Thursday, October 4, 2007

The falling dollar (Help!!)...












The US dollar continues to fall against other currencies, to the point where it takes more than one US dollar to buy one Canadian dollar. Since I can remember the Canadian dollar has always been worth about $.75.

For those of you in the US, the falling dollar is likely fairly invisible to you. An exception is if you take a trip somewhere outside of the US. If you go to London you will find that it takes $2 to buy a single British pound, making an already expensive city horrendously expensive for Americans.

You may also notice that the price of some items made overseas is increasing. Take a hypothetical widget that is made by a German company that was 10 Euros a year ago. At an exchange rate of .8 Euro to a dollar, the price when converted to US dollars is $12.50. Today that same 10 Euro price, using the current exchange rate of .705 Euro to a dollar, is $14.18. Nothing has changed except the exchange rate, but the cost to an American for the same item is now over 13% higher than last year.

Conversely, there is a pretty significant benefit from the falling dollar for US companies. Since the same amount of Euros buys more dollars than last year, US goods and services are cheaper for foreigners to buy. This allows US manufacturing to continue to do well, keeping unemployment low. Also, there will be a flood of European tourists visiting places like Disney World and the Mall of America.

For American expats the negative impact can be pretty severe. I am paid in US dollars so when the dollar falls it basically translates into a salary cut. There is no change for things that we buy in the US. For example, I buy term life insurance from an American company and pay (obviously) in US dollars, so the falling dollar does not effect my payment. However, the lease for my house here in Prague is in Euros, 1,500 Euros per month, to be exact. When we moved here last year that 1,500 Euros translated into $1,875. Because of the continuing slide of the dollar that same 1,500 Euros now costs me $2,128. The graph in this post shows the fall of the dollar just since last October.

The fall of the dollar in relation to the Czech koruna (crown) is nearly identical to the Euro. So every time we go to the grocery store, or out to dinner or to the movies we are paying significantly more than a year ago. One interesting note - when I lived in Saudi Arabia I was insulated from currency fluctuations since the Saudi Riyal is fixed to the dollar at 3.75 Riyal per dollar (and still is as far as I know).

Working for a cash-strapped non-profit doesn't help since there is no money in the budget to pay us more to make up the difference.

On the flip side of the coin, a stronger dollar is like getting a pay raise since local goods and services take fewer dollars to buy. Unfortunately, no one is talking about the dollar getting stronger any time soon, and it would have to get much stronger before it back to where it was when we moved here.

Anyway, I just wanted to vent about how it sucks to be me right now.

1 comment:

Anonymous said...

If you write a blog and no one reads it, is it still relevant? The dollar is falling. Wow...Welcome to America! Thank the Bretton Woods system. You pay taxes in America? Let's hope the Feds bring back the Gold Standard.