Sometimes referred to as a falling or declining dollar, the weak dollar is a comparative situation in which the relative strength of the currency of a country is decreased in comparison to the currency of a different country. A number of factors can contribute to the creation of a weak dollar, including political, economic, and social factors. However, a weak dollar may or may not be a bad situation for the overall economy of the country.
Many people believe that the concept of a strong dollar is the only preferable status for the performance of domestic currency against foreign currency. However, that is not necessarily the case. A weak dollar can have a very positive impact on certain factors of a national economy when the status exists for only a short time. The weak dollar creates a situation where products produced by the company become more cost effective for consumers in other countries where their native currency is strong.
A rise in the exports from a country helps the economy in several ways. First, this rise in the demand for exported goods leads to more jobs for people producing the goods. At the same time, this can also mean extra working hours for hourly employees involved in the production process. Shippers may also have to offer employees overtime to move the goods. All this increase in jobs and extra income in the hands of consumers can mean that domestic consumers will also choose to buy more goods and services. From this perspective, a period of time when the dollar is weak on the world market can be a good thing.
However, prolonged periods when the dollar consistently performs at a declining rate against other currencies can also create a great deal of trouble for other portions of the economy. Domestic businesses that rely on imported goods in order to meet customer demands will pay more for those goods. This can in turn cause consumers to seek less expensive alternatives to the products. A downturn in generated sales revenue will mean cutbacks in personnel for the supplier, which in turn will drive the unemployment rate of the country upward. This set of circumstances with the weak dollar can set the stage for a period of inflation that may or may not be easy to correct.