Which countries would be interested in having a strong currency?

- "We can currently see that exchange-rate policies or views about trends in the exchange rate are different from one country to the next:
• the United States is complaining about the undervaluation of the RMB, which must imply that it would want a weaker currency;
• the Europeans (United Kingdom, euro zone) are pleased about the depreciation of their currencies against the dollar;
• China and Switzerland are trying to curb the appreciation of their currency by accumulating official reserves, but accept a strong currency;
• Japan, on the contrary, is not doing anything to prevent the appreciation of the yen."
- "Is it possible to find a rational explanation of these various attitudes with respect to exchange rates? Which countries are likely to prefer a strong currency?
• countries where inflation is excessive;
• service economies, where the objective is to import industrial products at the lowest possible price;
• industrial countries that have offshored extensively, and that want to import parts, intermediate goods and components, made by foreign subcontractors, at the lowest possible price;
• countries where household savings are excessive, and where the appreciation of the exchange rate improves the terms of trade, increases real household income and stimulates consumption."
- "With this interpretation grid, the choices of exchange rate policy seem rational in China and Switzerland, but irrational in Germany, Spain and Japan. Now, China, Germany and Spain are the countries that ought to benefit from a strong currency: China and Germany have offshored to a significant extent, and Spain is a service economy."

Natixis Flash Economics 385 20100729

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