Currency of a small island nation

Discussion in 'Economics' started by nix0000, Sep 28, 2011.

  1. nix0000


    Hey there,
    Would the currency of a small island nation (population: say around 200,000) be inherently low? On the basis that this island has limited sovereignty recognition, little natural resources, high level of imports and low level of exports (other than tourism and fisheries.)?
    My knowledge of economics is low, but I understand that given that other nations demand for this nation’s exports would be low, and given that imports would surely outweigh exports, the supply of the currency of this nation would be greater than demand, leading to a low value currency. Am I being too simplistic? Also is a low currency desirable for a small island nation–surely it would want to give its exports the best chance probable?

    Finally, I ask: Would it be desirable for this nation to peg its currency to the US dollar, or Euro? This would lead to less volatility, would it not?

    Appreciate any replies,