What Happens When the Currency Continues to Weaken?
Jakarta, KOMPAS.com - Currency depreciation often comes under scrutiny when a country’s exchange rate continues to fall against the US dollar. This condition not only affects international trade but also has a direct impact on prices of goods, inflation, and people’s purchasing power.
In the global economic system, currency exchange rates move according to supply and demand in the foreign exchange market. As quoted from Investopedia, Sunday (17/5/2026), a weak currency can affect a country’s trade balance because the price of imported goods becomes more expensive, while export products become relatively cheaper for foreign buyers.
The impact of currency depreciation is usually most quickly felt in the prices of imported goods and domestic products that use raw materials from abroad. Electronic goods, fuel, medicines, and certain foodstuffs may experience price increases when the exchange rate continues to weaken. These cost burdens are then passed on to consumers through higher selling prices.
When a currency weakens, import costs increase because people and companies need more local currency to buy foreign products. This condition has the potential to push up inflation. Countries that import many goods are considered more vulnerable to inflationary pressures when their currency weakens.
The rise in the price of goods due to currency depreciation can ultimately reduce people’s purchasing power. With the same amount of income, people can only buy fewer goods and services compared to before. The pressure on purchasing power is usually felt in daily necessities and imported consumer goods.
Currency depreciation can also trigger an increase in the prices of local goods that use imported components. Even though they are produced domestically, production costs still increase because some raw materials are purchased using US dollars or other foreign currencies.
In the midst of the pressure caused by rising import costs, currency depreciation can also provide benefits for exporters.