Can some explain the approach?
A country is supposed to save enough capital to invest in productive capacity. When savings dont match required capital investments to grow the econoy, the country has to attract capital fro outside. To attract capital fro outside a countrys currency has to get stronger and stay stronger as long as it needs forigen capital. Once the growth of the econoy slows and forigen capital is no longer needed then the currency can start weakening. When a country is trying to grow, it also has current account deficit ( exports less than imports). So it concurrently sustains current account and capital account deficits. To attract capital in this situation, the country has to have a strong currency. This is counter intutive, but this is how it is supposed to work according to this theory. Capital flows to the most attractive destination. So a country needing capital needs to maintain a strong, strengthening attractive currency is the underlying rationale.
When investment > savings, capital flows into the domestic country to finance invesment. To finance the savings deficit, currency values need to remain strong to attract capital. This inflow of capital also supports the current account deficit.
Thanks, GetSetGo and McLeod! Excellent explanations!