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Forums - Politics Discussion - Debunking the "weaker currency = more exports" myth in 2 seconds...

SamuelRSmith on 28 September 2012
crissindahouse said:

germany has high exports and it profits if the euro isn't so strong. as example chinese like german machines, if our euro would be 3x as strong as the australian dollar, they would maybe buy machines in australia instead.

now this doesn't automatically mean we will export more with a weaker euro, if other countries don't need a lot at that time they won't buy something from us even if the euro is weak but is is much cheaper for them to buy it in germany if the euro is weak.

i can give you an own example of me, i bought a lot of games in uk in the past, but only if the difference between pound and euo was so big to justify it for me. sometimes the price difference wasn't enough to me but when it was, i bought it in uk and increased uk's exports.

The Euro may not be strong, but prices are higher in Germany than they otherwise would be. Chinese people might have to spend more yuan to get the Euros, but when they get the Euros, all the prices for German goods would be lower.



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crissindahouse on 28 September 2012
SamuelRSmith said:
crissindahouse said:

germany has high exports and it profits if the euro isn't so strong. as example chinese like german machines, if our euro would be 3x as strong as the australian dollar, they would maybe buy machines in australia instead.

now this doesn't automatically mean we will export more with a weaker euro, if other countries don't need a lot at that time they won't buy something from us even if the euro is weak but is is much cheaper for them to buy it in germany if the euro is weak.

i can give you an own example of me, i bought a lot of games in uk in the past, but only if the difference between pound and euo was so big to justify it for me. sometimes the price difference wasn't enough to me but when it was, i bought it in uk and increased uk's exports.

The Euro may not be strong, but prices are higher in Germany than they otherwise would be. Chinese people might have to spend more yuan to get the Euros, but when they get the Euros, all the prices for German goods would be lower.

we are an export country so we profit from low euro. if we would be an import country it would be obviously vice versa. (if we really profit because of other factors is another question, it's only about the export to other countries with another currency)

and what have higher prices in germany to do with increasing exports? even if a weak euro would be bad for germany, our exports would probably still increase because of that (but like i said, only if other countries really need something then)

there is just one problem for us, if the euro is weak, it costs us more to go on vacation to a none euro country lol



Mr Khan on 28 September 2012
SamuelRSmith said:
Mr Khan said:

Somebody did report him, yes.

Anyway, now it sounds like you're confusing arbitrage, export competitiveness, and inflation vs depreciation. The issue is once you have sufficiently depreciated and your exports are *so* super-competitive that they're the only thing anyone's buying, that will bite back into currency appreciation and leave you forced to inflate again if you want to depreciate, but levels of competitiveness are sustainable over time if you manage to hold constant vis-a-vis the currency you want to maintain competitiveness with, which assumes relative stability in all markets, and so long as it doesn't lead to overwhelming demand for your currency abroad.

How do you manage that?

1. Relative stability in target currency

2. Careful minor intervention policy to keep the currency pegged. Buy assets when you need to, sell them when you don't.



Monster Hunter: pissing me off since 2010.

mrstickball on 28 September 2012

There are a lot of other issues that correlate with the huge imbalance in trade, outside of the inflation of the dollar.

A lot of our manufacturing went overseas around that time due to significant changes in manufacturing regulations, hurting our trade balance significantly. I would note also that the debasement of our currency hasn't been so much the problem, as much as it is that other currencies became free-floating due to the cessation of the Bretton Woods system, and the Nixon Shock.

One could cite Japan as a rebuttal to your argument - they are seeing their strongest currency ever, but are a trade deficit for the first time in 30 years, starting in 2011.



Back from the dead, I'm afraid.

SamuelRSmith on 29 September 2012
mrstickball said:

There are a lot of other issues that correlate with the huge imbalance in trade, outside of the inflation of the dollar.

A lot of our manufacturing went overseas around that time due to significant changes in manufacturing regulations, hurting our trade balance significantly. I would note also that the debasement of our currency hasn't been so much the problem, as much as it is that other currencies became free-floating due to the cessation of the Bretton Woods system, and the Nixon Shock.

One could cite Japan as a rebuttal to your argument - they are seeing their strongest currency ever, but are a trade deficit for the first time in 30 years, starting in 2011.


Like I've maintained throughout the thread, I am not arguing that debasement of currency decreases exports, I'm basically saying that there is very little link at all between the two things, long term.