Q:

What happens with the depreciation of the U.S. dollar?

A:

Quick Answer

A depreciating U.S. dollar leads to higher commodity prices and inflation, according to Forbes magazine. As the value of the dollar declines, the number of bills needed to purchase a given item rises.

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Full Answer

Another effect is a reduction in the U.S. trade deficit. As reported by the U.S. Department of Commerce’s Bureau of Economic Analysis, a devalued dollar means goods produced in the United States are relatively cheaper overseas, resulting in an increase in the number of exports and a decrease in the amount of imports.

If the trend continues, the nation also may experience upward pressure on interest rates and a weakening of the U.S. dollar’s reserve currency status.

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