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What Is Weak Currency?

Jim B.
Jim B.

Weak currency is a financial term for what occurs to the currency of a country when it becomes devalued in comparison to the currencies other countries. When this occurs, the currency loses some of the buying power that it once had. A nation with a weak currency is generally suffering from certain economic problems, such as budget deficits, stagnant economic growth, or high unemployment. The main effect of having a devalued currency is that it becomes more difficult for businesses to import goods from other countries with stronger currencies, although it benefits manufacturers within the country for the short-term since they can make goods at lower costs than their foreign competitors.

A currency is the standard for monetary transactions within a single country. As the world's economy has become more and more globalized, different currencies tend to react to one another. When one weakens, it is generally a sign that others might be strengthening. If a specific currency devalues to the point where it is significantly weakened compared to others, it can be a sign of severe economic distress. At that point, it can be difficult to revive a weak currency.

A weak currency has been devalued compared to the currencies of other countries.
A weak currency has been devalued compared to the currencies of other countries.

It is important to realize that a currency is usually measured in comparison to other currencies across the globe. The United States Dollar (USD) is generally used as the benchmark currency against which all other currencies are measured. When a weak currency is in effect, it loses its buying power in international transactions, indicating a serious financial situation in the country in question.

If a weak currency stays in the doldrums for a long period of time, it can be a sign of national economic problems that show no signs of improving. When an economy stagnates, it can be difficult to maintain employment levels. In addition, struggling countries may tend to borrow to stimulate the economy, thus raising the budget deficit. This cycle of economic turmoil can be exacerbated by foreign investors avoiding the devalued currency so that their own investments don't suffer.

In some cases, countries may try to stimulate a weak economy by pumping more money into the economy by lowering interest rates or buying back government bonds. While this may prove effective, the larger amount of money in circulation can weaken the currency even further since supply outweighs demand. On a manufacturing level, exporters in countries with a weak currency have an advantage over importers, since the exporters can make goods at low prices which are desirable to foreign buyers.

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    • A weak currency has been devalued compared to the currencies of other countries.
      By: Vlad Ivantcov
      A weak currency has been devalued compared to the currencies of other countries.