A weak domestic currency makes a nation’s exports more competitive in global markets, and simultaneously makes imports more expensive. Higher export volumes spur economic growth, while pricey imports also have a similar effect because consumers opt for local alternatives to imported products.

Anything that changes the value of a currency changes net exports. When a currency appreciates, its goods are more expensive to other countries. When a currency depreciates, its goods are less expensive to other countries.

An appreciation means an increase in the value of a currency against other foreign currency. An appreciation makes exports more expensive and imports cheaper.

Disadvantages of devaluation

• Inflation.
• Reduces the purchasing power of citizens abroad.
• Reduced real wages.
• A large and rapid devaluation may scare off international investors.
• If consumers have debts, e.g. mortgages in foreign currency – after a devaluation, they will see a sharp rise in the cost of their debt repayments.

Even though the price of the exported goods hasn’t changed, foreigners essentially can buy U.S. goods at a discount when the dollar is weaker. The increased demand for U.S. exports leads to more foreign currencies being exchanged for dollars, which increases the dollar exchange rate relative to the currencies involved.

How to increase the value of a currency

1. Sell foreign exchange assets, purchase own currency.
2. Raise interest rates (attract hot money flows.
3. Reduce inflation (make exports more competitive.
4. Supply-side policies to increase long-term competitiveness.

A weak currency may help a country’s exports gain market share when its goods are less expensive compared to goods priced in stronger currencies. The increase in sales may boost economic growth and jobs while increasing profits for companies conducting business in foreign markets.

The stronger dollar also makes US exports more expensive, so a surfeit of domestically-produced goods should translate into lower prices as well.

A falling dollar diminishes its purchasing power internationally, and that eventually translates to the consumer level. For example, a weak dollar increases the cost to import oil, causing oil prices to rise. This means a dollar buys less gas and that pinches many consumers.

The conclusion with investing in silver bullion, is that its price reaction to a recession depends on whether the precious metal is in a bull market at the time of the recession. The best time to invest in gold, silver, platinum or palladium is when the stock market is strong, and precious metals prices are weaker.

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