Can someone explain this concept a little bit? Thanks.
Usually, a “strong” currency refers to a reliable currency. Weak and strong are also used to compare different currencies against each other. For example, the euro has recently weakened against the dollar, meaning that the euro is now less worth dollars than it was before.
Ah ok, I thought so. So due to current economic circumstances, would it more beneficial for the U.S. to have a strong currency v. a weak currency? A weaker currency would encourage more trade, correct?
I would think that the US, being a net importer, would be helped by having a strong dollar, at least in the short term.
It is trade that determines the [real] currency exchange rate and not the other way around. Any talk of weak/strong currency policy is nothing but talk of policy to temporarily distort the rate from its natural market rate.
The best monetary policy is the “free” monetary policy. While weaker currencies do stimulate more exports, the fact is that undervaluing currencies is an indirect form of subsidizing the foreign importer. I make this argument and apply it to the case of the Chinese yuan on my blog, although in the coming weeks a copyedited version should appear on Mises Daily. Furthermore, just like the Chinese case shows, a weak yuan makes importing raw materials much more expensive.