I agree the volatility in the exchange rates makes it extremely difficult to plan and budget for any firm dealing with global suppliers. In such a situation, would it be a wise decision to buy raw materials in advance if there is a speculation that exchange rate may rise in future? Also, how reliable are the speculations circulating around the foreign exchange markets?
If you want currency stability, you have to start with honesty and a frugal government. Your examples and the historical record verify that governments that spend more than their people can afford to give fall!
At this point in time, you have many nations trying to game the system by pretending that their currency is worth more than its percieved value and then scream when other nations refuse to agree to their dellusion.
Is there a currency problem? No there is not.
Is their an honesty problem? Yeah big time.
Who gets hurt? Everybody.
What can you do about it? End Deficit Spending!
Live within your means and treat everyone with the respect and honesty they deserve. Everything else will fall into line. If you continue to be dishonest and greedy, well history has many examples of what happens next.
In the recent history of China opening its borders economically, it has talked about reducing its use of the dollar for imports. Part of the rhetoric has been the concept of a "basket of currencies", i.e. relying more on the euro. It's this type of talk that raise hackles on high, not the fact that their labor practices are grossly unfair by American standards.
I am afraid I have to agree to Disagree with you on this statement,
"So what is the problem? There is none!"
The Biggest losers from this QE /Beggar Thy Neighbour policies are Citizens of those countries which actually use those paper currencies.The purchasing value of their currencies drops and drops dramatically every single month.Until a point is reached when it becomes pointless to save any cash[Which is the ultimate goal of all Western Central Bankers-The Ones in the US and UK mouth it openly].The unfortunate outcome of this is not just specualative bubbles like what we are seeing today but also destruction of productive Capital and capture of Productive Capital by the most non-productive entitity of them all-The State.
Wish this Fiat Money nonsense could collapse over-night.And all those debts(which will never be paid back) be declared null and void.So the world can just move on and forget this entire.Unfortunately with the Global Banking Cabal in charge its not going to happen soon.
Thanks. Yes you are right in a mercantalist economic expansion such as that launched by China, it is hard to determine how much of the value creation comes through hard-work and ingenuity and how much of it comes from the fact that many laborers can be exploited to work for pennies per day for a government that can control currency movements against Western trading partners.
And it looks like the whole thing should come to a head pretty soon...
"So what is the problem? There is none! Each currency has a percieved value between the buyer and seller."
Actually, it's a huge problem. The state goal of central banks is to maintain price stability. If the lack of price stability becomes a global problem (which it has), then they are failing that goal.
You said you are a "part-time historian" -- well if you look at economic history, states that have failed to maintain currency and price stability have resulted in terrible economic failures, and in many cases, war: Take a look at Weimar Germany, Russian Debt Crisis, Argentina, e.t.c. Is that the kind of economic world you want to live in?
Yes, we could shrug our shoulders and say, "well, stuff happens," but the point is that the volatility and currency debates are a symptom of deeper problems that need to be resolved if we want to return to a stable economic path.
The value of the dollar to a given nation state has had more to do with the value of having the United States in its court than anything else. There was some talk recently about reintroducing gold as a partial anchor against currency swings.
Great blog, Scott. All the efforts of stabilizing economies has had the exact opposite effect on currency. It is particularly worrisome that the 800-pound gorillas (with apologies to the EU) in this scenario have such polarizing views on how to manage the situation. As one of our moderators points out, it used to be "value" was determined by supply and demand of goods and services. I'm not sure that's the case any more. I think "value" is becoming like "green"--it's over-used and when you dig down deeply enough, you find it doesn't mean anything specific. Or it means different things to different people. In either case, it's a tenuous situation for those providing goods and services.
As a part time historian, I can tell you that the current world currency manipulations are just as volatile today as they have ever been. The only difference today is that we have everyone talking about it daily with world wide communications and confusing the currency issues with useless banter and allegatiions of currency manipulation.
Throughout time, the value of goods and services has been negotiated between the buyer and the seller. The face value of a currency is only important within the minter's political domain and the ability to ensure or enforce its worth in daily trading within its local market. As soon as the currency leaves your country, you have to negotiate its value relative to the currency in use where you go.
So what is the problem? There is none! Each currency has a percieved value between the buyer and seller. The percieved value for each currency is constantly changing due to world events, that's it. If the buyer is unwilling to pay for your goods and services, then the deal is over or you negotiate a compromise. QED!
What the world is struggling with currently is the perceived value of each groups currency in relationship to the goods and services each group offers. If the buyer is desperately in need of the goods or services, then the price goes up. If the buyer has many places that offer the goods or services, the price goes down. If you try to fix the costs or value of a given currency, then you create a furtile "Black Market" for goods and services.
Meanwhile, the bickering will continue, as will the currency manipulations, tax incentives, governement subsidies, etc, until someone comes up with a more sane method of dealing with diverse cultures and the different perceived value for goods and services.
I truly agree to your thoughts that currency volatility is threat for global business. I guess US dollar is really going down in last two years. May be it has not yet come out of recession fully. I remember just one year back USD was higher to candian dollar and now its the other way round.
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You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
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