Currency appreciation means the value of currency compared to other currencies has gained an upward increase eventually there is an increase in the exchange rate. A cheap currency obviously affects the domestic economy in a negative way but other countries can benefit from it because the imports for the countries become cheap. As far as currency appreciation is concerned, it impacts the economy positively in the following ways:
- When a currency strengthens as compare to other currencies, imports for that country become cheaper which means the currency has the ability to purchase more foreign goods and services. At the root level, the standard of living for the consumer increase and firms can benefit from lower prices of imports as well.
- The appreciation of currency and exchange rates reduces the inflation rate. The prices of goods and services become low so people can spend less in order to purchase those goods. Domestic inflation reduces and prevents the economy from overheating.
- An incentive to exporter is that firms can look for efficiency savings and increases productivity. Exporters who rely on foreign raw materials will experience a fall in the costs of their products which will benefit these firms a lot.