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How the Fed Works, Currency Crises, and TikTok ban [Listener Mailbag]
"Econ 102" with Noah Smith and Erik Torenberg
Balance the Currency: A Delicate Trade-Off
A weak currency can make exports more appealing by lowering prices abroad, but it poses challenges for affording imports. The ideal situation is to maintain a currency that is moderately weak, ensuring competitive exports while still allowing the purchase of necessary imports. The debate around the strength of the U.S. dollar highlights the risks associated with altering currency values, as drastic changes can destabilize global financial systems. Countries facing a weakening currency, like Japan, have limited options for stabilization, often resorting to selling off dollar reserves to defend their own currency. Historical examples, such as China's significant dollar sales during its 2015 market crisis, illustrate the potential consequences of currency manipulation and capital flight on an economy.
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