Some do not agree that the USD decline is a good thing........
Dollar’s decline has consequences for people all over the globe
WASHINGTON — The sharp decline of the U.S. dollar since 2000 affects not just Americans, but everyone in the world.
“The dollar was the dominant force in world economics for 100 years — we had no competition,” said C. Fred Bergsten, director of the Washington-based Peterson Institute for International Economics. “There was no other economy close to the size of the United States. But all that is now changing.”
The dollar is down more than 40 percent against the euro over the past seven years, taking a particularly sharp drop in the last month.
For now, that drop is allowing the U.S. economy to reap rewards. American products have become exceedingly competitive, boosting exports ranging from Caterpillar tractors to Boeing jumbo jets that are now relative blue-light specials in the global marketplace.
But for untold millions worldwide, the weak dollar has emerged as a troubling dark spot.
Take Ngengi Mungai, a Nairobi coffee exporter trapped between the weaker dollar and the rapidly appreciating Kenyan shilling — which gained as much as 12 percent against the dollar this year amid an exportdriven economic surge across much of Africa. His coffee sales overseas, as with the bulk of global commodities, are priced in weaker dollars. But he must then convert them into stronger shillings to cover his local costs for local labor, materials, even the clothes on his back. It has cut sharply into his annual income.
“Basically,” Mungai said, “it’s bad.”
Some countries have begun to diversify their reserves away from the dollar, while a nascent push is afoot to reprice some commodities in currencies other than the dollar. In May, Kuwait dropped its currency peg to the dollar and other oil-rich Gulf states have threatened to follow. Perhaps most telling: In recent months, the euro surpassed the dollar as the currency with the largest global circulation.
The dollar’s decline has forced Americans to rethink their lust for foreign goods. Sales of luxury, British- made Jaguars and Land Rovers, for instance, are declining in the United States because of the weak dollar, while fewer North American tourists — a 10 percent drop in the third quarter of 2007 compared with the same period last year — treated themselves to trips to England.
The chink in the dollar’s armor has dealt a blow to American pride — at least to the kind of pride that comes with buying power.
Nowhere is that more visible than with Americans overseas. “It’s changed our lifestyle,” said Lauren Amlani, 48, who moved to Paris from California with her husband and young son in March 2006. “A meal with pizza and drinks for the three of us comes to over $75. That’s ridiculous!”
Amlani’s husband, Aslam, a project manager at Disneyland Paris, is paid in dollars. To compensate for the plunge of the dollar against the euro, the Amlanis are buying clothes and electronics in the United States and hauling them back to Paris.
The dollar has fallen because of a combination of fears over the U.S. economy, including the subprime mortgage crisis that may worsen.
Although considered unlikely, analysts say a more rapid decline could prove disastrous. A global run on the dollar would force the Federal Reserve to hike interest rates to prop up the U.S. currency just as lower interest rates may be needed to stimulate the domestic economy.
Already, however, the impact of the weaker dollar is growing. Rolls-Royce has proposed moving some operations from Liverpool to its factory in Mount Vernon, Ohio. Airbus has said it will shift more of its production to the United States, home turf of rival Boeing, to offset the cost of the stronger euro. As the dollar has weakened over the past seven years, Airbus has opened assembly lines and other operations in Wichita and Mobile, Ala., as well as in Moscow and Beijing.
“Every time the euro increases by 10 cents towards the dollar we lose $1 billion in our operations,” said an Airbus official at the company’s headquarters in Toulouse, France. “Aircraft are sold in U.S. dollars, but most of our production costs are paid in euros.”
The dramatic surge in oil revenues along with the weakening dollar has sparked a rise in inflation in Persian Gulf states — hurting most those who have the least. In recent months, it has wiped out much of the gains from years of hard labor for the thousands of South Asian workers who moved to Dubai for a piece of its multibillion-dollar construction boom. With employers slow to raise salaries as low as $109 a month, workers’ savings have diminished in buying power as costs have jumped for vegetables, cooking gas and other essentials. This has triggered wage strikes and a rock-throwing protest this fall that set back construction of the 150-story Burj Dubai, planned to be the world’s tallest building.
“We don’t have a single penny,” said Ram Chandra, a 33- year-old mason who moved to the United Arab Emirates from India five years ago to seek his fortune in a sand-blown and crowded construction camp on the fringes of the desert. Back home in India, where the dollar has fallen 14 percent against the rupee in the past 18 months, the remittances he has sent to his family have steadily lost value.
The declining dollar’s role in fueling inflation has become a pinata for barbs across the Muslim world, where furious residents and leaders, including Iran’s President Mahmoud Ahmadinejad, have sought to turn the weaker greenback into a new rallying point for anti- Americanism. “They get our oil and give us a worthless piece of paper,” Ahmadinejad told reporters after the OPEC summit in the Saudi capital of Riyadh last month.
Some countries with strict controls over their currencies have managed to share in the windfall from the dollar’s drop. Vietnam, for instance, where the tightly controlled currency has stayed relatively constant against the dollar, is enjoying an influx of investors fleeing nearby Thailand — where the baht’s sharp rise against the dollar has made doing business there far less attractive.
In China, authorities have resisted global pressure to allow its currency to appreciate faster. The Chinese currency has gained about 11 percent against the dollar since 2005.
Now, some in China are turning their noses up at the dollar. Lin Jing, a sales manager at Shanghai Shuangyuan Import & Export Co., which exports garlic oil, said the company has begun to demand euros from its overseas customers instead of dollars.
The Buffalo News: Business: Dollar’s decline has consequences for people all over the globe