they do not, they maintain large accounts of non performing loans.

jono:
Low exchange means what you sell you get less for in return.
How can that be? Except for trade between European nations, almost all world trade is conducted in $US. When Australia sells beef to Korea or iron ore to Japan, the deals are done in $US. A low local currency allows you to sell at alower price in $US, but still a higher price in the local currency. Since the business pays its costs in Australian dollars, those costs are reduced. Doesn't that mean exporters will get more at lower cost? Importers who sell on the local market are disadvantaged, thereby reducing the national debt.

Obviously if you are very successful at his over a long time, your country would accumulate greater values of foreign currencies. Thgat would allow you to exchange it, and force up the price of the local currency (ie strengthen it). If the local currency got too strong, it would turn off the international competitiveness that started the process.

An economy with a strong currency is good for individuals within it. Their standard of living is high. They can more easily afford foreign goods. This has the result of increasing the national debt, as well as reducing demand for local product. If that continues, the relative value of the currency will fall, until it turns off the easy affordability of foreign goods that started the process.



chrischalkley

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