Posts Tagged ‘devaluation’

Group Of 20 Wants The World’s Currencies To Stay Steady

Monday, October 25th, 2010

It doesn’t make sense at first, but sometimes countries actually want their currencies to be worth less. Of course, if everyone tried to do it at the same time, disaster would ensue…

  • The G-20 – a group of financial leaders from 19 nations and the European Union – met this weekend in South Korea to discuss economic policies related to global economic stability.
  • One of the goals of this meeting was to encourage countries to end “competitive devaluation of currencies.” Devaluing your country’s currency makes it cheaper for other countries to buy from you, and more expensive for your citizens to import goods from other countries. This can boost domestic production and export profits. When a country devalues its currency, other countries often do the same so they can remain competitive in the export market.
  • Both China and the U.S. were singled out for recently devaluing their currencies. Though the G-20 hasn’t set up specific regulations and wouldn’t have the power to enforce them if it had, the hope is that public shaming will keep finance ministers around the world in line.

Facts & Figures

  • China is currently taking in 4% more money than it is expending, reflecting a favorable balance of trade.
  • The U.S. is spending 3.2% more money than it is taking in, indicating a trade deficit.
  • As of Monday morning, one euro was worth $1.39, and one dollar was worth 81.31 yen.

Best Quote

“I want the market to value the fact that we were able to forge a certain level of agreement.” –  Yoshiko Noda, Japanese Finance Minister

The Real Value Of A Falling Dollar

Wednesday, October 13th, 2010

The value of U.S. currency has gone down nearly 10% against the euro in the past three months, but the impact on exports, tourism, the price of oil, and foreign investment may not necessarily be as bad as it seems…

  • When the value of the dollar falls, it means that $1 is worth less compared to one unit of another form of currency. So if $1 was once worth 1 euro, a fallen dollar might be worth only half a euro. That makes U.S. dollars cheap to euro-holders, and euros expensive to dollar-holders.
  • A cheaper dollar means that U.S. goods are more attractive to foreign buyers, so exports will likely rise. Since many American companies make a good portion of their profit outside the country, this could be a significant boost to the economy. A weak dollar is also an enticement for foreign tourist to visit the U.S. and spend lots of euros and yen!
  • The price of imported goods is going to increase. Of course, this could just encourage Americans to drive domestic industry by purchasing more affordable American-made goods. But not every product can be duplicated domestically.

Facts & Figures

  • In 2009, foreign tourists in the U.S. were responsible for $120 billion in revenue.
  • In July, an 8GB iPhone selling for $99 would have cost an Italian customer 78 euros. Today it would cost only 71 euros.
  • If they cashed out now, investors in the Euro Stoxx 50 index would be up 17% from 3 months ago simply because of the change in the dollar’s value.

Best Quote

“International finance isn’t pretty. If everyone focuses on exports, it’s a race to the bottom in exchange rates.” – Aroop Chatterjee, Currency Strategist at Barclay’s Capital