Saturday, February 11, 2023

Strong currency vs Weak Currency



The question of weak currencies and strong currencies has bothered me for quite a long time for I have observed Western countries forcing African countries to have weaker currencies in order to improve the competitiveness of their exports on the international market but I have seen this only benefits the western countries themselves in form of cheaper goods from African countries. I decided to ask ChatGPT and it responded as follows:

Why do Western countries prefer strong currencies and encourage and sometimes force African countries to have weak currencies?

There is no one answer to why Western countries prefer strong currencies and sometimes encourage African countries to have weak currencies, as there are a variety of factors that come into play. However, I'll outline some of the most commonly cited reasons:

  1. Trade competitiveness: Strong currencies can make exports from Western countries more expensive, which can reduce their competitiveness in global markets. On the other hand, weak currencies can make exports from African countries cheaper and more attractive to buyers in foreign markets.
  2. Investment opportunities: Strong currencies can provide more attractive investment opportunities for Western investors, as they can earn higher returns in countries with strong currencies. Additionally, weak currencies can make investments in African countries less attractive to foreign investors, as the risk of currency devaluation is higher.
  3. Balance of payments: Strong currencies can help Western countries to maintain a favorable balance of payments, as they reduce the cost of imports and increase the value of exports. Weak currencies can have the opposite effect in African countries, as they increase the cost of imports and reduce the value of exports.
  4. Political influence: Strong currencies can provide Western countries with more political influence in African countries, as they can use their economic power to promote their interests. Weak currencies can reduce the political influence of African countries, as they are less able to resist the influence of foreign powers.

It's important to note that the relationship between currency strength and economic development is complex, and there is no one-size-fits-all solution for African countries. Each country has its own unique set of economic, political, and social circumstances, and what works for one country may not work for another. Additionally, some African countries have made efforts to strengthen their currencies and reduce dependence on foreign aid, and these efforts have shown positive results in terms of economic growth and stability. 

 - #ChatGPT

The benefits of stronger currencies seem to outweigh the benefits of weaker currencies by way too far. I wouldn't want African countries to continue weakening their currencies.

African Union seeks to establish the African Central Bank between 2028 and 2034. One of the objectives is to "Promote exchange rate stability and avoid competitive exchange rates depreciation". This is an important shield we need against the Western influence on our currency values for their benefit and we need this shield yesterday. 

While we wait for the establishment of the African Central Bank, we should strive hard not to devalue our currencies further even when pressured by Western institutions like World Bank and IMF. A weak currency is not for our benefit but the benefit of Western nations to allow them to import our goods cheaply and export their goods expensively to us.


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