How does a weak currency boost exports if the exporting country uses the USD as a “base” currency?
In: Economics
Example: you export tables.
Lets say local currency exchange rate is 10:1 USD, so you can buy 1 usd for 10 something of local currency.
price of a table is 100 usd and 1000 local.
When the price of the local currency falls, (to simplify) local prices stay the same, but prices of foreign goods increase.
So, when your currency get devauled by 10% means the price of table in usd is ~10% more expensive.
New exchange rate is ~11:1 USD
Now the price is still 100 usd but ~1100 local currency.
Therefore you can pay your costs locally and sell tables internatioally more profitably.
Compared to previous situation, if you export tables for a normal price of 100 USD you get 100 local currency more than previously (1100 compared to 1000).
That means you can export a table for local price 90USD and make the same amount of money in local currency as previously, essentialy out competing foreign companies that have still sell tables for 100 USD.
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