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The Fading Dollar
In 1958 when I was an exchange student in Switzerland the currency exchange rate was 4 Swiss Francs per $1. As a sixteen year old at the time, I was amazed at how cheap everything in Switzerland seemed to be when I translated the prices into dollars. I sometimes wondered if the two currencies would ever be equal and if Swiss prices would ever equal those of the United States.
Well, now I know the answer. It is “no.” Well maybe it was yes for a brief moment. But last week, the dollar fell to be worth less than SF 1, and I can’t afford to visit my old friends in Zurich and St. Gallen because Swiss prices are now so much higher than U.S. prices that you can’t even see them.
Ten years ago, Clinton administration Treasury Secretaries Bob Rubin and Larry Summers had a mantra that they repeated endlessly in response to questions about the dollar. Said they: “A strong dollar is good for the U.S. economy.” In fact, it wasn’t. Had they said that a strong dollar is good for Wall Street, they would have been correct. But the problem is that the strong dollar was a disaster for main street producers of tradable goods and services, and contributed to the evolution of massive trade and current account imbalances around the world that, having become unsustainable, are now beginning to unravel.
Ironically, the unraveling entails a dramatic weakening of the dollar. So not only was the strong dollar not good for the U.S. economy. It wasn’t good for the dollar either.
Indeed, signs of the continuing trauma of the ever vanishing dollar multiplied just yesterday. For example, The New York Times reported that Chinese exporters are now beginning to price their exports to Europe in euros rather than the customary dollars. Even more significant was the further report that Chinese exporters to the United States are quoting dollar prices that are valid for only two or three months as a way of hedging against the risk of further dollar devaluation.
Not to be outdone, the Wall Street Journal reported that in the Solomon Islands, the traditional currency of dolphin teeth is increasingly preferred to dollars. Explained Sharon Faisi about the tooth currency: “It’s better than dollars. It lasts longer and has more value than money.”
Finally, Time Magazine’s Justin Fox suggested on his Curious Capitalist blog that the dollar, which over the past few years has fallen nearly 70 percent versus the euro, also needs to fall more against the Chinese yuan and several other Asian currencies.
The World Economic Forum this year proclaimed the United States as the country with the world’s most competitive economy. Maybe so, but now when people ask me where they should be investing, I know the answer—dolphin teeth.