Whither the Dollar? Too Strong for Its Own Good?

August 1, 2001 8:22 AM

Whither the Dollar? Too Strong for Its Own Good? and what's the alternative? I wonder how long we'll have different currencies for different countries... 20 years? 100? forever?
posted by christina (12 comments total)

Diffrent currencies are a Good Thing(tm) .. but whats scary is how the valuations are set .. a group from each of the major countries gets together and just makes it up every few months. They play poker bluffing and guessing where the economy will be in 3 months. This is how currency players like Soros make billions .. Soros sees that the valuations are wrong.. he disagrees with where a country is going... predicts the valuations will fall (or rise) and buys up highly leveraged options and waits .. so if you think the US Dollar is too strong .. buy some Yen and you may be rewarded.
posted by stbalbach at 10:02 AM on August 1, 2001

> but whats scary is how the valuations are set .. a group from each of the major countries gets together and just makes it up every few months.

Eh? If that's what happens what's with all the rising and falling that enables Soros to profit while I get screwed every time I move from US$ to CDN$? Floating exchange rates just float: that's it. Central banks occasionally make an effort to change the direction of currency movements (by using foreign reserves to buy their own currency, for example) but there are no standing international efforts on things like that (ad hoc agreements may occasionally arise).

Exchange rates are set by the market; "groups from major countries" have only as much say as the force they can muster in the market and the indirect actions they can perform (raising or lowering interest rates, etc.) There is no A-list, currency exchange wise.
posted by sylloge at 1:48 PM on August 1, 2001

Use whatever paper-"money" you want. I'll stick to gold, thank you very much.
posted by dagny at 1:52 PM on August 1, 2001

Nobel price laureate Bob Mundell has shown that there is an optimal size for a place that uses one currency. There's a tradeoff: different currencies facilitate necessary price changes between regions, but are also a pain for users. Hence one world money seems unlikely, ever, but we'll lose some currencies in the future.

Paul Krugman, who knows more about currencies than anybody, thinks the buck should drop (NYT link). As an added service, he debunks your complot theory for ya.
posted by thijsk at 2:28 AM on August 2, 2001

PBS did a story on the crash of 1998 which includes a lot of excellent info on how the global economy really works .. common wisdom is its a free market system but its not. The "G7" sets the values of the currencies and the currency traders bet for or against those values in a market exchange. When the G7 fsck's up, entire economies melt down and millions of people are set back a generation of work and it leads to major social unrest which can lead to political upheavels, wars, etc.. we were lucky the crisis of 1998 didnt do more harm .. Its similair to the Bond market. Bond prices are fixed, yet Bond prices flucuate daily because Bond traders are betting one way or another that the fixed prices are wrong. Someone somewhere is setting the price of currency and its based on nothing really .. no gold standard like Dagny said. Anyway, nothing has changed since 1998 and when the G7 stumbles again count on another major global economic crisis. It has nothing to do with a free market.
posted by stbalbach at 5:36 AM on August 2, 2001

stbalbach, some of what you say makes sense but a lot doesn't. Especially the idea that someone somewhere sets the price of a currency. It's true though that currency markets are basically speculative and thus 'betting' has a lot of impact. But really, no one has enough dough to set the price.

It's a difficult enough field, by the way.
posted by thijsk at 7:09 AM on August 2, 2001

Basing the value of the world's economy on a shiny yellow metal isn't any more sensible than basing it on slips of paper.

Let's go back to barter!
posted by briank at 7:10 AM on August 2, 2001

What's interesting is the extent to which the internet, like cheap international travel, facilitates a personalised arbitrage -- it's hampered, of course, by excise duty, but will flourish for as long as international eBay sellers are prepared to tick the "gift" box and value everything at $25.

So you now get websites which allow Brits to buy cars at a 10-15% discount that were built in the UK, shipped to the Netherlands and Belgium for sale, and will be taken back to the UK. The reason for the disparity? A stupidly over-valued pound. And like the stupidly over-valued dollar, it fuels a massive balance of payments deficit.

Anyway, we already have an international currency: it's the Amazon gift voucher.
posted by holgate at 7:11 AM on August 2, 2001

thijsk .. dont believe me, do the research .. I was shocked as hell to learn that its not a free market system at the very top levels. Most people dont know this, its not talked about much. The PBS Frontline special on the Crash of 1998 and Soro's comments showed it for me. There is no cabal.
posted by stbalbach at 6:00 PM on August 3, 2001

How do you establish that a currency is strong or week? Japan is still super expensive if you go there; Europe is cheaper, but not developing world-cheap. In any case, currencies float, and there's no way to make the dollar weaker. What's interesting is that Japan's economy is in the toilet; Europe's is doing fairly well, their interest rates are still fairly high; and yet the dollar is still strong. Guess everyone agrees with me that the EURO will be a disaster.

I predict the EURO, as the deutchmark officially disappears at the end of the year, will get even weaker.
posted by ParisParamus at 6:49 PM on August 3, 2001

>thijsk .. dont believe me, do the research .. I was shocked as hell to learn that its not a free market system at the very top levels.

Can you point to anything specific? I've read as much of the PBS material as I have time for and I couldn't find anything which indicates that the currency markets are anything but what we've always thought they are.

What your saying doesn't make any sense: look at historical graphs of currencies: they never just spike up 5% or down 12% after a G7(8) meeting. If I have US$100 and that buys me 160,000 lire on Tuesday, why would I sell it for 120,000 on Wednesday?
posted by sylloge at 12:37 AM on August 4, 2001

How do you establish that a currency is strong or we[a]k?

Balance of payments, generally. Other import-export indicators: border-crossing trade. Countries where things are "hella expensive" domestically tend to pay high wages. (Japan, Switzerland.)

A currency is overly strong when the country's manufacturers are being undercut by foreign competition even when they're competitive in terms of basic labour and production costs. It's one of the reasons why British industries desparately want the UK to enter the Euro.
posted by holgate at 7:00 AM on August 4, 2001