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The Effects of a Weak Currency

The Effects of a Weak Currency

One effect of the Global economic crisis has been erratic fluctuations in the currency markets Worldwide. Many strong currencies like the British pound, now are weak currencies, whilst even if the US is struggling with the economic fallout of the end of the old economy in 2008, the US Dollar remains strong against many currencies.

In reality, there is no standardized effect on currencies weakening, it often is a case to case scenario depending on how much a country is self-sufficient and dependent on exporting or importing goods and services.
One example is Hungary, the local currency has devalued against the Swiss Franc, that has effected housing loans in the Country because most Mortgages in Hungary are in Swiss Francs. This has led to the collapse of the local housing market, because home owners are paid in the local currency, and simply cannot keep up with higher Mortgage payments.
The human cost of the falling British pound has not been felt as much by People living in the UK, but outside the UK. A strong pound meant that millions of British Citizens retired or invested outside the Country. Now that the Pound has depreciated as much as 30% against the Euro, and the US Dollar, those citizens who have incomes in pounds cannot afford to live outside the UK, or keep up with credit payments on businesses or property acquired outside the UK when the pound was much stronger.
The US Dollar still is one of the Worlds most sought after currencies, even if the US is technically one of the Worlds biggest debtors. The US dollar has strengthened in many emerging Countries that exported to the US. This in theory should mean that the cost of imports from these Countries, transfers to cheaper goods on US Store shelves.
It also means that exports from the US are more expensive, leading to less orders for US produced goods from these Countries. Mixed news in normal economic times, but questionable in a time of great economic change, because in times of economic trouble, exporting Countries could export themselves out of trouble, but not in a time when consumer credit in the USA is tight.
Conventional Economic theory does not provide the answers to solving currency fluctuations in these changing times, because conventional economic theory was wrong about the effects of the old economy, when it failed in late 2008. One thing is certain, Gold is now the chosen safety net of millions of people who view any currency as being insecure, as the current economic crisis unravels itself. Not the Swiss Franc, Euro, British pound or the US Dollar, when in previous crisis, these were the safe currencies to invest in.
But there is one golden rule about weak currencies, it affects Countries the most if they are imported orientated, and carry huge debts. One reason consumers from Iceland pay more for basics like food, and petrol. Whilst consumers in the USA, face the opposite effect, as food, energy and consumer goods, should be cheaper if they are imported.
The long term effect of changing currency values, is that those with strong currencies, least effected by the current economic change, can buy “cheap” assets from Countries with weakening currencies. This could lead to branded Companies in these countries being bought out by emerging Countries which have more buying power, like China. Therefore signalling a global shift in economic power from the “wealthy” west to the emerging East, as Chinese Companies are able to acquire former competitors cheaply, and thus gain more of a market in these Countries, once our economies start recovering.