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If the currency of a country that is not part of the European Union (EU) becomes stronger than the Euro (EUR), as happened recently in the case of Albania, when the lek had an unprecedented strengthening against the European currency, the economic consequences are manifold . Here are some of them:
inflation
As a result of the strengthening of the lek, goods and services imported from the European Union become relatively cheaper for Albanian consumers. Cheaper imports can reduce upward pressure on domestic prices, thus bringing down inflation. In addition, a stronger currency could make Albanian manufacturers' exports more expensive, potentially leading to stronger domestic competition.
Purchasing power
A stronger currency usually increases the purchasing power of Albanian consumers. With the increase in the value of the Lek against the Euro, Albanian consumers can buy more European goods and services for the same amount in Lek. This can lead to increased shopping and tourism, as foreign goods and services become more accessible due to lower prices.
imports
As mentioned before, a stronger currency makes imports cheaper. This can benefit consumers as they can enjoy a wider range of foreign products at lower prices. However, this poses challenges for domestic industries that compete with imported goods, as they may face stronger competition and market losses.
exports
On the other hand, a stronger lek can negatively affect a country's exports. When the local currency depreciates against the Euro, exports to the EU become relatively more expensive for European consumers. As a result, demand for Albanian exports may decrease, leading to lower export earnings for local producers and exporters.
Trade balance
The impact on imports and exports may have consequences for Albania's trade balance. If imports increase because of cheap foreign goods, this can lead to a trade deficit, where the value of imports exceeds the value of exports. The trade deficit may also have consequences for the country's overall balance of payments.
tourISm
When the Lek strengthens against the Euro, travel to Albania becomes relatively more expensive for foreign tourists from the Eurozone and other countries that use the Euro.
A stronger currency reduces the purchasing power of foreign tourists. Their currency will now revert to a smaller amount of Leku, making goods, services and accommodation relatively more expensive. This may lead to a decrease in inbound tourism, as foreign visitors find the destination less economically viable.
On the other hand, for domestic tourists, travel to Eurozone countries becomes relatively cheaper. This may encourage more Albanian tourists to travel abroad to Eurozone countries for holidays and shopping. / bota.al
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